The Same Old Swindle

“The price and supply is set by the market.”
“This is simply supply and demand in the free market.”
“It’s purely cyclical, and the energy companies have done no wrong.”
“Capitalism, free markets, blah, blah, blah.”

Many talking heads have repeated the above mantras and catch-phrases, over and over again.

But they were not talking about the current gasoline price escalation.

They said these things while there were rolling electrical black-outs due to Enron’s illegal market manipulations. And now they repeat the same jargon.

While traders at Enron were requesting the shutdown of electric generation plants, and laughed about ripping off “Grandma Millie”, Enron and other power companies were defended with the same clichés. But they were as guilty as sin.

How many times must this happen?

Now President Bush says that he will “investigate” the Gasoline companies for signs of price gouging. That’s a novel idea. Fortunately, this has been investigated in the past, and the results should be the same:

Gasoline refiners have conspired for years to constrain gasoline refining, just like Enron conspired to constrain electricity generation. It’s the exact same swindle.

Crude Oil inventories in the U.S. are at highs right now; it’s the refining capacity that is the choke point, and the money maker.

Of course the refiners will claim that “government regulation” and “environmental rules” cause the problems. That may contribute, but the fact that they intentionally shut down refining plants and refuse to let anyone re-open those plants tells the real story.

President Bush would do well to review a previous anti-trust lawsuit prepared by the Federal Trade Commission. All of the answers are held there. The seeds were sown for today’s gasoline crisis long ago. As the Big Oil CEO’s say, they plan for the long term, and this market manipulation has been long in the making. They are reaping the harvest now, and the public will pay dearly.

The solution is a true, competitive market: Break up the Oil Companies, make each gasoline refinery an independent company. Allow new refineries to open. That creates a funtional, competitive market, where supply and demand can truly work.

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Links:

Capitalism Gone Wild
http://johnfames.blogspot.com/2005/07/capitalism-gone-wild.html

How Gas Companies Manipulate Prices
http://www.thememoryhole.org/corp/gas-prices.htm

The Big Squeeze by Big Oil
http://www.consumerwatchdog.org/energy/nw/?postId=4685&pageTitle=THE+BIG+SQUEEZE+BY+BIG+OIL%3B

Excerpt from "The Big Squeeze by Big Oil" by Steve Everly, The Kansas City Star:

Two 1970s oil crises orchestrated by OPEC left consumers with indelible images of long lines at gas stations and high prices at the pump. But they also marked a turning point for Big Oil that set a course for today's higher refinery profits.

A detailed portrayal of that turnabout is contained in a previously undisclosed 393-page document, assembled by Federal Trade Commission lawyers as part of an antitrust suit that was pending before an administrative law judge that was later dismissed.

As countries around the globe nationalized their oil industries, the domestic oil industry increasingly looked to refining for profits. In some instances, according to the FTC document, the oil companies cooperated among themselves to reduce refinery capacity.

"It's not happenstance that we're short of refining capacity," said David Haberman, a retired former antitrust lawyer with the Federal Trade Commission and the U.S. Department of Justice. "I really thought it could end up like it is today."

Haberman was one of 19 lawyers who spent nearly a decade compiling a case which has been largely forgotten. The case, which was before an administrative law judge within the FTC, was dismissed in the early days of the Reagan administration. But it created a treasure trove of more than 500,000 pages of documents within the FTC archives that offer a rare glimpse inside the industry.

The FTC, replying to requests by The Kansas City Star, so far has refused to release most of those documents after initially saying they could not be located. The federal agency now says that it is required to get the approval of the oil companies that authored the memorandums and other documents before they can be released.

But the FTC's "Complaint Counsel's First Statement of Issues, Factual Contentions and Proof" obtained by The Star offers some details of the government's investigation of eight major oil companies. The FTC has confirmed that the document, which is dated Oct. 31, 1980, and summarizes the FTC's case, is legitimate -- even as it refuses to release other supporting documents covered under the newspaper's request.

The FTC's lawyers found that Big Oil was turned on its ear by the nationalization of Mideast oil. The industry had relied on the vast supplies of Mideast oil for much of its profits and plenty of refinery capacity was crucial in being able to process it all.

But the loss of control of Mideast oil, according to the FTC report, meant the end of the old system. The major oil companies increasingly viewed refineries as having a new role -- a stand-alone business that needed to be profitable.

The FTC document said the industry turned its attention to making that happen, alleging: Competitors were kept out by refusing to sell refineries to them.

In other instances, if an independent company was looking at land to build a refinery, the site was purchased to prevent it from being built. If there was still investment interest, oil companies would temporarily reduce wholesale gasoline prices in that territory to convince the would-be buyer that it would be unprofitable. In addition, refining capacity among the companies was controlled by sharing information on gasoline production. One company's memorandum to another company that discussed plans to shut down a refinery included instructions to destroy the document after it was read. At one point, according to the FTC report, the companies thought demand would increase significantly. But the companies "contrary to their individual business interests, did not expand refining capacity or take other actions to meet anticipated demand" -- delaying or canceling refinery projects.

The companies also sought to keep from dumping too much gasoline on the market by following the "leading firm" in each market regarding how much gas to refine to sell to that market.

"The system worked in firming up prices," concluded the FTC document.

Better than Slaves

President Bush, Bill Gates and friends are at it again…their “cure” for outsourcing and importation of cheap high-tech labor in the U.S. is education. In the purest sense, education, learning and enlightenment are always a good thing. But for the average college freshman deciding upon a major, the job prospects after achieving that major are the primary concern. And as much as education is a great thing, reality is even more important.

The truth is this: college freshman are more than aware of the rush for cheap labor, and the greed that permeates the current corporate leaders and their political allies. They know that a degree in math or science will land them in a dead-end, where Bill Gates will always be trying to replace them with someone who will work for less pay, and probably someone with a constant fear of visa retribution, or deportation. The slave owners of the past could never hope for a less expensive or more obedient workforce. Slaves required food, housing, and health care. The low-cost laborers of the modern one-world economy come much cheaper…

Beating the Odds?

How much is enough? When will Bill Gates have enough money? When will William McGuire, CEO of UnitedHealth Group, feel he has fleeced the American public and shareholders enough, often during their most dire times of need and vulnerability? The escalation of health care costs is a travesty, matched only by the exorbitant compensation that some CEOs have structured for themselves. But what goes into that compensation? Perhaps this needs a closer examination.

The Wall Street Journal has reported on some very strange coincidences. How about convenient stock option dates that defy the odds? The stock price on the day that stock options are granted greatly effects how valuable those options will be. What if options are granted on the lowest stock price day of the year? That would be great timing. How many times could our CEO Mr. McGuire hit that lottery? Apparently, he can hit it over and over, as can many other CEOs. Perhaps some CEOs are retroactively setting the option date at the end of the year, after they already know the low price for the year. But they wouldn't do that, because it's illegal. Even before Mr. McGuire's most recent exorbitant compensation story, there were questions:

“The Journal's analysis raises questions about one of the most lucrative stock-option grants ever. On Oct. 13, 1999, William W. McGuire, CEO of giant insurer UnitedHealth Group Inc., got an enormous grant in three parts that -- after adjustment for later stock splits -- came to 14.6 million options. So far, he has exercised about 5% of them, for a profit of about $39 million. As of late February he had 13.87 million unexercised options left from the October 1999 tranche. His profit on those, if he exercised them today, would be about $717 million more.

The 1999 grant was dated the very day UnitedHealth stock hit its low for the year. Grants to Dr. McGuire in 1997 and 2000 were also dated on the day with those years' single lowest closing price. A grant in 2001 came near the bottom of a sharp stock dip. In all, the odds of such a favorable pattern occurring by chance would be one in 200 million or greater. Odds such as those are "astronomical," said David Yermack, an associate professor of finance at New York University, who reviewed the Journal's methodology and has studied options-timing issues.”

Mr. McQuire is not alone in his spectacular market timing. It seems that many other executives have been able to “predict” the low point of their respective stocks. It’s uncanny. As they say, "Odds such as those are "astronomical". For more examples, see the chart at the end of this Wall Street Journal story.

Wall Street Journal Story in PDF.

Opinions

"The opinion of 10,000 men is of no value if none of them know anything about the subject." – Marcus Aurelius

"The opinion of 10,000 men is downright dangerous if they know only misinformation, after being spoon-fed disinformation." - John Forest Fames