Let’s talk about speculation.

July 30, 2008

Anyone else damn near have a heart attack the last time they filled up the grocery-getter? I managed to fill up my car a few days ago for $3.53 a gallon and it was still over $40 to do it. We’ve heard all sorts of reasons that gas is so high, but one of the biggest things pushing it up is speculation.

Energy (including gas) is a tradeable commodity in the U.S. This means that it’s treated by Wall Street like corn, wheat, beef, and many other commodities. How it works is, with enough money and a broker, you can buy, say, wheat from a crop that hasn’t been harvested yet. PJ O’Rourke once said that the commodities market is a place where you can buy 1000 pork bellies and still starve to death because you lost all of your money playing in the commodities market.

Unfortunately, the jokers at Enron gave everyone a graduate level course in how to game the system. Let’s say that I’m a company that produces gasoline. I know that I can produce 100 billion gallons in the next 30 days. I have a smaller company under the same umbrella go and start making offers to buy gas futures for a higher price than the current one. Once this (and other companies under my control) do this, I then instruct them to keep it up. The high level of activity in an upward direction encourages others to do the same. Finally, by the time the gas goes from being a future commodity to a present one (i.e., in the tanks at a convenience store) the price is jacked up to Jesus and I laugh all the way to the bank. If I’m saddened by the plight of the American people that are hurt by this game, I go home and cry into a giant sack of money.

This is, of course, known as “price fixing” and the people who do it are known as “felons”, but as with any other crime, it isn’t a crime until you get caught and convicted. If you can do these transactions at lightspeed over a data network 100 million at a time, the only way you can get caught is if someone is monitoring the electronic transactions. Of course, if someone is monitoring, the jig would be up in no time. So if you are a big energy company wanting to game the system, what do you do? Get congress involved! The Commodities Futures Modernization Act had a loophole slipped in by Phil Gramm that would allow trading on Energy Commodities Markets to be free from government regulation.

So the next time you see the new Pat Roberts ad (I’m not linking to it or embedding it; I’ll be damned if that rat bastard gets hits from my blog), remember that gas taxes aren’t what have us in this merry mess, it’s Republicans like Roberts looking out for their corporate buddies to get rich off of our money that really got us where we are now.

And the next time you get that feeling that the news broadcasters like to refer to as “pain at the pump”, it hurts when you’re being screwed by an elephant.

Bread, peace and freedom.

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