.Gov suing oil traders for price fixing.

I don't think the issue is that they bought up supplies and sat on them until the price rose. From what I read, the issue is that they bought up supplies and sat on them until the price rose, then bet that the price would fall drastically, then flooded the market with their supplies, then collected not only on the profits of their sales but also the winnings of the bet they'd made (I can't remember the investment term for betting that a particular price will fall or rise.. hedge bets or something).

If that's what they did, yeah, seems pretty clear-cut and criminal. If they simply bought shit up and sat on it, seems to be that'd be legal but I'd still wanna kick em square in the junk.

 

I have been trying to say that for about three years. Finally someone is doing something about it.

 

Lets put it in bike terms then for ya. Say honda was gonna produce 10,000 new honda 250's this october. You and me come along and were able to place orders right now for october and bought 9,000 of the bikes. Leaving 1,000 left on the market. We sat a month or two on the 9,000 bikes - mind you months before the bikes go for delivery. There are only 1,000 left right now for sale and the price starts going up on them. Still no problem. If we have the money to buy 9k bikes then nothing against the law. If we wait for the price to go up on them because of a shortage - still no problem. nothing illegal. We created a shortage of a wanted product. But not against the law.

Whats against the law is now we go to some insurance company (you don't have to in the stock market as you can bet the price is gonna fall). We ask the insurance company that we want a policy that will pay out if the prices of the bikes fall from todays value. We artificailly raised the price of the bikes by buying too many of them. But then after we take out the insurance policy - we suddenly a week later sell all the bikes at once. With so many extra bikes on the market - people start paying less and less for them since there are too many out there.

Now we made the profit on them that we bought them at the original price and sold them for higher. Thats fine - but then we also collected on the insurance policy that we bet the prices would drop. of course they would drop - we made them drop. illegal.

 

They did not buy an insurance policy. They shorted the market. Everyone seems to agree that buying and holding and waiting for the price to go up to make a profit is fine. Ok, American way right? Now they started selling while simultaneously shorting the market on the way down and taking advantage of the spreads. I am not saying this is ethical or moral. Make no mistake these guys are douchebags, but I am asking what is illegal about this. What law prevents this?

We have a set of rules in place, they abide by rules and when they make a profit, they are penalized. If we want to change the rules, fine, but don't do it after the fact. To me it is another example of class warfare and grandstanding.

Is what they did ethical? Maybe not. Moral? Probably not. Illegal? I have not seen where they broke rules.

No different that Paulson buying all the CDS and CDO protection from the housing market, making huge profits. Again ethical? Maybe. Moral? I do not think so. Illegal? No.

 

Not in the least! I thought it was wrong then and I think it is wrong now.

For me, the questions is not 'right or wrong', it is about 'cause and effect'.

 

It sure sounds like market manipulation to me. Isn't that illegal?

 

What law prevents it? See the problem? It may not be right, but no law against it. Therefore not illegal.

 

I'm no expert but "Illegal price manipulation includes corners
and squeezes, pump-and-dump manipulation,
and failure to make required disclosures." Seems like they did both a squeeze and pump and dump.

http://w4.stern.nyu.edu/finance/docs/pdfs/Seminars/081m-kyleviswanathan.pdf

 

It excludes routine hedging, market making, and speculation. Speculation includes both trading
on private information and trading to provide a
risk-bearing service to others. Illegal behavior,
such as front-running or fraudulent price quotations
designed to influence cash-settled prices,
is not manipulation since effects are not market
wide.

 

What disclosures were they required to make that they did not?

All they did was buy once and sell twice, then bought back in.

One could make the argument that the fiscal policies of the Obama and Bush administrations regarding cheap money have helped push prices up as well.

 

Take the speculators out that have no means of taking delivery and you won't see the price fluctuations that exist today

 

Please explain how we would not see the volatility.

 

That is a very well written and thoughtful paper.:up:
Is that yours?

 

Nope, I am but a simple mechanical engineer.

 

If you have no means of taking possession that would eliminate the paper buyers that are flooding the market.

Could those that take possession manipulate it? yes, there is always the possibility, but if you have to take possession on a product I will bet that buying/selling would be be more calculated. Same goes for the other commodities like corn, soy, silver, gold, etc.
Can you tell me that the commodities market is more stable with futures trading of those that can't take possession? Please explain your viewpoint

 

Many people use different commodities as a hedge against cost increases or decreases without ever taking delivery of the product. Take my personal example. I buy ingredients for a feed mill. There is no exchange that trades corn gluten feed, a byproduct of the corn milling process for fructose syrup. I use corn contracts as a derivative to help control costs on gluten, with no intention of taking delivery of said corn.

People use the exchanges for many different things. They could have been using oil as a hedge against the dollar, their position in the S & P, or anything. There is no way to tell. They also could have been 100 percent gambling. It is their risk or their reward if the price goes up or down.

I bet we would not be having this discussion had they lost 50 million. I am not arguing they are the finest upstanding gentlemen. I am arguing that people should not vilify people who are taking a risk and profiting from it, they would have cheered had they lost, and make no mistake people lose everyday.

Take the example of Amarath. Ken Griffin took an of Amarath opposite position in the natural gas market. One thought is was going up(Amarath) and Griffin took the opposite position. Amarath went bankrupt and nothing was said about keeping specs out of the market. We can't have it both ways.

 

Everything is unstable right now, from commodites to housing. Just the way it is because of policies in the US right now. No one knows what to do or where its going and just trying to position themselves.

 

Going back to my original question
"Can you tell me that the commodities market is more stable with futures trading of those that can't take possession?"

In your case do you feel the pricing of corn would be more or less stable if buyers had to take possession?

 

Less stable due to lack of liquidity in the market.

 

I disagree but I appreciate your answer