You ever wonder why the huge swings in commodities and the stock markets? I have, and maybe the answer is because no one can make any money in flat markets. Fortunes are made on huge run ups and subsequent violent pull backs if you are on the right side, or if you have inside info, or can control markets like oil and other commodities and their derivatives.
Goldman Sachs instantly comes to mind, and the latest revelation about their secret high speed trading algorithm which got into the wrong hands raised some eyebrows. Goldman argued that in the wrong hands, someone could manipulate markets. Of course, Goldman Sachs would never ever do that!
And there is the matter of regulating futures speculation on commodities. The "banks" involved don't want any regulation at all. Obviously the profits must be sweet, and they don't care who is left holding the empty bag after they are done.
"Goldman Says Curbing Speculators May Disrupt Markets
By Tina Seeley
July 29 (Bloomberg) -- Goldman Sachs Group Inc., the bank that makes the most money from commodities, fixed-income and currency trading, said attempts to curb speculation may be “disruptive” to markets.
“The role that is played by non-traditional participants such as index investors and other financial participants often has been mischaracterized,” Don Casturo, a Goldman Sachs managing director, said in prepared remarks today for hearings at the Commodity Futures Trading Commission in Washington.
The testimony to CFTC Chairman Gary Gensler, a former Goldman Sachs employee, is part of the second day of hearings at the agency on whether there is excessive market speculation and how to respond. Gensler, who said yesterday that speculators contributed to a commodity “asset bubble,” is considering new position limits in energy markets after crude oil futures rose to a record $147.27 a barrel in 2008 on the New York Mercantile Exchange.
The agency should “seriously consider” setting strict federal position limits to curb speculation, Gensler said at yesterday’s hearing. Gensler has been chairman of the commission since May and was a former managing director at Goldman Sachs, which set a Wall Street earnings record in the second quarter.
Blythe Masters, the head of the global commodities group at JPMorgan Chase & Co. said in her prepared testimony that the CFTC should set “a speculative position limit that applies to each participant’s net economic position, after taking into account exchange” and over-the-counter positions.
She also said the commission should require that all standardized OTC derivatives contracts “between systemically significant financial institutions” be cleared through a regulated clearinghouse.
Goldman, Morgan Stanley
Goldman Sachs and Morgan Stanley, are the dominant banks in trading commodities. The two New York-based banks accounted for half of the $15 billion of revenue that the world’s 10 largest banks generated from commodities in 2007, according to an estimate from Ethan Ravage, a financial-services industry consultant in San Francisco.
Goldman Sachs doesn’t disclose how much of its revenue comes from commodities. The business is part of its fixed- income, currencies and commodities division that generated a record $6.8 billion in the second quarter of 2009.
Gensler worked at Goldman Sachs for 18 years, leaving the New York-based company after becoming co-head of finance. In 1997, He joined the U.S. Treasury Department under Robert Rubin, another former Goldman Sachs employee.
‘Unintended Consequences’
“Some of the courses of action that have been proposed not only will fail to address the perceived harms but also will have unintended consequences that may be disruptive to liquidity and the markets generally,” said Casturo, who is responsible for risk management at Goldman Sachs’s commodity index business.
Casturo said increased participation in commodity markets by financial investors has helped liquidity and improved price discovery.
Tyson Slocum, the director of energy programs for consumer advocacy group Public Citizen, said today that financial firms like Goldman Sachs and JPMorgan are simply “taking full advantage of the lack of regulatory oversight over their operations to maximize market power and control information.”
Slocum, in his prepared remarks to the CFTC, called for aggregate position limits across all energy markets, and recommended the agency use emergency powers to require all standardized over-the-counter contracts clear through a CFTC- regulated exchange.
Limits a ‘Reality’
Position limits “will be a reality,” Slocum said in a Bloomberg Television interview before entering the hearing.
Any position limits would have to “consider producer and consumer hedge ratios, the size of the physical commodity market and size of the futures market,” Casturo said.
The commission will also hear today from Henry Jarecki, chairman of Gresham Investment Management.
To contact the reporter on this story: Tina Seeley in Washington at tseeley@bloomberg.net.
Last Updated: July 29, 2009 09:29 EDT |
