Libyan Oil: Supply, Demand and Speculation

I'm no economist, so let us get that out there in the beginning of this article. I took an intro to econ in college and got a solid average B+, so anything I say here should be taken with a grain or two of salt. That being said, I feel that I am pretty in tune with what is going on in the world. Which is why I was very surprised that the New York Times would print an article entitled, "Tremors From Libya Threaten to Rattle the Oil World" in their "News Analysis" section and leave out the very word that sums up the entire "oil world" as we know it today: speculation.

They lay out the facts of reality today, but in very soft terms. They mention that Libya is a small oil producer and that Saudi Arabia has agreed to increase production to fill the "void" left by Libya. To be more precise, Libya produces only 2% of the world's oil and, to reiterate, Saudi Arabia is more than willing and able to make up all of that. In other words, in the world of supply and demand, nothing changes. In fact, this news has allowed oil prices to drop during Monday trading.

So why the big stink about Libya? The higher the price of oil, the higher the profits of oil companies like Exxon Mobile, whose profit rose 53% in the fourth quarter of 2010. Additionally, the more Wall Street whines about oil supplies (that in reality are unchanged) the more things become a self-fulfilling prophecy. Take this paragraph from the Times article:

The price of oil had been rising steadily even before the wave of pro-democracy protests swept much of the Middle East and North Africa. A recovering global economy had convinced traders that demand for oil was going to rise by about 2 percent in 2011. Some industry experts and Wall Street seers were predicting a gradual march back to $120 and even $150. The thinking was that investors would pour money into the commodity markets.

So Wall Street had predicted–even before the North African pro-democracy revolutions–that the demand for oil would rise, which would lead to a rise in oil prices. But the main driver of the rise in oil prices? People "pouring money into the commodity markets." In other words, speculation. So a rise in prices thanks to higher demand (assuming OPEC did not increase production to meet this demand) would be exacerbated by people betting on oil futures. A psuedo-supply problem simply acts as a catalyst for this, allowing Wall Street can meet their predictions while everyone else pays nearly $4.00 a gallon.

So, as far as "new analysis" goes, this is pretty soft. There are some serious statements that are clear in the article, the best of which is, "But the events unfolding in the Arab world, the epicenter of global oil production, are a sobering reminder that trading in oil, that mother of all commodities, is at heart a political game." But too much credence is given to Libya's position as an oil producer which is really negligible in all of this. The main focus here ought to be speculation, but it is not. It is what Wall Street thinks about oil prices and where they are headed. If Wall Street says oil prices will rise enough times, they will rise, regardless of supply and demand. There is your "analysis."

The flag that Libyan protesters have adopted (Al Jazeera)

Goodbye Public Option, We Hardly Knew Ye

With Pelosi's backing down on the public option came the official death (something I've been saying for a bit now) of the measure for the health care "reform" bill currently being debated in Washington. Pelosi was one of the strongest backers of the measure since the inception of the clusterfuck that is the healthcare debate. That all changed yesterday when Pelosi began the first step in the "I know that's what I said, but it's not what I meant" process.

Pelosi has in the past stated unequivocally that the healthcare bill cannot pass the House without some sort of a public option. When reminded of her statements by a reporter in light of Senate negotiations that create a convoluted system that allows those between the ages of 50 and 64 to buy into Medicare, Pelosi stated that she would have to see the Senate bill and declined to repeat her ultimatum of a public option or no House bill.

What's sad is that Congress was willing to spend almost $1 trillion to bail out Wall Street and significantly add to this country's deficit, but when it comes to healthcare we're not supposed to be spending any extra money to make sure people have access to affordable, decent plans. President Obama has said, "I have pledged that I will not sign health insurance reform that adds even one dime to our deficit over the next decade." Pelosi said, "But our standards are that we have affordability for the middle class, security for our seniors, closing the doughnut hole and sustaining the solvency of Medicare, responsibility to our children, so we're not one dime added to the deficit." I'll throw my hat into the ring here with absurd statements, "I would like a Manhattan townhouse, a house in the Hamptons, and a Maybach, all without adding one dime to my deficit." This is America, things cost money, including insuring millions of people.

Wall Street will reap massive bonuses - some in the form of stock with longer vestments (at least until the dust settles and people forget about how they screwed all of us) - and the fact remains: those employed in the bailed-out industries will be getting very large paychecks while those people laid off because of horribly misguided and, at times, downright deceitful tactics in our nation's financial industry will go through the end of this year without affordable healthcare. $700,000,000,000 to bail out Wall Street, $707,851,000,000 for the Iraq War, $0 for healthcare reform. Really?

Is the Medicare buy-in plan an improvement? Sure, for people between the ages of 50 and 64. Are you 25 and just getting off of your parents' plans (if they even have insurance plans provided they haven't seen their benefits cut back or been fired) and can't find a job in this miserable market? Good news! Only 25 more years and you'll be able to buy into Medicare! Until then, however, no Hoveround for you. Peace.

Photo - Pelosi (NPR)

The Party's Alive and Well: Goldman and JP Morgan Living it Up

Before we start reveling in the fact that firms like Citigroup and AIG are going to see executive pay regulation from the Obama administration, the two firms conspicuously missing from the list of firms being watched are going to hand out near-record payouts to their executives a year after they themselves caused the financial mess that has led to rampant un- and underemployment, and a lowering in the average American's salary.

And before you say "Well, Goldman only got $10 billion in TARP funds and paid it back." What we seem to forget is that Goldman underwrote a lot of AIG debt, meaning if AIG defaults without government assistance, Goldman's $3 billion+ earnings this year turns into a multibillion dollar loss. Additionally, Goldman still has to buy back its warrants from the government, which it is shrewdly trying to do below market prices. Talk about appreciation for bailing them out.

Additionally, before we kid ourselves, Wall Street is back to its old ways, only this time it's not with people's mortgages; it's with their lives. They are packaging life insurance policies the same way they did with mortgages, and then hoping that the people they bought the policies from (the elderly and sick, to name two categories they are targeting) die quickly so they get a bigger return on the payout.

When I called Congressman Barney Frank's office and began asking questions about Mr. Frank's willingness to enter legislation to rein in firms that received TARP money but technically paid it back (again, the issue of warrants and AIG underwriting emerges here in terms of Goldman, at least), I was transferred to the House Finance Committee. The nice woman who picked up the phone explained to me that while the House has been working on shareholders' rights issues and corporate governance (where this executive pay cut seems to be stemming from), for firms like Goldman there is no recourse because of the TARP fund issue. When I asked if she knew if the Committee would be introducing legislation to rein in executive pay at firms like Goldman, she said she did not believe so. When I asked if it was even on their docket, she referred me back to the whole shareholder's rights issue and that they have done what they could. When I characterized it as a "Do what you can now, deal with others later"-type situation, she agreed. Going after a firm like Goldman would require a) a serious backbone (they have a lot of money, and C.R.E.A.M. is not just a Wu-Tang song) and b) hard work. Both seem to be in short supply right now in Washington.

I guess when you have Geithner's ear whenever you want it, you can get a lot done. So while most Americans toil and grind each day out at work for less than they used to get (granted they still have a job), the fat cats on Wall Street, who would have lost their McMansions had we, the taxpayer, not bailed them out of a problem that they created themselves, are living it up and will see massive profits and massive paychecks. I guess what's good for Wall Street is not necessarily good for Main Street.

Photo - Lloyd Blankfein, Goldman Sachs CEO (NY Mag)

Obama's Indoctrination Message: Work Hard

In a move that speaks to the disruptiveness of the right as of late, Obama's speech to schoolchildren set to take place today was highly debated as some Republicans stated it was a move by the president to "indoctrinate" the nation's youth. The mere fact that some people think that the president of this country, who cannot even stay on message about healthcare reform and the overwhelming need for a public option, is going to try to, essentially, brainwash our schoolchildren into embracing a liberal agenda is ludicrous. It not only insults our president, but it insults the students of this country to think that they are so vulnerable and susceptible that a 20 minute speech (one via broadcast, not even in-person) will have them throwing any self-created notions out the window and pledge allegiance to the liberal "agenda."

Take the chairman of the Florida GOP, for example. Jim Greer stated last week that he was "absolutely appalled that taxpayer dollars are being used to spread President Obama's socialist ideology." He goes on to say that "The Democrats have clearly lost the battle to maintain control of the message this summer, so now that school is back in session, President Obama has turned to America's children to spread his liberal lies, indoctrinating American's [sic] youngest children before they have a chance to decide for themselves."

Looking at Obama's speech, however, there is not one word about healthcare. In fact, Obama has the audacity to discuss things like working hard and not letting a less-than-stellar home life get in the way of your studies. It's the "liberal agenda" at its worst: do-for-self. The socialist ideology that Greer points to? Well, Obama does say you should do well in school so that you can help the country, because "you'll need the creativity and ingenuity you develop in all your classes to build new companies that will create new jobs and boost our economy." Ahh, the main tenet of socialism: working within a capitalist framework.

Seriously though, do people really think that kindergartners are going to retain any of this? They are learning sharing, putting the square block in the square peg, and not pooping their pants. If Obama did delve into the public option or TARP funds do you think these kids would understand what he was talking about? That didn't stop one parent from calling into a radio show and announcing, "He [the caller's son] does not have to sit in on this, he does not have to go to school and he sure as hell does not have to listen to what he has to say."

But that's part of the problem. These parents who are willing to pull their kids out of school because the president wants to address them; what kind of message does that send to the kid? You don't agree with someone, you don't want to do something like listen to someone else talk? Just don't show up that day. Don't learn to listen to others when you disagree with them, don't learn to work with other people who you may not see eye-to-eye with, don't learn how to debate with someone civilly. Then you can go into politics.

The saddest part of this is the fact that now we're not talking about the war in Afghanistan, healthcare reform, or how Wall Street has one-upped themselves and returned to their old ways while at the same time betting on sick and old peoples' lives. Instead we are talking about a relatively routine speech done by both Reagan and Bush I with little to no controversy. It's embarrassing for the country, and it's embarrassing for the Republican party. I know there are smarter conservatives out there; I went to school with some, I'm related to some. They're capable of debate without mentioning death panels or brown shirts or any other knee-jerk reactionary language. But, alas, level-headedness and intelligence aren't what cranks newsmakers are made of.

Photos - Obama at an earlier indoctrination session (Current)