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To: SAJ

Ironically, raising margin requirements could actually push UP oil prices by inadvertently aiding the “speculators,” which really these days are pension funds like CalPERS and Hermes (UK).

They buy packaged commodity index deals structured for them by the big investment bank, which are “fully funded.” In other words, Calpers puts up the entire price of the futures contract, of which 5% gets put “down” for the margin requirement and the rest is invested in treasury bils, etc. Raising the margin requirement would only trivially reduce the actual return for the index fund investment.

On the other hand, raising margin requirements would devastate the real speculators, who are needed to come in as shorts against the overwhelmingly “long” positions of the pension funds. Bottom line, sharply fewer sellers and just as many buyers. Result: more price increases.

The deck is stacked against the sellers, who mostly are still subjected to position limits whereas the pension fund “longs” are exempted since they go thru swaps dealers who are treated by the CFTC as if they were “commericals.” The game is heavily rigged to the long side.

The dirty little secret is that the government likes high oil prices (to screw the Chinese). You could claim the givernment ain’t smart enough to rig a market this big. But if you have the Ruskies, the Saudis and the oil majors by the balls, and can channel enough government-run pension money into the market, you can run prices to the moon and back at whim by tinkering with a few of these arcane market regulations. The truth is that the gummint can’t be this STUPID as to let these terribly flawed policies continue in effect for years and year while market prices go crazy. Its a bidness plan.

BTW, I wonder what the REAL story is behind all those CalPERS honchos bailing out recently en masse. Maybe they couldn’t take the guilt of what they’ve been asked to do.


33 posted on 05/23/2008 2:04:03 PM PDT by Tenega
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To: Tenega
Yep, quite right. The abuses of customised index products is rampant...but then again, we're talking about such folks as Goldman Sachs, so what the hell do you expect, eh?

Simple solution. CALPERS, et al., have no effing business in spec mkts in any case. Just enforce ERISA (what?! the gov't ENFORCE something except when convenient? Shocking, simply shocking! Cue Claude Rains...), and hit them over the head with ''prudent man'' doctrine.

Won't happen, of course. But it should.

35 posted on 05/23/2008 2:39:21 PM PDT by SAJ
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