Wednesday, October 08, 2008

ice ice baby

There was no football on tonight, and I did not look at the debates either for I felt I would one, be disappointed in Obama and two, McCain would confirm that he has a semblance of post traumatic stress disorder. Instead I did a few stochastic models of how much this pork, I mean bail out would cost us. I wanted to post it but couldn’t put the equations on my blog and better yet thought folks would not pay attention so im gonna write about something else.

Im tired of talking about the economy and the banking system on their own, but I got a few more things I would like to shit out of my brain. I have mentioned the Commodity Futures Modernization Act a few week ago in a post and attributed a lot of this current mess to it being slid in a omnibus appropriations act by the Senator Phil Gramm of Texas and signed into law in 2000 (Got damn Bill Clinton).

The Commodity futures modernization act seemed to have been designed to help two types of folk - banks and oil companies. Before it was signed into law, back in the old days, commodities were regulated. This regulation namely occurred under NYMEX, the New York Mercantile Exchange. NYMEX was the only and largest and principal spot for the commodity futures exchange in the World. But once the Commodity Futures Modernization Act was signed, it allowed for private entities such as oil companies and banks to trade futures without regulation. Again thanks to Phil Gramm who added a loop hole to the bill. Specifically a loop hole that allowed for the electronic trade of buying energy (like oil) in unregulated markets outside of the United States and the jurisdiction of the Commodities Futures Trading Commission. They call this the "Enron loophole" which I stated prior "was codified” via the Commodity Futures Modernization Act of 2000.

Im not just Blaming Senator Gramm and Bill Clinton, for then Fed Reserve Chair Alan Greenspan wanted this as well. Gramm did this for one of his large donors, specifically Enron (remember them) and the Act was designed to keep regulators from controlling space-age financial tools called credit "swaps." Just like sub-prime mortgages, swaps are bundled up and sold as securities. The Act also made it impossible for state and federal oversight boards like NYMEX or the Commodities Futures Trading Commission to examine investment banks or hedge funds to make certain they had the assets necessary to cover losses they were supposedly guaranteeing.

With Enron, we saw how the company shifted the trade of electricity online and as well what happened. Likewise, Oil companies and investment banks followed suit. Crude Oil was not introduced into the futures trading market until 1983. This is when we started to see how such speculation impacted the price of oil and ironically, we did not see the prices go up as before until 2000, when theses companies started to manipulate world oil prices and again ironically the same year the CFMA was signed into law.

Unregulated exchanges got us into this mess. The prefect example was when the Intercontinental Exchange (ICE), which has its headquarters here in Atlanta, came into existence. A tight knit bevy of Banks and oil companies including the likes of BP, Shell, Total, Morgan Stanley, and Goldman Sachs started the ICE. As of today, the ICE is probably the leading online marketplace for “global commodity trading, primarily of electricity, natural gas, crude oil, refined petroleum products, precious metals, and weather and emission credits.”

The real problem occurred when these said banks wanted to get in on the game too and started purchasing oil fields, pipelines and refineries which meant these banks, were now also considered commercial traders and that they could make such trades unregulated. This means that they could produce, distribute control and trade without scrutiny, what they themselves owned, meaning they could control prices as well – talk about a monopoly.

This is one of the reason why I cant understand the logic of folks who say drilling is the answer to our domestic and national security, I mean how stupid are Palin and McCain, who talk about drilling, when we wont see no final product for another ten years ago and when these banks and big oil companies can sell or trade oil anywhere around the globe.

This is why I believe Banks on Wall street don’t need to be bailed out or “rescued” and why Big azz Oil companies shouldn’t be getting am tax breaks when they really need to be taxed up the azz. They supposed to pay us royalties when ever they drill on our (public US lad) and they don’t. In fact many operate lease free. I cant do that as a small business owner, I have to pay for what ever space I uses as my retail outlet. Every time I re-read the CFMA I get sick to my stomach and think of Vanilla ICE, who sang that song Ice Ice Baby. They say he from Texas, I wonder if he was trying to drop us a few hits back in the day of things to come. vote


James Tubman said...

i cant believe im 1st


Urban Thought said...

Is it happening James.

Always leaving me with something to think about. I have to show this post to the folks in the office.

Great post.

TheophaniaPaige said...

I think I'm going to stick to reading your blogs at the end of the day. This is a lot for my newly woke brain to fathom. But I must say it gets the CSF in my frontal lobe flowin, lol...

Kofi said...

I want the ninety minutes I gave to my television last night returned. With interest.

I will watch the last debate only if Obama makes a serious mistake between now and then.

Which looks unlikely at this point.

Ed The Sports Fan said...

i definitely feel you about talking about the economy. at this point, just fix it and get over it. make my 401k look good again. this is my first read and i like it. Be easy folk.


mrs. mary mack said...

1st off, McCain and post traumatic stress and one an the same! just ravaged my brain again...I will revist this again later like I always do! LOL

Miss April Joy said...

I always learn something new and disturbing when I come to your blog, this is crazy.

MrsGrapevine said...

Now they are try to blame sub-prime mortgages for getting us into this mess. There is nothing wrong with sub-prime in and of itself, it's the ARM loans, the ninja loans, and the high ltv loans.

Sha Boogie said...

I agree - f that bailout, bailout folk who getting they electricity cut off and can't put food on the table..

Pajnstl said...

i learn more from you about the economy than i do in my global business class. All he does is talk about his travels. ugh.

And ummm I need a got damn bail out!

Jay Midnyte said...

Looks like oil might make a run back to the 150 area if the rate cuts have the same effect as earlier this year. What you think?

NoRegrets said...

my brain hurts.

RealHustla said...

You can scan an image of the formula and post that.

I need to see it.

Marcus LANGFORD said...

great extension of knowledge brotha. and the debates were definitely worth watching last night; it was rather entertaining (i know that's bad to say, but it was so hard to take seriously).

[associated mess©]

Jersey Girl said...

Even if we drill in every last corner of our nation and even if we DO see results in 10 years, it will STILL only increase our oil output by 3%. Hardly seems worth it to me.

I liked the solution I read, I think it was in Business Week or something like it... they said that the toxic loans should have put up for auction. That way, the banks with money could afford it and the others could either cast off debt and recover or shut down without taking the rest of us with them. Survival of the fittest. Apparently, the UK is thinking about doing this, since it actually makes sense. Go figure.

Monroe Anderson said...

Great job on a complex topic. It's not easy to understand even though you've explained it brilliantly.

KELSO'S NUTS said...

JONES: You been dipping into the Diggers' "wata" recently? "Enron" and "swap" are reified nouns but not normative ones. Loot is fungible or it isn't. That is the line in the sand. The rest is part of the social contract. The pillars of the USA -- largest corporations, government, law-enforcement, church, mainstream media -- with much complicity of the citizens themselves have gotten way the best of a very bad social contract. That's all.

ENRON as a natural gas company with a modern focus on UNDERSTANDING the mechanics of derviatives was neither good nor bad. Merely another company whose goal was to maximize shareholder value and protect debt-holder value. What it became in a de-regulated environment was PARTIALLY a criminal enterprise.

The State Of California shares the blame in that element of ENRON's criminal enterprise. Electricity is a natural monopoly and anyone with the tiniest sense of social justice has to accept that it must be regulated for social and macro-economic reasons.

ENRON's accounting frauds were separate from its derivatives trading in ALL markets, not just that wretched electricity market.

A "swap" is an exchange. In its most basic "plain-vanilla" financial sense it is an exchange of debt obligations and as such is merely a portfolio of forward interest rates. It is morally neutral in the same way a shotgun is. For fowling, it's fine. For holding up a liquor store, it's not fine.

I agree with you that the investment banks deserve NOTHING. The Department of the Tresury and Federal Reserve deserve NOTHING. This bailout is wrong in every aspect. Especially the investment banks. They risked their whole businesses messing around with securities they didn't understand? Too bad for them. They should have done their homework.

Where I disagree with you is under your conception of the restriction of free flows of capital into and markets with many producers, many buyers and many sellers. I disagree with your ideas on the need for restrictions on two willing adults with proven wherewithal entering into a legal binding contract to swap interest rates or to swap a swaption-caption-collar-with-an-equity-and-Wild Turkey 101-kicker.

King's Kid said...

I really would like to pass along this information. Every time I hear that figure $700 Billion I see these statistics:

This is a listing of the countries that have purchased US Treasury Securities. It is astounding.


Lena said...

So I went back and posts I've missed the past week or so and I am feeling smart and up to date least in terms of economy and politics. Gracias my friend.

RunningMom said...

"There was no football on tonight, and I did not look at the debates either for I felt I would one, be disappointed in Obama and two, McCain would confirm that he has a semblance of post traumatic stress disorder"

To me, McCain't always looks like he is one second away from losing his mind. He often looks agitated, and I would guess that his face is probably often high-blood-pressure-red underneath the morticians make-up he wears constantly.

Obama/Biden 11-04-08


Keith said...

Thanks for breaking that down. I wish there was a way to explain all of this to the masses so they would understand what we are up against. I didn't feel that these guys should be bailed out either, but to fail to do anything would have led to an even worse global crisis, which it looks like we have anyway.

Jersey Girl said...

I can't figure out why McCain always has such a look of hatred on his face when he even glances in the direction of Obama. Is it because Obama's African American? Is it because Obama keeps exposing all McCain's little lies? Is it because every business organization says that McCain's healthcare package will destroy small business and Obama's might actually work? Maybe all of the above. And maybe because he's an asshole with an anger management problem.

The Socialite said...

Hey u! How are you? I have been a little mia from reading my daily blogs. I just started a new job! But great post as always.

The Socialite said...
This comment has been removed by the author.
The Socialite said...

Hey u! How are you? I have been a little mia from reading my daily blogs. I just started a new job! But great post as always.

The Socialite said...

Hey u! How are you? I have been a little mia from reading my daily blogs. I just started a new job! But great post as always.

A.M. said...

stoppin in to say thanks for all the blogging love. I know I hardly ever leave you indepth responses well that's because...your blog is a lot lol. I mean other people's are simple, where I can leave really quick responses...not yours. It's def not a bad thing though. One weekend-when I have time. I'm currently dealing with four lit courses, an urban politices class and an organizational leadership class- I will sit down and Raw Dawg Buffalo my life away.
MUAHZ..thanks for all the support :)

Jersey Girl said...

I can't figure out why McCain always has such a look of hatred on his face when he even glances in the direction of Obama. Is it because Obama's African American? Is it because Obama keeps exposing all McCain's little lies? Is it because every business organization says that McCain's healthcare package will destroy small business and Obama's might actually work? Maybe all of the above. And maybe because he's an asshole with an anger management problem.

uglyblackjohn said...

I went over the state line last night and lost four hundred at the casino.
At one time, I had doubled my money.
Do you think the government will give me my initial four hundred plus the four hundred profit that I also lost?

Bobby said...

America is simply becoming a communist nation and this is just the beginning. With the collusive march towards globalization and incessant lust for power, we are headed towards a one world government.

I'm certainly no proponent of violence or terrorism, but I do understand it...hahahaha!!!

2sweetnsaxy said...

What gets me is that everyone is surprised. The fan has been on a long time. It was just a matter of time before the mess starting flying.

Got a question for you. I've heard folks blaming Clinton for passing that bill in 2008. If it was so wrong couldn't "they" have taken action to change to bill or come up with a new one against it? How does he get blamed if no one has done anything since to fix it? Aren't "they" just as much to blame?

Linda said...

pretty fly.... for a white guy :P

greetings from holland!

RiPPa said...

It ain't gonna be long before slingin rocks becomes the only legal option muthafuckas have.

I can't wait till that shit takes off on Wall St. since deregulation seems to be the in thing.

Hell, the dope game sure would help them in unfreezing that commercial paper market thats hurting right now.

Can't get a loan?

Go see Nino Brown 'round the way. I heard he still handing out turkey to negroes for Thanksgiving.

NoRegrets said...

finally got the book in the mail...

KELSO'S NUTS said...


I enjoyed your bust here so much, I checked out your site and your McCain post killed me.

I left a comment. When you read it you'll see my sense of humor is as twisted as yours is.

Angel said...

I agree Investements Banks deserve nothing. I need to add that being black how do you think that companies like Lehmans were founded in the 1st place?? Think 1844 and cotton picking.
Its about time that they closed. -sorry I'm going off in a different direction there but …..great post you always educate me.

James Tubman said...

why does this surprise anybody

the politicians are completely ion bed with the corporations

as a matter of fact most of the politicians have worked for many of these multi-national corporations, fund management companies and the like

they are ONLY going to serve them

but the smart thing to do would be to put our money into what the rich people put their money into because obviously they are making TONS OF MONEY

you know about the WTO World Trad Organization

they are the ones who make the rules in the world because they control to a graet extent the global economic system

we need to find out who these top dogs are

we also have to fight them from the inside

we cant beat them

they have most of the worlds resources at their disposal

so we have to invest our money into them so we can get our people on the boards in these systems and completely change the politics so they can work for the people instead of a few people in the ruling class elite

Torrance Stephens - All-Mi-T said...

James Tubman

Urban Thought
lol at comment for jt and i try

im sorry

told u leave that visual crack alone

Ed The Sports Fan
thanks man, i be searching for bruhs who blog
sisteer out number us 8 to 2

mrs. mary mack
im sorry u hate me now

Miss April Joy
thank u i hope i dont run u away

they aint thinking, just finger pointing

Sha Boogie

id teach it

Jay Midnyte i think u right

i will make it col.

i may do that
lol when u gone write a post about your business folk i wanna know

Jersey Girl
yep and then we gone sell most over seas

Monroe Anderson
thanks brother, u do a great job yourself

all i can say is right-o. and cali was part of the problem - slipped my mind forgive me pls

King's Kid
thanks folk

anytime lol at me making u feel smart

ptsd lol

i do too keith, the masses just dont read

Jersey Girl
how about both azz hole and anger issues lol

The Socialite
thanks sister

that may get u in trouble maam, knock out them books jones

lol leave them dice alone jones

lol one governemnt and one bank

clinton aint read what he was signing i cant see y folks said he was smart

whats for din tonight

u know its going down like that dont ya

yeaaaaaa let me know what u think

thanks babe and do what ever u want over here babe

James Tubman
yep banks OVER SDEAS

Dusty said...

Not only will it take at least ten years for the oil to get to a station near will do little to lower the cost per gallon of gas.

I do appreciate your reasoning for not watching the debate, plus the media will beat it to death for the next five days. ;)

As for the CFMA..a real gem of a law there right?

I have always said Bill Clinton was the best president the Republicans ever had in office. ;p

Excellent article Torrance!

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