Guest Post: Goldman’s Global Oil Scam Passes the 50 Madoff Mark

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Thu, 11/12/2009 - 11:00 | 128418 John Self
John Self's picture

I'm not sure it's correct to say ICE is outside of the reach of U.S. laws.  While it's true that it started out overseas -- in London, I think -- it now has a significant presence in the Atlanta area and I believe is now within CFTC jurisdiction.  Both ICE and NYMEX have been actively involved (read:  lobbying) with the development of the new derivatives regimes.

Thu, 11/12/2009 - 11:15 | 128437 Shiznit Diggity
Shiznit Diggity's picture

The squid is doing the world a favor by jacking up the price of oil. Peak oil is imminent if not already upon us. We need to get our arses in gear and deal with it. In this case, Lloyd is right about the squid doing the Lord's work.

Thu, 11/12/2009 - 11:49 | 128494 Anonymous
Anonymous's picture

Peak Oil is imminent?? You're kidding, right?

Thu, 11/12/2009 - 12:57 | 128584 Assetman
Assetman's picture

We had a similar condition developing with natural gas less than 10 years ago in the North American market.  Because of technology developments in exploitation (specifically in shale formations), we now have what is estimated to be an 80 year supply.

If exploration and exploitation techniques in the drilling business evolve as one would expect, we will eventually run into reservoirs that we thought never existed.  Case in point is offshore Brazil.  Antartica might well be another.

Thu, 11/12/2009 - 17:41 | 129004 Anonymous
Anonymous's picture

Faith in technological progress is quite risky business. Remember the projections for flying cars in the '50s? Fusion power is just 20 years away, right? The cure for cancer is in sight?

The question is not whether the oil is there, it's whether or not it can be economically extracted, both in monetary and energy terms. Offshore is risky and capital-intensive, not something you wanna count on for the master-resource of the global economy.

Environmental effects from non-traditional sources are also an issue, as evidenced by the Niger Delta and the Alberta Tar Sands. How much are we willing to pollute in order to maintain a declining status-quo?

I'm sure the ancient Maya thought they could endlessly clear the forest for increased food production, until they depleted the soil and their civilization collapsed. I'm not a proponent of the Dieoff worldview, but it illustrates the point that just because we can doesn't mean we should.

For an alternative perspective on shale gas reserve estimates, read some stuff by Arthur Berman. The fact that he was recently silenced by the industry should send up red flags.

Thu, 11/12/2009 - 13:02 | 128593 Shiznit Diggity
Shiznit Diggity's picture

Many believe so, myself included. Some disagree. Time will tell who is right, but even if peak oil is a couple of decades away as the IEA projects, it's better to start preparing sooner rather than later.

Fri, 11/13/2009 - 01:30 | 129413 TumblingDice
TumblingDice's picture

Peak oil already happend dude. The survival of our species is at stake. Think for yourself. Even if the manipulators are perpetuating this theory that doesn't make it false. A broken clock is right twice a day and this time it certainly is. Efficiency is going down, as well as production now. It will be an exponential decline is harvested energy.

Thu, 11/12/2009 - 13:35 | 128633 Anonymous
Anonymous's picture

Dude, PO is soooo...2005.

Thu, 11/12/2009 - 13:37 | 128638 Anonymous
Anonymous's picture

The 1973 oil crisis was about "peak oil". So was the 1980 oil crisis. Same hysteria. It's bullshit now just like then.

Thu, 11/12/2009 - 17:12 | 128971 Anonymous
Anonymous's picture

Well, technically the early '70s was the peak of Continental US production, so I'm not sure your evidence supports your point.

Hysteria overblown? Yes. Peak Oil bullshit? Not on your life.

Thu, 11/12/2009 - 20:47 | 129200 Anonymous
Anonymous's picture

THERE IS NO PEAK OIL PROBLEM.YOU HAVE FALLEN FOR ANOTHER MANIPULATION.
SEARCH THE TERM ABIOTIC OIL. OR YOU CAN GO ON BELIVING ALL THE WORLD'S DINOSAURS DIED OFF IN MASSIVE HERDS AND CONVENIENTLY
ALL WERE TURNED INTO CRUDE OIL. WAKE UP AMERICA.
"THEY THAT FORGET HISTORY ARE DOOMED TO REPEAT IT"
BRAVO 7

Thu, 11/12/2009 - 21:05 | 129222 Anonymous
Anonymous's picture

It wasn't dinosaurs that died, it was massive ancient forests and swamps.
Also, why are you screaming? Are we supposed to take you seriously because you can push caps-lock?

Thu, 11/12/2009 - 11:15 | 128438 aint no fortuna...
aint no fortunate son's picture

Why don't we cut out the middle man and just send our tax returns and payments to Goldman? Really, in the long run it would be so much simpler. And Jamie Dimon can get the sales taxes on gasoline, heating oil, diesel, aviation and marine fuel, nat gas. 

Thu, 11/12/2009 - 12:55 | 128579 rigger mortice
rigger mortice's picture

'Why don't we cut out the middle man and just send our tax returns and payments to Goldman? Really, in the long run it would be so much simpler.#'

 

lol!!!!!!!!!!!!!!

Thu, 11/12/2009 - 11:21 | 128442 max2205
max2205's picture

The Government rally seems weak in the knees now that there is talk of using the $800 B in TARP monies to pay down the deficit, what, sell out of stocks and pay off the deficit, GS must be pissed.

Thu, 11/12/2009 - 11:23 | 128445 lizzy36
lizzy36's picture

And because all former squid CEO's have 9 lives, Corzine in the running for CEO at BAC.

Thu, 11/12/2009 - 11:27 | 128452 Careless Whisper
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that's so he can destroy one more of the squid's competitors.

Thu, 11/12/2009 - 11:51 | 128499 SDRII
SDRII's picture

It's the new American way: reward the losers

Thu, 11/12/2009 - 11:55 | 128505 deadhead
deadhead's picture

in some ways I hope you are correct Lizzy. It would be the ultimate jump the shark for the wall st, banking, fed, treasury complex.

i'm looking forward to when that group gives the order to invade your fine country, expropriate the oil and all your maple leafs.

 

 

Thu, 11/12/2009 - 11:24 | 128448 Anonymous
Anonymous's picture

How else are GS going to make their $100 million a day profit ?

Thu, 11/12/2009 - 11:25 | 128449 Anonymous
Anonymous's picture

I can't wait for carbon trading to begin

Thu, 11/12/2009 - 11:27 | 128453 Anonymous
Anonymous's picture

"The exchange was set up to facilitate "dark pool" trading in the commodities markets."

wow. i'm speechless. this might be a single most idiotic sentence i've seen this year. c'mon ZH, tighten up your ship.

Thu, 11/12/2009 - 15:13 | 128785 mberry8870
mberry8870's picture

Agreed, A tad bit of hyperbole in order to display a pedestrian understanding of the issue.

Thu, 11/12/2009 - 11:32 | 128461 Sqworl
Sqworl's picture

Revolving door...loser goodie bag from government.

Thu, 11/12/2009 - 11:47 | 128488 A Man without Q...
A Man without Qualities's picture


Thu, 11/12/2009 - 11:47 | 128489 A Man without Q...
A Man without Qualities's picture

"They just ratchet up the price with leveraged speculation using your TARP money. This year alone they ratcheted up the global cost of oil from $40 to $80 per barrel."

This is the ranting of a madman....

Thu, 11/12/2009 - 11:50 | 128495 Robb
Robb's picture

Sick!

Thu, 11/12/2009 - 11:50 | 128496 Anonymous
Anonymous's picture

Not to worry there are pledges and comitments

Aug. 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, named today to a second term as central bank chief, pledged to work toward restoring stability to financial markets and the economy.

“I will work to the utmost of my abilities” to help “provide a solid foundation for growth and prosperity in an environment of price stability,” Bernanke said today in a Martha’s Vineyard, Massachusetts,

Thu, 11/12/2009 - 11:52 | 128500 curbyourrisk
curbyourrisk's picture

No justice til Goldman trades at ZERO.

Thu, 11/12/2009 - 11:52 | 128503 Gimp
Gimp's picture

Rome is totally bought and paid for, such a shame.

Thu, 11/12/2009 - 11:57 | 128511 Anonymous
Anonymous's picture

Praise the Lloyd!

Thu, 11/12/2009 - 12:04 | 128519 Yossarian
Yossarian's picture

So, if this is a Ponzi the question becomes when does it end?  It seems there are only two ways: a collapse in spot caused by a large decline in demand at a time when storage is limited; or the inability of the financial players to keep funneling capital (wrong word, maybe just dollars) into the futures markets.  With China stimulus encouraging more VLCC's and The Fed intent on supplying GS/JPM/MS with unlimited amounts of free dollars, it seems like this can go on for quite a while, at least until the gold-bug fiat collapse comes about.  And when that happens at least they will have all of the oil/gold/copper/fertilizer/food/lumber/land to continue extorting the masses.  Or maybe- just maybe- we will turn off American Idol, CNBC, and MSNBC (besides Dylan Ratigan) and force a change.  Ron Paul we NEED you. 

Thu, 11/12/2009 - 12:08 | 128524 steve from virginia
steve from virginia's picture

Uh ... 'Round trips' (or check kiting as Chris Martenson calls it) are found in all markets. It's a good way to pump up velocity as well as a balance- sheet steroid. As for the derivatives created; at some point they would be converted to cash provided there is sufficient cash.

Conversion to cash (or cashing out or rats abandoning the sinking ship) is behind the market/stimulus dynamic of today. From that viewpoint, ICE serves to keep the ordinary futures/cash markets stable, the better to facilitate cashing out.

Look at today's markets and see if you come to a similar conclusion. If you do, best to close out any dollar- short positions.

:)

Thu, 11/12/2009 - 13:01 | 128590 Yossarian
Yossarian's picture

Can you please expand on this for the layman- thx.

Thu, 11/12/2009 - 12:15 | 128531 ShankyS
ShankyS's picture

Glad you picked this one up. Nice post Phil.

Thu, 11/12/2009 - 12:17 | 128533 Anonymous
Anonymous's picture

I hear that once Cap and Tax passes, there will be a 10 cent fee for each breath.

The money will go to Goldman Sachs and to the Obama Administration to pay for Stimulus Plans number 2, 3, 4, and 5.

Thu, 11/12/2009 - 12:31 | 128554 Anonymous
Anonymous's picture

ok so if big oil controls the price of oil, why did they let it collapse last year?

Also, are they ratcheting up the price of the metals too? the euro? sugar ratcheting maybe?

Thu, 11/12/2009 - 14:28 | 128704 One Eyed King
One Eyed King's picture

It wasn't just oil that collapsed last year. The whole worlds economy slipped into reality for a bit. I would suggest you focus on the numbers & not debunking the 'crazy conspiracy theorist's' and you might broaden your knowledge of the issue.

Thu, 11/12/2009 - 12:39 | 128562 Anonymous
Anonymous's picture

This will end when the price of oil drives many companies out of business. The unemployment roll is the big equalizer. 2010 is going to bear a bust companies going out of business will not pay rent CRE will drop further. More unemployment more people not paying the mortgage or rent. Fannie Mae renting to past homeowners competes directly with apartment owners less rent.
Goldman Sachs is smart at making money will they be smart enough to keep the game going. Different set of skills with a 12% unemployment rate, Goldman sponsored soup kitchens? Empty buildings turned into homeless shelters ala Goldman, doubt it.
The Government has yet to realize that they are the problem. Goldman Sachs is just a bedpartner of the status quo which will change, what we cannot predict is the damage when it changes.
You can offer 1.2Million people loan mods but how many of those people are going to be resourceful enough to complete the paperwork without someone holding their hand. Think about all the free tax filing services and still people are lax with paperwork.
Human beings will do what is best for them, avoid paperwork, make promises and move out whenever you have a better situation.

Thu, 11/12/2009 - 12:47 | 128568 Anonymous
Anonymous's picture

Nymex has swaps too, called WS. They are the exact same thing with same position limits. You can not move a physical market if there are no real buyer at the end of the day. Ever hear of basis? Come on man.

Thu, 11/12/2009 - 13:05 | 128598 Yossarian
Yossarian's picture

But aren't we essentially captive buyers in the short-term (LT economies adjust their behavior to a higher price) and the marginal reduction in demand from the real economy is made up for with stored crude.  Eventually that crude needs to find a buyr but if you're GS/JPM sitting on a lot of crude would you dump it on the market or create a new collateralized asset class composed of oil assets that you can dump to pension funds, sovereign wealth, etc.?  

Thu, 11/12/2009 - 12:51 | 128574 bugs_
bugs_'s picture

Love the new "madoff" unit.  How big is social security in madoffs?

Thu, 11/12/2009 - 12:52 | 128576 Anonymous
Anonymous's picture

3Com Option Trades May Have Been More Than ‘Luck’
http://www.bloomberg.com/apps/news?pid=20601109&sid=a4C7u2V_HwJQ&pos=12

"Goldman Sachs Group Inc. advised 3Com on the transaction, while Morgan Stanley helped Hewlett-Packard, according to"

Ha, if I could be as "lucky" as Goldman

Thu, 11/12/2009 - 13:06 | 128600 Gunther
Gunther's picture

The tone of the article is a bit misleading.

During most of the run-up in the price of oil there was almost no spare capacity; ALL producers were pumping flat out. Right now there is some spare capacity and the price came down. Without a tight physical market a purely financial manipulation can not work.
Right now there is no shortage, but during the run-up there was!
The storage of oil on tankers is some 1.5 world production days, not that impressive.
EIA supplies storage data in for the US. The low was  at September 10, 2004 at 17.2 days supply and the high in Feb '83 at 34.2 days supply.
http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W_EPC0_V...

Thu, 11/12/2009 - 13:29 | 128626 adinfinite
adinfinite's picture

why are people still acting like this is news? Its amazing how we all see the thing right there on our screens, in numbers, and our common sense tells us whats going on but we say or do nothing. Then some guy writes about it ( although replete with inaccuracies) and we all express horror? LOL. Trade. Take care of your families. 

Thu, 11/12/2009 - 13:33 | 128629 Anonymous
Anonymous's picture

As per Diggity's comment "The squid is doing the world a favor by jacking up the price of oil. Peak oil is imminent if not already upon us." I disagree. I understand what he's saying, and I agree that replacing oil is ultimately advantageous, but any long-term benefit of price manipulation is incidental and, more importantly, unreliable.

First, the manipulation is likely to whipsaw prices to squeeze money from the market without regard to ecology or efficiency and with the ultimate goal of crippling, or at least exsanguinating, the all players.

And second, I'm no longer convinced that "peak oil" is the issue in the larger context. Rather, the issue is energy and there may well be viable and ecological alternatives. The question is how to incentivize their development, and for that it would seem that the freest possible market would be the best approach.

By "free market" I mean free not only to trade and to price, but also fee in the sense of free to make accurate long term projections which requires a free press, transparent accounting, and fungible assets (so as to support low cost reallocation). In short, free in the larger "free capitalist market" sense.

It is bad to argue that price manipulation is good. It is an argument that would warm the cockles of GS's ice heart.

Thu, 11/12/2009 - 13:36 | 128635 Anonymous
Anonymous's picture

"Without a tight physical market a purely financial manipulation can not work. " ------- It works best if you can spread rumors about attacks on Iran. However, that does not mean that it still works demand plummets like it is has now. Compare for instance, the price action in the Baltic Dry Index as compared to the action in oil.

Also, Phil fails to mention the USO put. USO publishes when they will purchase oil every month, so you can drive up the price into their purchases.

This way the USO, the way that pensioners, grandmothers, average joe, and unions invest in oil, is the ultimate bag holder for the traders.

You might say that the whole scheme is a tax on oil that goes to Wall Street instead of a tax that goes to the US gov't. Golly it'd be good to collect a tax on oil!!!

Thu, 11/12/2009 - 18:56 | 129109 Apocalypse Now
Apocalypse Now's picture

Fantastic point

Thu, 11/12/2009 - 13:36 | 128636 Anonymous
Anonymous's picture

too much money/credit chasing too few goods/contracts. Sound familiar? Lots of bored traderss with lots of cash sloshing around the globe. Give a guy a cheap computer, hook him up to the internet. give him lots of govt guaranteed doe and whoppee!! Hell of a lot easier than working construction. restrict credit and increase the price of credit, problem solved.

Thu, 11/12/2009 - 13:39 | 128643 Blues for Dante
Blues for Dante's picture

Wait until they figure out how to manipulate the "clean & usable" global water supply, then were all f*@ked. Instead of trading millions of barrels of oil, they'll be trading billions of gallons of water. And you can't just consume less water, or switch to a different resource. Once control over supply and distribution of water is handed over to the private sector, this process can begin. 

Bottled water is currently a $12 billion industry in the US alone. TWELVE BILLION DOLLARS! On bottled water! And that's a tiny fraction of total consumption. I know people who refuse to drink tap water... and some of them are not what I would call well-off. If people are dumb enough to pay for a free resource, then surely they can be gamed into believing water price fluctuation is due to a supply issue. There's a lot of money waiting to be made.

 

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