By Amy Silverman
By Olivia LaVecchia
By Monica Alonzo and Stephen Lemons
By Chris Parker
By Michael Lacey
By Weston Phippen
The futures market would be policed for the next 70 years — until that night in 2000, when Phil Gramm handed the keys to Enron, Goldman, and the Kochs. The amendment passed without hearings or public notice. Democrats, practicing their patented brand of acquiescence, were happy to ride shotgun. President Bill Clinton signed it into law.
They were "bipartisan, effete snobs who thought they knew better than everybody," says Mark Cooper about Congress. He's the director of research for the Consumer Federation of America, among the many who warned Washington that it was playing with matches near dynamite. He'd soon be proved spectacularly correct.
Gramm's amendment became known as the "Enron Loophole," named for the criminal empire that was then America's seventh-largest company. Though Enron would soon crumble in a heap of avarice and fraud, Gramm & Co. had unleashed the parasites, allowing them to prey on American commerce.
Prior to the change, speculators generally were kept to no more than 30 percent of any given market. Anything beyond that became dangerous. That's because they have no concern for the things they're buying or the people who use them. They're simply betting on price swings. The more volatile the market, the more money they make. Most sell well before they'll ever take delivery of, say, a load of sugar.
Yet Congress had set them free. Banks like JP Morgan and Lehman began to rally large, institutional investors to bet on oil. It took them just five years to pervert the market's very purpose. By 2005, they'd set off a buying frenzy that launched prices into the stratosphere.
Sherri Stone, vice president of the Petroleum Marketers Association of America, likens it to buying a home. Under normal conditions of supply and demand, you might have a few other people bidding for the same house. "But with speculation, now you have 200 other people bidding for that house. You're going to pay an enormous price for this house."
By the time the economy began to collapse in the summer of 2008, speculators had cornered a stunning 81 percent of the oil market. Some had even begun to hoard fuel, just as the robber barons had done a century before. Olav Refvik, a top trader at Morgan Stanley, became known as the "King of New York Harbor" because he was leasing so much storage space.
Yet the bankers' incompetence once again would prove dangerous to themselves and everyone else. They already had sabotaged the housing market. Artificially high fuel prices were the second prong of their attack.
The U.S. economy was officially in free-fall.
Think of Wall Street banks as not much different than your neighborhood bookie. After all, there's little difference in betting on Starbucks stock or a Dodgers game. The smart ones realize they can make a handsome living just sitting back, wisely setting odds, and making a killing off the transaction fees.
But what separates the two is that bankers violate a cardinal rule of the bookmaking trade: They're degenerate gamblers themselves. And history says they're very much in need of adult supervision.
In just the past 25 years, the financial industry has gone from the savings and loan crisis to the tech stock bubble to the accounting fraud scandals to the mortgage industry collapse. Pepper in a ceaseless string of criminality — from Drexel Burnham to MF Global — and you realize the industry routinely has set off large bombs in the U.S. economy for a quarter century.
Worse: The pattern is accelerating.
This reign of depravity just happens to correspond with deregulation, the legacy of Ronald Reagan. Surely, he was right to reduce the red tape and paperwork garroting small business, the nation's largest and most stable employer. But his disciples took it as a one-size-fits-all theory. The people benefiting most were those who could afford to buy senators like Phil Gramm.
Deregulation of the futures markets would solely serve America's greatest welfare queens, Big Oil and Big Finance. Over the years, both had purchased competitive advantages from Congress, making a mockery of the free market. America's five largest oil companies receive $20 billion in welfare annually, largely through tax breaks afforded to no other industry. Big Financiers pay half the personal tax rates of their brethren at community banks. Despite buying off the umpires, they still couldn't stand on their own two feet.
"Nine of the largest financial institutions in the world failed" in 2008, says William Black, a former bank regulator turned economist at the University of Missouri-Kansas City. "That should petrify people. All of them pulled the pin on their own grenades."
When the economy collapsed, speculators found themselves with a small problem. No one could afford to buy gas. In just a few short months, the price plunged from $147 to $30 a barrel.
Some good came from this. President Barack Obama soon would follow Sarah Palin's charge, increasing drilling in the United States. He also strong-armed Detroit into producing more fuel-efficient cars as part of their bailout.
Finally, the simple fact that we're still broke four years later has caused U.S. consumption to steadily decline. Today, America exports more oil than it imports for the first time since the 1940s.