Wednesday, November 11, 2009

The Biggest Oil Scam Ever: $2.5T, You And I Are Paying For It

Phil Davis digs into what he calls the biggest oil scam ever: $2.5T, done through the ICE, the online commodities and futures marketplace. You and I are paying for it.

Phil is the options guru that runs a real-time chat board and was on BNN on Monday. You can access his board through a free trial: Options Trading and Alerts .

The ICE site is stunning, they likely offer thousands of commodities and futures that you can trade. You can visit the site and select the Products link.

(click to enlarge)
Bloomberg says "Intercontinental Exchange Inc. in Atlanta owns and runs five clearinghouses, including ICE Trust, which in March acquired a platform wholly owned by broker dealers. Citigroup Inc., JPMorgan, Credit Suisse Group AG, Bank of America Corp. and other large dealers retained a 50 percent profit-sharing agreement with ICE Trust that starts next year. " SeekingAlpha reports that Goldman Sachs also owns part of it but had reduced its stake in 2006.

Here is a partial quote, in Phil's usual entertaining language:

"It’s a number so large that, to put it in perspective, we will now begin measuring the damage done to the global economy in "Madoff Units" ($50Bn rip-offs). That’s right - $2.5Tn is 50 TIMES the amount of money that Bernie Madoff scammed from investors in his lifetime, yet it is also LESS than the MONTHLY EXCESS price the global population is being manipulated into paying for a barrel of oil.

Where is the outrage? Where are the investigations?

Goldman Sachs, Morgan Stanley, BP, TOT, Shell, DB and Societe General founded the Intercontinental Exchange in 2000. ICE is an online commodities and futures marketplace. It is outside the US and operates free from the constraints of US laws. The exchange was set up to facilitate "dark pool" trading in the commodities markets. Billions of dollars are being placed on oil futures contracts at the ICE and the beauty of this scam is that they NEVER take delivery, per se. They just ratchet up the price with leveraged speculation using your TARP money. This year alone they ratcheted up the global cost of oil from $40 to $80 per barrel.

A Congressional investigation into energy trading in 2003 discovered that ICE was being used to facilitate "round-trip" trades. Round-trip” trades occur when one firm sells energy to another and then the second firm simultaneously sells the same amount of energy back to the first company at exactly the same price. No commodity ever changes hands. But when done on an exchange, these transactions send a price signal to the market and they artificially boost revenue for the company. This is nothing more than a massive fraud, pure and simple."

Now as fas as I can tell the ICE is based in Atlanta, but does operate in other countries, and fully eletronically:

"In June 2001, ICE expanded its business into futures trading by acquiring the International Petroleum Exchange (IPE), now ICE Futures Europe, which operated Europe’s leading open-outcry energy futures exchange. Since 2003, ICE has partnered with the Chicago Climate Exchange (CCX) to host its electronic marketplaces. In April 2005, the entire ICE portfolio of energy futures became fully electronic."

I also found this other very interesting fact that shows ICE is involved in CDS and in bed with the Fed:

"On March 4, 2009, ICE announced that ICE US Trust, LLC (ICE Trust), a New York limited liability trust company, received regulatory approval from the Board of Governors of the Federal Reserve System to become a member of the Federal Reserve System and to serve as a clearing house and central counterparty for credit default swap (CDS) transactions. Clearing of North American CDS indexes will be followed by liquid single-name credit default swaps".

This looks like an incredibly spaghetti which is extremely dificult to untangle.

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