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Saturday, April 02, 2005

Reality will triumph

That doesn't mean, however, that we're actually seeing it now, or even that we'll be able to see reality's inevitable intervention which will put a halt to our wasteful, deadly energy society.

A remark from my brother Jim combined with a few articles I read yesterday reminded me that there's a huge, ongoing effort to conceal reality for the benefit of the wealthy few. And while I believe that oil and other energy sources are finite and running out quickly, and that even if they weren't continuing to use them at the rate we are now is likely to destroy the planet as we know it--it doesn't necessarily mean that the rapid rise we've seen in oil and especially gasoline prices the last three days are the hand of reality taking control.

What Jim said was, more or less, "If there's money to be made, it will happen. The wealthy elite will do anything that promises to make them wealthier." (My favorite Montgomery Burns line: "I'd gladly give all of my wealth for just a little more.")

As for what I read--first, there was an article on CBS Marketwatch about the spike in oil prices. These paragraphs caught my eye:
"The reason for the move higher is clear," said Kevin Kerr, president of Kerr Trading International. "The Goldman Sachs analyst report signaling $105 crude jolted the market.

"Clearly, the oil market is bullish in the long term. However, to suggest that it will happen in some mythical 'super spike' right around the corner is pure fantasy."

Kerr suggested that Goldman's large position in energy derivatives may have prompted the report.

"That may be more the motivation of this story and account for the timing of it as the oil prices were correcting a bit," he said.
It is fairly common to hear accusations of manipulation by the major players in securities (and Goldman Sachs certainly is a major player) coming from lefty writers and maverick politicians. But I think it's unusual to see such a blunt accusation coming from another player, and especially to see it printed in the usually sycophantic market media. But there's certainly a history of such market manipulation (it may well be the rule rather than the exception). So there is a very real possibility that much of the current rise in oil prices is the result of self-serving manipulation.

Next, there was this article by Susan Mazur in Counterpunch. She argues that major pension funds like Calpers (California state pension fund) are heavily invested in energy stocks, in more ways than one. First, they directly own large chunks of stock in the oil majors, whose stock prices have been rising along with the price of oil. Secondly, they have large amounts of money in S&P index funds, which are about 20% invested in the energy sector. And finally, they have been investing through secretive private equity firms, including the infamous Carlyle Group. Here's a selection from Mazur's article:
Calpers has agreed to its pension funds being invested in hedge funds as well; Lacera has not. But Calpers and Lacera are each invested in Carlyle Group, Blackstone and other private equity firms. "And once they [private equity firms] have the funds," said the source, "they can do almost whatever they want with them domestically."

And they have! This is what Catherine Fitts calls "the Tapeworm". And the Tapeworm got a lot fatter this week with the teaming up of most of the country's private equity firms in an $11.3 billion buyout of Wayne, Pa.-based SunGard Data, a company that services Wall Street's trades and processing of transactions. What does this say about the deck being stacked?

The players were: Blackstone Group, Texas Pacific Group, Kohlberg Kravis Roberts, Providence Equity, Goldman Sachs (private equity) and Bain Capital (founded by LDS celebrity Mitt Romney, who seved as Bain's CEO before becoming governor of Massachusetts (Suzan Mazur: Bush And The Mormons)). This consolidation of private equity money has been going on for a couple of years, but the SunGard Data deal was the show stopper.
So, there are some powerful and connected people controlling billions of dollars with a major interest in high energy prices. As Jim suggested, this by itself may be sufficient to cause prices to spike. On the other hand, it seems as though there have to be some equally powerful forces, with stakes in the auto companies and airlines and such, who are trying to get fuel prices back down. Most of us, of course, are just observers or pawns in this battle of the titans.

One thing I imagine both the expensive-oil titans and the cheap-oil titans agree on is any manipulation which inflates stock prices generally. The big push for 401-k's in the nineties brought billions of dollars into the stock market, and Bush's plan to privatize social security is an attempt to keep what's left of the bubble from popping as many of those nineties investors become retirees and start drawing down those 401-k's. Apparently, the war in Iraq is another such cynical ploy, according to this article from Stan Cox. Cox reveals a portion of a Pentagon memo which mistakenly fell into his hands. It states that most of the $18.4 billion approved by Congress for the reconstruction of Iraq has actually been "invested" in stocks, supposedly in "personal accounts" on behalf of Iraqis who voted in the January sham election. The memo describes how this was done:
the scenario with greatest potential was investment in a medium-risk portfolio of U.S.-based securities. To accomplish this without incurring excessive and unwarranted scrutiny, the Secretary issued a classified order creating the Office of Special Brokerage Services (OSBS), to which management of the reconstruction funds was assigned. The OSBS, quietly through third parties, purchased approximately $5 billion in stock in February, 2004. Another $9.2 billion was invested the following month.
Now, I haven't seen this reported anywhere else--I guess it could be satire, although Cox doesn't present it in a way that really suggests that. It certainly fits in with pretty much all of the Bushie schemes--take tax money out of any programs which benefit people (American or Iraqi) and give it to their friends on Wall Street.

Anyway, the whole point is that while reality will inevitably intercede, it may be hidden behind so many layers of obfuscation that we'll never really know the reality of reality's role. We're all watching a poorly-directed play without a program. The ushers regularly fleece the audience, and the action on the stage frequently spills over into the crowd, causing injury and death. The play is so poorly run, in fact, that it threatens to burn down the whole theater and everyone inside (the actors have already exhausted most of the fire extinguishers usig them as crowd-control devices). Some in the audience have started to realize the situation and would like to leave, but all the doors are locked and blocked by armed guards. While the actors and producers of the show are few, the huge audience is either too befuddled (that would be the Americans) or too far from the stage to stop the show. So the actors just do more and more outrageous things, seemingly oblivious to the fact that they're trapped in the same theater as the audience.