UNCERTINITY OVER DROP IN CRUDE OIL PRICES CAUSING WALL STREET PANIC?
DJI AVERAGE PLUMMETS 800 POINTS BETWEEN DECEMBER 5 AND DECEMBER 15
WALL STREET IS AT IT AGAIN!
For those of us who were involuntarily retired as a result of the Crash of 2008 and are living on Social Security and annual brokerage account distributions, this is not great news. My paltry, yet taxable SSA, moocher-windfall, covers slightly over 50% of my monthly rent. That’s all. Let me state that a little differently: After paying into the Social Security Trust Fund beginning at the age of 16 – half a century ago – my monthly SS payment covers precisely 53% of my monthly rent. Now, if I was living at the Watergate or the Ritz Carlton Residences I would have no complaints. But, alas, I live in a small, drafty townhouse with a leaking refrigerator and a toilet that overflows about once a month. So my brokerage account – and not my 401(k) since I’m not old enough to draw that puppy down without paying severe penalties and taxes – is the primary source of my livelihood. Thus any drop in the stock market causes me a bit of nervousness.
Since 2010 when I “officially” retired after more than a year racking up 300 or so e-mailed resumes and completed online job applications, I’ve taken to watching the stock market figures more closely than ever before. Sure, I’ve read all the right wing crap about how the stock market is poised to crash because Obama was elected President. Or because he’s a secret Muslim. Or because he hates America. Well, you’ve heard all that shit before. Nonetheless, I’m not sanguine when the stock market does “funny stuff” for whatever reasons.
The reason given by our economists and blather pundits for the DJI drop? “Uncertainty in the crude oil market.” Hey, sounds reasonable, right? Gas prices at the pump haven’t been this low since 2009. You see this explanation from every media outlet in the country, falling from the lips of every economist and crude oil expert, repeated in every publication left, right or middle. (Are there any middle-of-the-road publications left?)
But it’s all BULLSHIT! Something else much more sinister and dangerous is going on. At least to my sometimes bizzarro mind.
This week and a half’s rather startling DJI plunge reminded me of an article I read back in 2009, probably the worst year of the Great Recession. I can’t remember who the author was, but he was an economist – might have been Robert Samuelson but I think it was someone else. As the country was facing massive layoffs, plunging stock market figures, and the right wing hadn’t yet ginned up the Community Reinvestment Act/Fannie Mae/Freddie Mac fantasy cause for the crash (back then you’ll recall that blame for the greatest worldwide economic collapse since the Great Depression was firmly lodged exactly where it should have been: the criminal activities of Wall Street, Big Banks and Mortgage Giants) here comes an economist who – in 2009 - was miraculously prescient in his prediction for the future.
This economist predicted that, since slicing, dicing and gambling with mortgages was now out of the picture, it was going to be crude oil futures and commodity futures that Wall Street would look toward to continue their dangerously risky activities that had led to the housing mortgage crash of 2007. Remember, futures have nothing to do with current supply and demand forces; they are only gambling (you know, “betting” just like you and me in Las Vegas) on whether the price of a commodity – or in the case of Credit Default Swaps, the created paper predicting the price of an underlying commodity in the future - will rise, fall or remain the same one day out, one week out, one month out, six months out, a year out or longer. Let me state that again as clearly and as simply as I can:
My unnamed economist (as a justification for forgetting his name my Memory Scores on Lumosity are the lowest of the six categories they measure. I’m in the 75th percentile in all the rest!). OK I got distracted there. Let me start again:
This economist back in 2009 predicted that since the housing mortgage market was destroyed and out of bounds for future slicing and dicing, it was going to be crude oil futures and commodity futures that Wall Street would latch onto and apply the very same “creative investment product innovations” that led to the Great Depression of 2008. Credit Default Swaps (aka CDS’s).
It was my research into the language that CitiGroup was able to insert into the 2015 Budget that vitiated the clause in Dodd-Frank requiring the banking industry to spin off their risky credit default swap activities into isolated outside, entities that would not be insured by the FDIC that led me to my brainstorm. The explanation for why this big bank bailout clause was necessary and included in the 2015 budget bill, given by Senators, House Representatives and economic pundits, is that ‘farmers need default swaps” in order to be able to borrow against future crops.
Farmers needing “bridge loans” in the form of CDS’s? Now, not to disparage the so-called explanation, but whenever those hardworking American farmers are invoked as a reason for needing to use risky financial practices by Wall Street and Big Banks, it makes me just a tad suspicious. World-wide giants like ConAgra and Archer Daniels Midland are not exactly the image most Americans think of when the term “farmers” is invoked. But I’m equally sure that they are probably the biggest beneficiaries of the CitiGroup clause as opposed to your small town, Midwest farmer image invoked by our public officials. The explanation, for all of its emotional import, just didn’t ring true to me. It was then that the article of my unnamed economist popped back into my head.
The “uncertainty” explanation sounds good except one has to ask “Why would falling crude oil prices cause “uncertainty” over such a broad range of the stock market? Sure, Exxon Mobil, BP and KBR stock prices might be affected by this future uncertainty but does that explain such a precipitous drop in the overall DJI? Maybe it does. But I’m not buying it. Is CitiGroup so heavily invested in oil that they can’t risk such uncertainty? Besides, long before the current drop in crude oil prices, CitiGroup had proposed the very same language in previous budgets. So, my aged brain calculated, that can’t be the reason since the price of a barrel of crude a year ago stood at just under $100 as opposed to today’s $60 per barrel. Nope. Doesn’t make sense.
And there you have it. What CitiGroup wants – and presumably Wall Street and Bank of America and all the other big institutions engaged in financial activities, is to be able to create the same kinds of “investment opportunities” in the commodity futures markets that are no longer available to them in the housing mortgage market just as my mystery economist predicted.
So “uncertainty’ over future production, supply, demand, and transport of crude oil, I suggest has nothing to do with the plunge in the DJI over the past week and a half, but has everything to do with the slicing, dicing, packaging, trading and selling of commodity futures Credit Default Swaps that CitiGroup, Big Banks and Wall Street are engaging in.
Think about it for a nano-second. No one foresaw this fairly precipitous decline in crude oil prices. So, just like you and me, after decades of ever-rising prices, wouldn’t Wall Street bet that this trend would continue? Continue into the foreseeable future at least? Of course they would. But, as the old planning adage says: “Life it was happens to you while you’re busy making other plans,” Wall Street and our big Banks geniuses got caught short – AGAIN! - and now they are facing massive losses to their bottom lines. If not worse. And you can take this to the bank. “Uncertainty”? Bullshit! Panic and potential massive profit losses from their futures betting is what’s causing the drop in the DJI. They got it wrong. AGAIN!
Have we seen this scenario before? Have we been subjected to this “necessary investment activity” before? Are we being put under the gun once again to insure and ensure that the risky behavior of these self-same actors will be bailed out by us taxpayers when their “investment activities” go south again? You bet we are. How will it end this time? God knows.
You know, sometimes I regret that we aren’t a “third world dictatorship” as the right wingers loves to call the Obama Administration. Dictators typically have a variety of “tools” at their disposal to cut folks like these off at the knees. Apparently in our democracy, we don’t.