Posted on 09/29/2008 8:17:08 AM PDT by TigerLikesRooster
Bailing Out The Oil Market
William Pentland, 09.23.08, 11:35 AM ET
While everyone knows the U.S. government is looking to bail Wall Street banks, few people realize that it's also bailing out speculative oil and commodities traders in the process, fueling a sharp rise in energy prices.
Lehman Brothers and AIG held enormous trading positions in commodities markets. If those positions had been liquidated suddenly, the price of everything from wheat to oil would have collapsed. The Commodity Futures Trading Commission, the main regulator of U.S. commodity markets, allowed Wall Street's investment banks and trading companies to take control of massive positions in commodities markets called swaps held by Lehman Brothers and AIG.
The result: Oil prices spiked by a whopping $16 per barrel on Monday, the largest single-day rise in oil prices ever.
"If speculators were forced to liquidate their positions, oil would easily be $65 to $75 per barrel by the time the liquidation was complete," said Michael Masters, the founder of Atlanta-based hedge fund Masters Capital Management. Tuesday, oil was trading at $108.74 in midday trading in New York.
For all the talk of OPEC, the biggest threat to high oil prices in the short term might be the implosion of Morgan Stanley or Goldman Sachs, which would trigger a massive number of low-priced oil-futures contracts to flood the market all at once in search of buyers to liquidate those contracts.
(Excerpt) Read more at forbes.com ...
Ping!
Interesting article. I’m skeptical that it would lower oil that much, but who knows.
But ... but ... but ... we were all told that speculation was not a factor in the oil price spike, that it was all supply and demand. Go figure. And the worst part is, after the likes of Lehman, AIG, MS and GS hosed us by jacking up commodities prices, the government will cushion their fall with our tax dollars. Are we the chumps or what????
“We are too big to fail. If we fall down, you die. Now give us your money and you will live for another day.”
This all seems very fair. (sarc)
Bastards! Bailing out housing, commodity, and energy speculators with our tax dollars!
Ain't life in the United Socialist States of America grand?
. . . . .
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What I heard was Lehman was sort of a clearing house for hedge funds. It did the trades for them
Oil is currently at 100.22 and is probably going under 100.00 by tomorrow. Guess what. No earthquakes, no lightning, no fire from the sky...
I knew it I just knew it!
There is, obviously, a world wide economic slowdown looming. Demand for oil will decrease. Prices will fall. We have seen deflation in the housing market. Logic and common sense would dictate that deflation will spread to other commodities through decreased demand and a perception that prices are going down in the future.
Lehman's demise hits growth prospects of hedge funds
Banks like Bear Stearns and Lehman Brothers were the prime brokers of hundreds of hedge funds. With the collapse of these banks, the funds have to scout for ...
www.siliconindia.com/shownews/46813 - 46k - Cached - Similar pages - Note this
Lehmans Failure Is Another Blow for Hedge Funds - Mergers ...
Sep 16, 2008 ... Dealings through Lehman’s prime brokerage business were also suspended on Monday , which will have caused problems for some hedge funds, ...
dealbook.blogs.nytimes.com/2008/09/16/lehmans-failure-is-another-blow-for -hedge-funds/ - 49k - Cached - Similar pages - Note this
I’d like to try that with the local BM
John Mauldin said that commodities are the last leg of the four legged stool: credit, equity, property and now commodities.
I wondered what would happen to the investment banks that had tons of money pumped into the commodities market. Now we know.
Repeal Sarbanes Oxley and let the market be normal again!
What will happen when commodities prices fall off as the other sectors did? I am concerned about cash-rich companies coming in and buying American assets at bargain prices (think Saudi Arabia, Kuwait, Qatar, etc.).
That’s been happening for a long time. Remember when Japanese interests bought Sony and the Empire State building? They got hosed.
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