Exempt Energy Companies From New Derivatives Rules?

Alain Sherter warns that such an exemption (in negotiation in Congress) is fraught with risk. While energy companies can use derivatives to even out pricing or limit their risk they can also (like Enron) get into what is essentially gambling.

James Pilant

From the article -

Concerns that energy companies want to dodge proposed restrictions on derivatives can be summarized in two words: Andrew Hall. He’s the star trader who stood to collect a $100 million bonus from Citigroup (C) until controversy over the windfall forced the banking giant to send Hall packing, along with his lucrative energy brokerage unit — straight into the arms of Occidental Petroleum (OXY).

The 2009 deal wasn’t merely the result of mounting political heat on Wall Street, however. It also underscored a trend in which financial firms and a range of companies use derivatives, leverage and other tools of modern finance to place bets on grain, gold, crude oil and other commodities. If energy companies once used derivatives strictly to hedge against price, currency or interest-rate changes, now they see these securities as a way to boost profits. But at what risk? As one equity analyst said of Occidental after it acquired the Citi subsidiary, called Phibro:

They never gambled before, and now they own the casino.

Sherter has a definite way of putting things.

jp

Fiduciary Duty and Investment Brokers

“When I was growing up in the shadow of the Edgar Thomson Works of U.S. Steel a half century ago, it was easy to tell the bookies from the bankers — and it wasn’t just by the clothes they were wearing. If you wanted to place a bet, you went to a bookie; if you wanted to invest, you went to a banker or stock broker.”

This is the lead paragraph from Tom Michlovic’s opinion piece in the Pittsburgh Post-Gazette.

It’s a dead on call. The Wall Street of the day feels no responsibility to the “knowledgeable investor.” The corner bookie has a greater moral responsibility to his client than our modern investment bankers.

Michlovic calls for the requirement of a fiduciary duty for all investment brokers. It would solve a lot of problems and I strongly agree.

But I am more concerned with how we got here and why we got here. At what point did investment advice become a buyer beware game? And how do members of what we would like to think is a advanced civilized Western culture find that abandoning honor, duty, and any semblance of integrity was the proper move?

The ethical abyss we are looking into did not take place in a few days. We are dealing with a cultural and institutional ethos that is places the future of the nation in jeopardy. Whether we exist as a cooperative society able to meet the challenges of history or simply dissolve into suicidal islands of self interest is a real question.

James Pilant

Here’s one commentator’s, Bob Monks, ideas on the subject. (I agree with him on this issue.)

Who Caused The Economic Crisis?

Keith Chrostowski writing for the Kansas City Star has definite opinions. He portrays a debate between two possible causes, main street or wall street. Who, he asks, should get the blame? It’s amusing and unsettling and it might make you mad, therefore, you should read it.

James Pilant

Let’s hear one more time, the great patron saint of Wall Street ethics:

Talmudic Investment Advice

I often rework the title of an article I am recommending but this time there wasn’t any way I was going to do that. Asher Meir writing in the Jerusalem World Review explains the Talmudic teachings (or advice or recommendations) on what you should invest in. The Talmud has much to say about investment and Rabbi Meir explains. (In brief, the Talmud recommends diversification.)

Investment simply explained –

Why Is BP Running Things?

Rod Dreher has written on this subject before. Today, he has found an article he recommends from Mother Jones that further develops his narrative of government incompetence and complicity. He also recommends John Robb’s take on the subject from Robb’s web site, Global Guerrillas.

It is obvious that British Petroleum and the Obama White House are choking off news coverage of the oil spill disaster. This has so far served to dampen the rage and concern over the catastrophe.  Both the White House and BP benefits by BP retaining control of the spill. The government does not want control of a sticky and difficult to manage situation as well as the multi-billion dollar cost of dealing with it. BP benefits by avoiding government oversight of its actions in dealing with the spill and limiting its financial liability. Of course, the nation does not benefit from letting this disaster continue supervised only by those responsible for the disaster in the first place. I think in years to come this will be used in textbooks as a classic case of government failure both before and after the disaster.

James Pilant

One angry commentator discusses the issue -

Herbal Supplements, An Ethical Sell?

Chris MacDonald explains his opinion on the sales hype for herbal supplements. He’s critical and rightly so. I have walked down those isles in this store and that, seen every kind of cure promised, and seen many a strange concoction. I’ve gotten upset over the likely extinction of tigers because Chinese folk medicine claims it enhances male sexual potency. Walking through a store full of herbal supplements destroys any idea that Americans might be smarter. The best thing you can say about some of these “remedies” is at least they don’t kill tigers for them.

MacDonald mentioned an article by Katherine Harmon in Scientific American. It’s a great read. I’d check it out too.

Student Loan Debt, A Crisis?

Rod Dreher writes about student loans and prudent educational expenditures. (He doesn’t think loans are a good idea.)

At the time I read his musing there were more than forty comments. You should give those a look, very perceptive comments, not what I find on many web sites. (I am most fortunate with the comments on mine.)

I am less than impressed by the student loan system in the United States.

(I was going to write this great big article talking about all the problems and incredible stupidity in paying for education this way and then, I thought about it. We can’t stop banks from gambling on $600,000,000,000 of derivatives. [World GNP is about 60 trillion] They can destroy our way of life, our entire economy, and the rest of the worlds leaving only subsistence farming. We can’t do that. What chance is there to protect students just out of high school from banking predators? There isn’t any. They are sheep. They live only to be sheared. They have no protectors, no legislators, no federal agency, and no public concern. What point is there is me telling you how foolish this is? I can’t think of any.)
jp

The Economic Indicators That Matter

Jon Talton admits that unemployment is a serious problem and an indicator of economic health but he wants to be sure that appropriate attention is focused on wages and incomes. His concern is highlighted by a USA Today study that indicates that private sector pay checks are at the lowest level of proportion of income in history.

I would ask the following questions – Can a nation prosper continually seeking the cheapest labor? Can a nation prosper when jobs are continuously cycled outside the country? Can a nation prosper if over time a larger and larger proportion of its workers are temps, sub-contractors, or part timers?

What happens when there are no manufacturing jobs here? What will happen when income continues to drop? How will the nation pay for things? What will we do for a tax base? What will we do if we go to war and we can’t make anything? Can we throw money or perhaps credit cards at an advancing army with tanks and planes and expect them to leave?

Do you really want to live in a country where the only jobs are service industry jobs that cater to fewer and fewer people as incomes drop?

Can  we do something different here in the United States besides letting this happen?

jp

Jewish Business Ethics and a Safe Workplace

Asher Meir once more brings the ethical light from Judaism to shine on a current business ethical question.

His answer is quite interesting. There is a need for vigilance on the part of the worker but there are circumstances that demand care on the part of the home or business owner.

jp

Authenticity

Chris MacDonald writes on The Business Ethics Blog (his site), that the meaning of authenticity when it comes to advertising seems to be anything but precise. He mentions a book called The Authenticity Hoax, that has a similar argument.

I find MacDonald’s analysis interesting and recommend the entry to your consideration.

I looked up Andrew Potter. The author of The Authenticity Hoax has been called – One of Canada’s hippest, smartest cultural critics. (His book is currently 19.95 on Amazon.) Mr. Potter writes a regular column for Macleans. You can find it here.

JP