60 Minutes: Investment Bankers Affected Oil Price Swings More Than Supply And Demand

Last evening's edition of 60 minutes, and correspondent Steve Croft, again turned their attention to market abnormalities and mischief. This time they addressed the extraordinary and inexplicable increase in oil prices last year which was soon followed by an extraordinary and inexplicable decrease in prices. At the center of these abnormal market activities--and the mischief--they again found the trading offices of the already much maligned investment bankers of Wall Street. According to CBS:

As correspondent Steve Kroft reports, many people believe it was a speculative bubble, not unlike the one that caused the housing crisis, and that it had more to do with traders and speculators on Wall Street than with oil company executives or sheiks in Saudi Arabia.

Oil futures are contracts conveying the right to buy or sell barrels of oil in the future at fixed prices. Like all commodities futures, they are traded on exchanges, which were originally instituted to accomodate hedging transactions by producers and companies toiling in the supply chain of the oil business or other commodities businesses. But over time, not surprisingly, high-risk speculators ventured into these markets; and eventually they would even be sold as legitimate investment vehicles for high-income diversified investors.

According to the experts interviewed by Steve Croft, American investment banks--and notably Morgan Stanley--aggressively marketed investments in oil futures, and became major players in oil markets. And while investment bankers were publicly opining that oil prices had shot up from approximately $70 to $150 per barrel based on market supply and demand, experts reveal that during that time, the supply of oil actually went up, and the demand for it went down. According to those experts, the threat of new regulation and investigations, then the failure of investment banker Lehman Brothers and near failure of AIG, also major players in the oil futures market, drove other investment bankers and hedge funds to the exits. Apparently over $70 billion was thereby removed from the oil futures market. The result: a precipitous, $100 a barrel drop in oil prices.

During this time, the country and most individuals were being yanked up and down, in and out of financial, personal and professional pain. And it appears it was all to accomodate the utterly boundless greed, irresponsibility, and hubris that inheres in the privileged professional ranks of investment banking. Miscreants. Unaccountable, unethical market miscreants.

(To see the video, click below, then click on video screen.)

http://www.cbsnews.com/stories/2009/01/08/60minutes/main4707770.shtml