Jed Morey’s Blog

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NEW BLOG ADDRESS

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Thank you for visiting this blog site.

This is an old archive of my posts. The same archive with new posts and continual updates can be found directly at a new site hosted at www.jedmorey.com

I hope you will follow it there and thank you for your interest.

Written by jmorey

October 23, 2010 at 12:23 am

Posted in Uncategorized

Hot For Teacher

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"Hey lady, hold this freakin' apple so I can reach that donut in my bag."

Remember when you were little and you saw one of your teachers somewhere other than school? It was as though a mythical creature had somehow come to life; a great Greek statue breaking free from its marble casing and descending from cloud covered cliffs to walk among us at the local grocery store or deli. We placed them high upon a pedestal as a community and as children we believed them to be divine.

Like everything else in America, the backlash against the teacher has officially begun. More than likely it began right here on Long Island. Unbelievable taxes, bloated school budgets and a recession will do that. It is no longer taboo for parents to speak out at school board meetings and decry the increase in teacher compensation and perks. The arguments against highly compensated teachers are becoming familiar and parents are beating the drum feverishly across Long Island. Summers off, shorter work hours and paid time off are driving a wedge between the people who rear our children and those who educate them.

But the growing anger against the teacher is misplaced. Our ire should be pointed at the teacher unions and at ourselves as parents.

Workers everywhere are beholden to the people they represent and, in the case of unionized workers, they are beholden also to the union that represents them. Teachers have an even higher reporting structure: Our children. Over the past couple of decades the teacher unions have acquired tremendous power; a power that has grown gradually but has finally reached the tipping point.

Teachers used to be financially under-compensated while working, but well taken care of in retirement. Over time the unions have whittled away at this notion and created an environment where teachers have incredible job security, and are well compensated during both their work lives and their retired lives. Today, everything seems to favor the teacher who has become the beneficiary of hard bargaining over many, many years. Like everything in life, this has come at a cost. It has placed parent against teacher, school board against union and left the students in the middle; now it has also cast the educator as the enemy.  

A dear friend of mine, who is an elementary school teacher (and will remain nameless) provided some extremely enlightening context to this debate in a way that only a teacher can. She agreed that some compensatory elements have gone too far and that the unions have unfairly positioned the teachers against the public. The union has also created an atmosphere of fear in which teachers are afraid to speak out. But she noted, with scores of examples from her recent classes, that teaching itself looks nothing like it used to.

Our children are entering school woefully unprepared for life outside of the home. Many lack focus and energy as a result of poor diets and lax routines such as firm bedtimes and family meals. A good deal of incoming elementary students are unruly and challenge the most basic of authority, rebelling at the slightest instruction. Many are slovenly, lack proper hygiene and are devoid of any manners. Our teachers are then subjected to parental tirades asking why our children aren’t performing better, achieving more and accepting discipline.

Every year we send our children to school with more issues than ever before. Our kids are lethargic so we demand more physical education instead of putting the Nintendo in the drawer and sending them outside to play on the weekends. They are obese so we crack down on school lunch programs instead of teaching our children to make healthier choices or, heaven forbid, packing them a lunch. We fill them with prescription drugs and high fructose corn syrup, allow them to sit in front of a TV or computer screen for seven hours a day and demand a teacher’s aide, more time for tests, less home work and special attention in the classroom when they underperform. At the same time we demand higher levels of achievement from our kids and make them take three languages, two instruments, a sport for every season, community service and a resume building internship. We divorce one another, yell in the home and allow them to watch adult programs and play violent video games; then we wonder why bullying exists.

The lack of parental discipline and common sense child rearing sends children to school behind the eight ball. As the publisher of a newspaper that aggressively advocates for children with special needs this may seem like a counterintuitive argument. Yet this phenomenon has placed an undue burden on the special needs resources in our schools and threatens to sap badly needed attention to children who truly suffer from developmental disabilities.  

If we as parents want the right to yell and scream at school board meetings then it’s time we stop vilifying teachers. Have the unions gone too far and added fuel to the fire? Absolutely. Common sense must be restored to negotiations regarding teacher compensation and benefits. But if we continue as a society to abdicate the role of parent and place the responsibility squarely on the shoulders of our teachers then we shall reap what we sow.

Written by jmorey

March 4, 2010 at 1:39 am

The Singularity

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Genius inventor Ray Kurzweil recently hosted the annual conference regarding artificial intelligence and the inevitable march toward human, earthly perfection as a result of its discovery. He calls this concept “The Singularity” and every year it gains more credence and attention as computing capabilities increase exponentially. The creators of The Terminator franchise refer to this phenomenon (perhaps more aptly) as “Judgment Day” when machines become self-aware, then promptly initiate a nuclear holocaust that wipes out nearly all of humanity save for a few plucky resistors dead set on an interminable number of sequels.

 Recently I borrowed a copy of The Singularity Is Near by Kurzweil from my father-in-law and have pledged to plod through the dense text that will undoubtedly reach far above my head. Nevertheless, it seems like an appropriate book to begin the next decade because it can’t be any more confusing than what happened in the last one.

 Change was the prevailing theme of the decade now laid to rest. All around us was movement. Thomas Friedman announced that the world was flat, and then added that it was hot and crowded. Billions of us milled about in cyberspace and in the real world, bumping into one another trying to make sense of the strange new freedoms brought forth by search engines and social networks. Along the way we relentlessly spewed carbon and shouted drivel at one another in 140 characters or less.

 In business, you had to move. Shuck and jive, bob and weave. The decade left me wanting to pitch my business degrees into a heaping pile of five-year plans, old computer monitors and books with pages and set the whole experience ablaze and then blog about it. The newspaper business didn’t have its proverbial cheese moved as much as it was smashed to granules of parmesan and spread dismissively throughout the maze like a trail of breadcrumbs that lead to nowhere.

 It was the decade when more citizens of the world officially resided in cities than in rural areas. We manufactured a record number of homes in resource challenged areas like Las Vegas and engineered livable realities in places like Dubai; but the decade ended with city skyline vistas not of skyscrapers but of hulking cranes looming over unfinished buildings like a hangman’s noose.

 Ice caps melted. People shouted, pointed fingers and denied.

 The information and technology age matured at the dawn of the millennium and left nothing untouched. We genetically altered our food to increase production, yet more people on Earth went hungry. Unmanned weapons and drones were to fight the battles of the future, yet Americans still returned in boxes draped with our flag.

 And there’s the rub. If this past decade taught us anything, it’s that intelligence should be anything but artificial. Intelligence should be organic. Human.

 Hopefully the true awakening or “Singularity” will be an organic rediscovery of our humanity. The rebirth of meaningful face-to-face conversations and handshakes that are more binding than checking a box of terms and conditions. An age where the Rockwellian portrait of a family hunched over a the glow of a candlelit dinner table and offering thanks isn’t replaced with an Orwellian digital image of a family hunched over the glow of their iPhones and sending text messages.

 This is far from a naive plea to return to a simpler time; the trajectory of our ascent toward progressivism is as fixed as it is steep. It is more of an observation that the concept of “Singularity” seems to me to be contrary to the dogma of humanity. If we learn more from our mistakes than our successes, then what can we possibly garner from perfection?

Written by jmorey

January 6, 2010 at 3:37 pm

Shinnecock Recognition

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Shinnecock Block

The federal government of the United States of America has given preliminary approval to “recognize” the Shinnecock Nation on Long Island. This approval clears the way for full federal recognition sometime in the spring by the Bureau of Indian Affairs (BIA), the governing body that oversees relations between the U.S. and the “recognized” Native American tribes within U.S. territory.

Various levels of federal assistance are available to those nations fortunate enough to be recognized by the U.S. government. The carrot dangled before native tribes in this country, of course, is the possibility of obtaining gaming licenses to operate casinos on tribal land or off-reservation land, which is typically held in trust by the government.  

All of the attention over the matter obscures the fact that the whole concept of “federal recognition” is perhaps the biggest sham our country has ever fabricated.

If the U.S. government only now recognizes the Shinnecock as a tribe, then what were they before? When their land was stolen and their people were stripped of their dignity, were they not worthy of our recognition?

New York State, Suffolk County and Southampton town officials have joined in the chorus of vultures from federal agencies peering over their spectacles on the downtrodden nation of Shinnecock, gazing at them with both sympathy and disdain, and have finally welcomed them into the perverse brotherhood of sovereign North American nations. It’s a hollow victory that is a matter of survival, not of pride.

While these grinning politicians break their arms patting themselves on the back, the poorest inhabitants in America have had to swallow deep and present themselves, hat in hand, with court documents, proof of lineage, and ancient land claims to beg the government for a fraction of what was always rightfully theirs. The Shinnecock have sought recognition through the federal system for 30 years and only now that New York State has fallen upon hard times has the path been cleared by the BIA. Frankly, I find it abhorrent in every way. Every statement released by elected officials in New York and on the Island centers around the gaming issue. Every one. If there was ever a doubt as to why this process moved up the line the answer has come pouring out of both sides of every politician’s mouth.

For its part, the BIA uses recognition as a weapon to bestow or withhold basic human and civil rights on a people who have endured 400 years of humiliation and genocide. Yet recognition is a double-edged sword for both the tribe and America. While basic benefits and economic opportunity exist within the promise of recognition, evil lurks beneath the surface. Tribes have a greater ability to present land claims but may also be required to hold certain lands in federal trust. And while they may receive the right to operate gaming facilities on, and sometimes off, native territory, they are often required to pay taxes on all tribal enterprises and open their books. The slippery slope of recognition under the guise of partnership gives the government a foothold in territories they wish they never relinquished to native people; a foothold that may someday prove as fatal to Native Americans as inviting the fox into the henhouse.

When carefully managed, the other edge of the sword brings prosperity that can restore pride and foster cultural awareness within and among the tribes. It also makes them formidable members at the bargaining table, which is at times a source of frustration for U.S. officials who aren’t used to Native Americans having the wherewithal to exert economic and political influence. A highly organized tribe with economic means and determination also possesses a long institutional memory that the U.S. government does not.

I hope the Shinnecock gain the full recognition they seek. Then I hope they build the biggest and most ostentatious casino on the planet right smack in the middle of Shinnecock territory. An edifice so big and so bright it keeps the neighbors up at night and catches errant golf balls from the nearby golf courses that sit on land that was stolen from the Shinnecock Nation years ago.

The Shinnecock know who they are. They always have. Our government simply looks stupid granting them what they, and everyone else, already knew.

Written by jmorey

December 17, 2009 at 7:20 pm

Thoreau

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“Let your life be a counter friction to stop the machine.”

“Is there not a sort of blood shed when the conscience is wounded? Through this wound a man’s real manhood and immortality flow out, and he bleeds to an everlasting death.”

“Unjust laws exists; shall we be content to obey them, or shall we endeavor to amend them, and obey them until we have succeeded, or shall we transgress them at once?”

“All men recognize the right of revolution; that is, the right to refuse allegiance to and to resist the government, when its tyranny or its inefficiency are great and unendurable.”

– Civil Disobedience

Written by jmorey

November 19, 2009 at 11:08 pm

Posted in Uncategorized

Unfriend – Word Of The Year

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unfriend – verb – To remove someone as a ‘friend’ on a social networking site such as Facebook

 This is the New Oxford American Dictionary word of the year.

 William Safire is undoubtedly rolling over in his grave.

 Unfriend beat out stiff competition from “funemployed,” “sexting” and “tramp-stamp” this year to take the crown as the ubiquitous, essential and here-to-stay entry into the American lexicon. Christine Lindberg from the Oxford’s US dictionary program actually describes “unfriend” as having real “lex-appeal.”

Sigh.

The positive trendsetting words of the past couple of years, “hypermiling” and “locavore,” have been taken over by the social networking phenomenon. It seems as though we are resigned as a nation to plug into The Matrix and live through our cyber selves.

This is a trend greater than an attention-grabbing publicity stunt from a resource attempting to maintain relevancy in the new media world. This is indicative of a declining species rapidly losing the ability to communicate in a meaningful way, face to face. The further we travel down the rabbit hole of virtual connectivity the more of a Luddite I turn into. There are dire consequences when we lose the ability to communicate on a deep and profound level. The loss of context in our dialogue and human exchange of information has disastrous effects on our interpersonal skills and ability to relate to one another.

My existence on Facebook lasted a mere six months before I rid myself (again) of all the people I spent the last 20 years ridding myself of. Because I have a bully pulpit with this column, I prefer to let my words express my beliefs and choose to connect with friends and loved ones in person. My friend and colleague Michael Martino, who authors the popular column in the Press “Dry Martino,” wrote a column last week about how he was prepared to do the same. His column sparked a good deal of commentary and dialogue and prompted the most unexpected of responses this past weekend at an event our editorial staff attended.

The Long Island Press received an award from the Long Island Council for Alcohol and Drug Dependence (LICADD) for our outstanding and relentless coverage of the heroin epidemic on Long Island. It was one of the more humbling accolades we have received due to the very nature of the subject matter; a subject we all wish didn’t exist. In the middle of the presentation Jeff Reynolds, the executive director of LICADD, broke with the program to single out Michael and implore him not to give up his profile on Facebook.

It was as funny as it was stunning. Social networking has obviously woven its way into our everyday lives and will continue to play an integral role in our society for years to come. But Jeff wasn’t imploring Michael to stay connected on Facebook so he could send him birthday messages or a virtual hug; he wanted to make sure that a valuable voice in our community stayed connected in every way possible to the youth of Long Island.

Jeff was essentially asking Michael not to “unfriend” Long Island. We forget sometimes that as journalists our words have a deep impact on the community. Sometimes we believe it to be greater and more profound than it probably is but for every piece we write there is a person in need who is touched by it. In the daily battle Jeff and his staff fight against alcohol and drug addiction on behalf of members of our community who suffer from the increasing pressures placed upon us by the economy and our society, no one can afford to be “unfriended.”

This is not meant to pressure my friend Michael and in no way heralds my return to social networking; rather it reminds me of the responsibility we all share in “friending” those in need, particularly during trying times.

Written by jmorey

November 19, 2009 at 2:53 pm

Crude: How Wall Street Screwed America in the Summer of 2008

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crude

John Mack snuggling with his pump

Inside the comfortable landscape of Rock Creek Golf Club in Fairhope, Alabama, life is undoubtedly serene, a far cry from the bustling city of Houston across the Gulf where Doug Terreson, a former Morgan Stanley executive, used to reside. Less than a mile and a half from Terreson’s relocated home on the eastern shore of Mobile Bay, the price of regular gasoline at the local BP hovers around $4 per gallon––a constant reminder of the burden that Wall Street and Congress created to bolster their earnings and pad their coffers.

For Terreson––at first an unwitting, then ultimately unwilling accomplice––it is an experience he seems anxious to forget. Perhaps that’s why the high-level investment company executive has packed it all in, far away from the corner offices that contributed to the current implosion on Wall Street.

But while it is clear that the American economy is in deep trouble, there’s one part of the puzzle that still lies in a place as murky as the water surrounding the refineries in the Gulf of Mexico: the Wall Street-oil connection.

We’re all paying the price. It now costs just as much in America for a gallon of milk as it does for a gallon of gas. There are now 9.4 million Americans out of work. High fuel prices have all but sacked the airline and auto industries. Pressures on food production created by fuel subsidies and climbing oil prices may mean that the number of malnourished people worldwide could climb to 1.2 billion by 2025. You don’t have to be lectured on how tough times are.

In case you’re feeling sorry for yourself, or the world, consider the plight of Doug Terreson’s former boss, John Mack. His company had to artificially jack-up oil prices to record levels just to balance out its financial woes. To Mack, it must seem like just yesterday that he received a $40 million bonus as chairman and CEO of Morgan Stanley-the largest ever given on Wall Street at the time.

But that was at the end of 2006, a veritable lifetime ago in the financial world, and things are much, much different now. Continued fallout from the credit crisis in the U.S. has forced Morgan into a corner and Chairman Mack against a wall. It could be worse. He could have run Merrill Lynch, Lehman Brothers or Bear Stearns.

Luckily, John Mack is an oil man. In every sense of the word. How so, you say? Under John Mack, Morgan Stanley has amassed a formidable group of companies involved in every aspect of oil, from refineries to home heating oil. Mack has thus far been able to navigate through a storm that has brought three of the biggest American investment banks to their knees. And the whole world picked up the tab. By exploiting regulatory loopholes and throwing caution and conscience to the wind, Morgan Stanley, along with Goldman Sachs, has artificially thrust oil prices to record levels.

They don’t call him “Mack the Knife” for nothing.

There Will Be Blood

As one of the greatest economic disasters in modern history is unfolding before our eyes, hidden deep within is a shocking scenario that spans 16 years and three presidents and has left millions of starving and poverty-stricken people in its wake. The architects of the scheme are some of the wealthiest and most powerful people in the world. Their names read like a Who’s Who of the financial sector and the American government: Clinton. Mack. Gramm. Paulson. Bush. All are deeply involved in this scandal, which history surely will view as one of the most impactful on the nation and the world economy.

Economists and theorists have already named the economic period that is ending as of this writing. It is being referred to as the era of cheap oil, a time when multinational companies thrived on the global market as never before. Things are changing now: Oil prices remain high and the cost of doing business––in every industry-continues to rise. While it may be true that oil will never be cheap again, inconsistencies abound as to why.

Prior to the turn of the millennium, there were a few givens that had an effect on the cost of oil and energy in the world-mainly war, weather, supply and demand. The latest Russian aggression in Georgia, hurricanes in the Gulf, and the spectacular display at the Beijing Olympics that placed China on the world stage would normally have put prices through the roof.

If nothing else, China’s grand coming-out party exhibited the largesse of the Chinese economy and population. This alone should have caused a spike in oil prices. Instead, they have fallen from their stunning highs during the summer. This counterintuitive behavior in the market indicates that a significant portion of oil prices is determined by financial speculation and not just traditional forces of supply and demand.

Still, oil prices are outrageously high compared to just a few years ago, and are a topic of conversation in every American household. No one is escaping the impact of high prices at the pump or the supermarket. But we have been spoon-fed lies about demand from China and India and are expected to simply go along with the madness.

But not everyone is fooled. As the world seeks to shield itself against the crushing economic blow delivered by the skyrocketing cost of energy, many are beginning to take note of the roots of the crisis and point fingers at those responsible for the economic mess that we’re in.

In stark opposition to the oil crisis of the 1970s that left Washington in a state of panic and Americans lined up at the gas pumps, the seeds of the current condition may well have been planted not in the Middle East by the OPEC nations, but right here at home, by the very lawmakers now scrambling to undo what they set in motion.

One of the central villains in the story has become an all-too-familiar symbol of corporate malfeasance. The ghost of Enron, the defunct Texas-based energy company and its now-deceased former president, Kenneth Lay, still haunts the market today. Most are familiar with how Enron preyed on financial loopholes in the marketplace to fabricate a phantom energy market and create false gains on its balance sheet throughout the 1990s.

Enron’s grip on the energy market created spastic and turbulent movement in the marketplace resulting in events like the rolling blackouts in 2000 in California. By December 2001, when everything was unraveled, Enron was out of business, its accounting firm, Arthur Andersen, was no more and Washington lawmakers issued a slew of promises to change the regulatory environment.

 

Devils In The Details

During the final months of Bush 41’s White House in 1992, Wendy Lee Gramm, wife of Phil Gramm, who was then the Republican senator from Texas, was the head of the U.S. Commodities Futures Trading Commission (CFTC). Wendy Gramm is an unabashed free-market advocate once described in 1999 by The Wall Street Journal as the “Margaret Thatcher of financial regulation.” She now sits as a distinguished senior scholar of the conservative think tank Mercatus Center at George Mason University, in Virginia. Mercatus is a policy center on Capitol Hill that boasts board members such as Ed Meese-a central figure in the Iran-Contra scandal as attorney general under President Ronald Reagan-and Charles Koch, of Koch Industries, who has been investigated for stealing oil from federal property and tribal Indian lands, indicted for environmental crimes and fined $30 million by the Environmental Protection Agency (EPA) for numerous spills throughout the United States.

The CFTC oversees the commodities market and applies the regulations set forth under the 1936 Commodities Exchange Act (CEA), a measure enacted by Congress to prevent another collapse on the scale of the 1929 crash. One of Wendy Gramm’s final acts as chairwoman in January 1993 was to create an exemption that allowed Enron to trade energy futures contracts and essentially hide these trades from the CFTC itself; an energy futures contract is an agreement to deliver energy commodities such as oil or natural gas at a set price in the future.

Gramm left the CFTC, and five weeks after creating this exemption, she became a board member of-you guessed it-Enron. In return for her work deregulating the market for Enron to exploit, she racked up millions as an Enron board member prior to the company’s collapse.

Wendy and Phil Gramm were just getting warmed up.

Under the cloak of darkness at the end of President Bill Clinton’s second term and the waning days of the 106th Congress, it was then-Sen. Phil Gramm’s turn to dust off a bill, now commonly referred to as the “Enron loophole,” and attach it to an 11,000-page appropriations bill on December 15, 2000. The bill had previously died on the House floor, but Gramm resurrected it, found a new sponsor, became a co-sponsor, changed the bill number and turned it into an amendment. That’s a lot of work for one little loophole.

As a rider to a much larger bill, the Commodities Futures Modernization Act was no longer subject to the normal vetting process in Congress that a stand-alone bill would receive. Lawmakers, undoubtedly feeling the pressure of the holidays and lacking the time to thoroughly review the voluminous document, quickly approved the bill for the president’s signature.

On December 21, 2000, on a cold and blustery Washington evening, the bill with the Enron loophole rider was signed by President Clinton. Gramm’s amendment came to life and deregulated all energy futures trading. For Lay and Enron, the rest is history. But it would take another six years, another President Bush and a new Congress to open the floodgates of rampant speculation and really give it legs.

Phil Gramm? Does he sound familiar? Well, you might recall that he has been Sen. John McCain’s top economic adviser. You know, the one who called America “a nation of whiners.”

 

Commodities Explained

The easiest way to think about commodities is that they are things-physical things that can be measured in size, quantity or volume. Fruit. Oil. Grains. Metals. Currency. All these have unique characteristics and trade against one another on commodities exchanges throughout the world. For example, one barrel of oil might equal three bushels of corn, which may equal six bushels of wheat, and so on.

It is a complicated system that’s not for the faint of heart. Only a select few traders on Wall Street have the acumen and desire to deal in this sector, an exchange that had been efficiently regulated by the CEA since 1936. In an interview with the Press, Michael Greenberger, an outspoken critic and former employee of the CFTC, described these as “backwater markets,” but ones that recently have become “as important to understand and regulate as the securities and debt markets are.”

Commodities traders were highly specialized in their fields and their discipline was so narrow that it was largely misunderstood. Because it represented such a small portion of the vast economic market of debt and equities, it existed in the shadows of the global marketplace.

An important aspect to the commodities market is that there has always been a ceiling to the transactions and every investment made in the United States, for example, must be overseen by the CFTC. This market cap and theory of transparency kept the commodities market in relative obscurity against its much bigger counterparts, the stock market and the bond market.

But in January 2006, the CFTC, under President George W. Bush’s administration, would upend the regulatory practices held in place since the ’30s and create a virtual frenzy by recognizing a new commodities exchange-ICE Futures-that had been formed in 2001, primarily by investment banks and oil companies.

On May 20 of this year, Michael Masters, the managing member of Masters Capital Management LLC, a hedge fund that invests in private equity, testified before the Senate’s Committee on Homeland Security and Governmental Affairs. His testimony is now widely quoted by the antispeculation critics who decry the lack of oversight created by the Enron loophole.

“Commodities futures markets are much smaller than the capital markets, so multibillion-dollar allocations to commodities markets will have a far greater impact on prices,” Masters stated.

Essentially, introducing investment banks and hedge funds that have deep pockets and no one looking over their shoulders has the singular ability to move the entire market. It’s like allowing professional athletes to compete in the Olympics. It’s what Masters referred to as “demand shock.”

 

Morgan Stanley and Goldman Sachs: the mechanics behind high oil prices

Two primary tools have restrained zealous speculators in the commodities markets since the CEA’s adoption-transparency and position limits. The transparency came from federally regulated markets like the New York Mercantile Exchange (NYMEX), which tracks and oversees the transactions of commodities. Position limits were enacted under the CEA to keep any one investor, or group of investors, from overwhelming the exchange and flooding it with money.

The Enron loophole essentially permitted the trading of energy futures on over-the-counter markets, thereby allowing a new set of investors-hedge funds and investment banks-to trade energy futures. But the U.S. exchanges still saw relatively little activity as compared to their European counterparts, where the oversight was far more lax.

Because commodities trade in real time and U.S.-based companies have the most money to invest, the investment banks and hedge funds were still slow to drive great sums of capital into the market. What they needed to really make this thing soar was the ability to invest serious capital within the United States, like their counterparts could on the London Exchange, for example.

In 2000, Goldman Sachs, Morgan Stanley and British Petroleum became the primary founders of a little-known exchange based in Atlanta, Ga., known as the Intercontinental Exchange (ICE). A year later, it purchased the London-based International Petroleum Exchange (IPE), and was renamed ICE Futures. It was an acquisition that was fairly straightforward until 2006, when the CFTC-seemingly out of nowhere-officially recognized the ICE as a foreign-based exchange because it had purchased the IPE.

Even though the ICE is based in Atlanta, backed by U.S. banks and now traded publicly on the New York Stock Exchange, the CFTC somehow decided to treat it as if it were based in London and thereby no longer subject to federal trading regulations. Now the investment banks could trade every type of commodity, especially crude oil, without any spending limits or federal oversight. Greenberger calls it one of Wall Street’s “most successful ventures,” because the ICE was now “competitive to NYMEX.”

It was here that the wheels began to fall off the commodities market.

 

Mack’s Morgan

John Mack, the chairman and CEO of Morgan Stanley, has had an illustrious career, holding some of the most lucrative and prestigious positions on Wall Street.

Nicknamed “Mack the Knife” because of his hard-edged, no-nonsense approach and hardcore cost-cutting measures, Mack ran Morgan Stanley through the ’90s before accepting the job as co-CEO of Credit Suisse First Boston, a leading investment bank, in 2001. Mack left CSFB in 2004 to pursue options outside the large investment banking world but was wooed back to run Morgan Stanley in 2005. Upon his return, Mack’s Morgan Stanley went on an aggressive oil-buying spree-but not necessarily the kind you might expect.

On May 24, 2006, Morgan oil analyst Douglas Terreson announced that integrated oil equities were “15 percent undervalued” and in a research report, he wrote that “Independent refining and marketing remains the largest sector bet in the global model energy portfolio.” Soon after, on June 18, 2006, Morgan Stanley acquired TransMontaigne, Inc. and its subsidiaries-a half-billion dollar group of companies operating in the refined petroleum business.

How convenient… after their oil analyst decides that this portion of the industry is looking up, Morgan Stanley gets into the oil business and buys a refining company. However, it did not take only 25 days to conceive and work out the TransMontaigne transaction. This had to be a long-planned, well-thought-out takeover. One that worked for the great benefit of Morgan Stanley’s future oil plans.

This type of freewheeling environment, with little separation between the proprietary desks at the banks and their investment analysts, has been the subject of much scrutiny and concern of late.

“[There must be] a verifiable and hardened wall between analysts and the investment entities,” Greenberger says-it’s the only way to maintain integrity. And this is essentially what the CFTC was dismantling, right under everyone’s noses.

Morgan’s investments in the oil business continued aggressively over the next year into the far corners of the industry. In short order it closed the circle of the supply chain by acquiring Heidmar, a shipping company, and various stakes in foreign-based energy supply companies. It even snagged a contract from the U.S. Department of Energy to store 750,000 barrels of home heating oil at its corporately owned terminal in New Haven, Conn. Morgan Stanley, which was at the time the largest trader in oil futures, was now a serious international oil company.

 

Speculation Takes Centre Stage

It was the Masters testimony that brought speculation into the light and sent shockwaves through the halls of Congress. Masters was able to simplify the exchange and put the issues in a context that lawmakers could grasp. One of the telling examples he gives is that “Index speculators [companies such as Morgan Stanley] have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years.”

This essentially squashed the claims of the investment banks that demand from parts of the world such as China and India was solely responsible for the increase in oil futures prices. However, there are some theorists who still vehemently deny that this is the case.

James Howard Kunstler, author of The Long Emergency and creator of the popular blog Clusterfuck Nation, believes that the effect from the speculative market is “basically witch-hunt stuff.” A peak oil theorist, Kunstler, on the phone from his home in Saratoga Springs in upstate NY, says he believes that the root of the problem lies more in our global dependence upon a commodity that is quite simply disappearing.

American scientist M. King Hubbert predicted in the 1950s that American oil production would peak by the early 1970s. He was right. His predictive model was the basis for peak oil theory, which, when applied to the global market, indicates that the world may hit peak oil production within the next 20 years or sooner. Kunstler says that “the biggest thing that’s going on right now is the oil export problem or crisis.

“What that means,” he adds, “is the countries that we depend on for imported oil are less and less able to send it out and they’re using more of their own oil even as they’re in depletion. Two of the biggest cases of this are Mexico and Venezuela.”

While America imports the vast majority of its oil from Mexico, Venezuela and Canada––not the Middle East-and there is evidence to support the peak-oil predictions in some of these areas, it seems to speak more to the long-term crisis that mature and developing countries face. But it doesn’t fully explain away why oil prices would increase exponentially during the summer months and then decline shortly thereafter.

“Instead of oil going up,” Greenberger says, “oil is going down. Has India and China dramatically cut back? Nothing has changed and, in fact, the supply-demand factor has probably gotten worse because of Russia’s aggression [and] the severe weather, but oil is sinking, sinking, sinking. How can that possibly be?”

So if oil prices could be so easily manipulated, why didn’t it happen more severely and immediately when restrictions were lifted in 2006? While oil prices did indeed climb between the time the ICE was created in Atlanta and the regulations were lifted in January of 2006, they didn’t skyrocket until late in 2007.

Enter Douglas Terreson.

The Terreson timeline

Douglas Terreson, the Morgan Stanley analyst who said that independent refining and marketing companies were undervalued, was the bank’s chief oil analyst. The award-winning, nationally recognized Terreson had fielded questions in relation to oil prices and futures since the mid-1990s. On March 14 of this year, he said that oil would settle in at around $95 per barrel for the remainder of 2008. Moreover, Terreson also concluded that oil would retreat to around $83 per barrel for 2009.

This would be Terreson’s last forecast for Morgan Stanley.

Two short months later, Dow Jones Newswires reported that Terreson had been ousted in a round of layoffs. Two weeks after that, Richard Berner, Morgan Stanley co-head of global economics and chief U.S. economist, issued a statement saying that crude oil could easily reach $150 a barrel.

This speculation set off a round of speculative fervor never before seen in the market. Goldman Sachs immediately followed suit by forecasting oil to roar beyond $150, saying it could hit $200 a barrel in the near future. Oil prices were off to the races, with the investment banks in full lobbying mode while pointing the finger at China and India.

On September 19, 2007, Morgan Stanley’s stock price was $67 and oil was at $78. This was the day that Morgan Stanley began to trickle out the bad news. The worse the news was coming out of the investment banks, the higher oil prices would climb. By the time Morgan announced that Terreson was gone, Morgan’s stock was at $41 and oil was at $134.

In retrospect, the turning point appears to be Morgan’s $150 forecast by Berner. It fuelled the apprehension of the media and Wall Street alike. Americans were quick to do the math and knew that the spike would mean $5 per gallon at the pump. Maybe more. Suddenly everyone recalled the 1970s, and new terms such as “stay-cation” were on everyone’s lips.

So, where did this $150 number come from? Who better to answer that question than Richard Berner, the man behind the proclamation?

Unfortunately, a spokesperson for Morgan Stanley tells the Press that Richard Berner “doesn’t do interviews on oil stuff.” In fact, “he doesn’t deal in oil” at all, says his assistant matter-of-factly. That’s because for more than a decade this had been the exclusive domain of Terreson. Yet a month after the report that Terreson had been laid off, Morgan Stanley issued a statement claiming that Terreson voluntarily left his position at Morgan for the promise of higher pay from a hedge fund.

Not so, according to a Morgan Stanley employee familiar with the circumstances surrounding Terreson’s departure, who asked not to be identified in this story. Taken aback by the confusion surrounding Terreson’s reason for leaving, he says, “I knew they had a rightsizing, but he said he was retiring. He was getting ready to head off into the sunset.” And, just like that, Terreson was gone.

Morgan Stanley no longer has a spokesperson for oil. Nor are they willing to comment on the decision to forecast crude oil futures at $150 per barrel by someone who “doesn’t deal in oil.”

Terreson, once an integral part of the Houston community and a rising star in the financial sector, seemingly disappeared from the city altogether. His home phone has been disconnected. His former co-workers were unsure of his whereabouts. And almost no one from the firm at which he spent years as a superstar in his field wants to discuss why.

When the press finally reached Terreson at his present residence in Alabama, he simply offered, “I’m retired. I’m not with Morgan anymore and can’t talk about any of this.” When asked for a brief comment on current oil prices, Terreson responded, “I don’t feel comfortable talking about it,” and hung up the phone.

The smell coming our way

Still, the question persists: If the market conditions surrounding the price of crude oil futures remained unchanged, why were the analysts at the world’s largest banks determined to drive up the price of oil at a historic pace?

Was it merely dumb luck that this rampant speculation occurred at a time when the major investment banks were reporting record losses and write downs due to the sub-prime mortgage meltdown? It is Greenberger’s assertion that “a lot of people were very upset that they were in a sense humping their own product-not only their physical holdings but their future holdings.” What he’s referring to is the fact that Morgan Stanley doesn’t just trade oil futures; it’s also very much in the business of oil. This is a fact that is “unseemly,” according to Greenberger and many onlookers of the financial markets. One such observer is Gary Aguirre, a former staff lawyer and investigator for the Securities and Exchange Commission (SEC), who has testified several times in front of Congress and is widely considered a leading authority on financial markets.

“The way it ran up had all the earmarks of manipulation,” says Aguirre from his office in San Diego. “It looked like somebody was playing a game. I don’t know what the game was or how they did it but that was…the smell drifting my way.” As far as Morgan Stanley and Mack are concerned, Aguirre knows firsthand just how powerful the Wall Street tycoon is.

In 2005, Aguirre headed up an investigation into an insider trading claim involving Mack and a hedge fund named Pequot Capital Management. Mack’s involvement came during the period between his tenure at Credit Suisse First Boston and his return as chairman of Morgan Stanley. There were allegations of insider trading on the part of Mack by the SEC, but just when the investigation seemed to be gaining momentum, Aguirre was told to back off by his bosses at the SEC. After a glowing review from his superior, Aguirre went on vacation. When he returned, he got a pink slip, not a raise.

Aguirre insists that his own experience is merely part of a larger and much scarier problem running rampant on Wall Street.

“What we have are the markets highly leveraged, highly speculative and without any regulation, effectively, of the abuses,” he explains. “In short, it’s not much different than it was just before the crash in 1929.” This sentiment is echoed throughout Wall Street and the Beltway as the news from Wall Street grows more desperate with each piece of bad press about the economy.

The cozy relationship between oil companies and the U.S. government is nothing new to people like Aguirre who are familiar with the system. Aguirre explains the “you scratch my back” culture in monetary terms by saying, “These people are sponsored by the industry. Paulson’s straight out of Goldman. We have the fox guarding the henhouse.” (He’s referring to U.S. Treasury Secretary Henry Paulson, who was chairman of Goldman Sachs until June 2006.)

This was certainly true for Wendy Gramm, leaving the CFTC for the Enron board, and for her husband, who received nearly $100,000 in financial contributions from Enron while in office.

“These Enron traders were highly sought after,” says Greenberger. “Enron showed in its dying days how you could make a lot of money trading unregulated energy futures products.”

 

The real price of oil

A report titled “Double Jeopardy: Responding to High Food and Fuel Prices,” issued by the World Bank on July 2 of this year, estimates that “up to 105 million people could become poor due to rising food prices alone,” with “30 million additional persons falling into poverty in Africa alone.”

The report links the effect of high food prices directly to rising energy and oil costs-but stops short of blaming speculators, claiming that commodity investors and hedge fund activity appear to have played only a “minor role” in the increase of food and fuel prices. The report’s source: The CFTC.

The eye-opening May testimony from Masters was a scathing indictment of the CFTC’s thinking. In it, he claimed, “The current wheat futures stockpile of Index Speculators is enough to supply every American citizen with all the bread, pasta and baked goods they can eat for the next two years.”

As far as the much maligned “corn for ethanol” program that has environmentalists and lobbyists alike backing away, Masters contends that “Index Speculators have stockpiled enough corn futures to potentially fuel the entire United States ethanol industry at full capacity for a year.”

At least high oil prices have us thinking about alternative energy, right? According to Kunstler, it’s a case of too little, too late: “No amount of alternative fuels is going to allow us to run the stuff we’re running the way we’re running it, and we have to get hip to that. We’re not going to run the interstate highway system and Wal-Mart and Walt Disney World on any combination of ethanol, solar, wind, nuclear or chicken fat. We’re going to have to make other arrangements for daily life, and it’s the one thing we’re not talking about.”

Kunstler has very little faith that we can afford the new technology, let alone old fossil fuel technology. “The ‘whoosh’ that you hear in the background is the sound of capital leaving the system,” he muses. On this, most everyone agrees: Kunstler, Greenberger, Aguirre and Masters all come from diverse backgrounds, but all point out that our financial system seems to be hanging by a thread and that the corrupt regulatory system is mostly to blame.

 

The fallout

Given the recent government bailout of Freddie Mac, Fannie Mae, and AIG, the collapse of companies such as Bear Stearns and Lehman Brothers, and political unrest in the far reaches of the globe, there is always the possibility that the banks prolonged the collapse of our financial system. Skyrocketing oil prices have also highlighted our complete dependence and addiction to oil and brought the debate to the surface in the upcoming presidential election. For better or for worse, people are talking about oil, and not in favorable terms.

When Terreson’s oil price forecast was less than what Richard “Doesn’t-Deal-In-Oil” Berner believed it to be, his career at Morgan Stanley ended abruptly. When Berner predicted $150 oil, the entire world market responded to this claim. Was Terreson tired of shilling for Morgan and thus decided to retire at the tender age of 46? Or was he unceremoniously axed after refusing to alter his forecast on oil prices? Then again, was he part of the game all along and paid handsomely to “ride off in the sunset,” as one co-worker described?

Regardless of the reasons behind Terreson’s departure, there is still the question of motive.

Why drive oil prices beyond practical limits?

Let’s say for a moment that you run Morgan Stanley. Over the past few years you made a couple of bad deals. OK, so it was more than a couple, but not as many as your friends at Bear Stearns and Lehman Brothers. Thankfully, you have remarkable control over the price of oil-just by forecasting it. Heck, you don’t even have to “deal in oil” or do interviews “on oil stuff,” you just have to pick a number and watch the market actually try and hit it.

Not to mention you also own companies that operate refineries. You control shipping routes. The government has handed you a contract to store 750,000 barrels of home heating oil for the Northeast United States. You founded and are still an owner in a public exchange that handles energy trades that no one can really see. Win. Win. Win. Win.

It’s not difficult to see how America got here. The worst part is, it was all legal. The federal government, beginning with Wendy and Phil Gramm, cleared the way for tremendous systematic abuse in the financial markets to fatten the Gramm family bank account with blood money-Wendy Gramm’s multimillion-dollar take as an Enron board member and Phil Gramm raking in more than $335,000 in campaign contributions from the securities and investment industries.

Instead of being punished for these now well-documented actions, Wendy Gramm is still influencing Capitol Hill at the Mercatus Center and Phil Gramm has been advising McCain, the man who might be our next president.

People are beginning to contemplate peak oil and imagine that while the world may have flattened out for a while, it’s getting a whole lot rounder again. Kunstler proclaims, “Globalism was a product of a certain time and place and special circumstances, namely, a period of very cheap oil and relative peace between the great powers.” It’s what he calls the “end of the happy motoring era.”

Still, one can’t help but think about how quickly the end of this era may be arriving and for what reason. The “demand shock” that Masters speaks of also created a hunger shock that reverberated around the globe. Perhaps the analysts and speculators were acting to save their own banks in the short run––lest they wind up like Bear Stearns or Lehman Brothers.

But it seems awfully easy to manipulate the markets when you control so many pieces of the puzzle. Does saving a bank and focusing our daily discussions on renewable technology really equal thrusting millions of people into poverty and pushing price increases on the global food markets?

Congress has the ability to seize control of these markets even before the upcoming presidential election. The new president will decide whether we drill or not, but this decision has nothing to do with restoring the oversight and stability that existed in the commodities arena from 1936 until 2006. If it weren’t for federal oversight and regulation, Morgan Stanley-which was created in 1935 from the ashes of the 1929 crash-wouldn’t even exist. But history is often forgotten, or ignored, by greedy corporate raiders who are therefore destined to repeat it.

Sidebar:
How They Roll

Energias de Portugal (EDP) is the national energy producer for Portugal. For insight into how Morgan Stanley conducts its investments on the open market, the following are excerpts from a release by EDP announcing the sale of stock to Morgan Stanley subsidiaries. We have highlighted the different corporations, in case you lose track. See if you can follow along:

• “On April 21, 2008, Morgan Stanley notified EDP that as a result of a share transaction concluded on the 16th of April 2008 and in accordance with article 20 of the Portuguese Securities Market Code, it became [sic] to hold 79,157,462 ordinary shares of EDP, which represent 2.16% of EDP share capital and 2.16% of the voting rights and 16,745,810 convertible bonds into EDP shares, which represent .46% of the EDP share capital and an imputation of .46% of the voting rights.”

OK. Fairly straightforward. How did they do it? Take a deep breath and read the following sentence out loud.

• Morgan Stanley & Co. International – which is owned by Morgan Stanley UK Group, which is owned by Morgan Stanley Group (Europe), and this is owned by Morgan Stanley International Limited, that is owned by Morgan Stanley International Holding Inc that is owned by Morgan Stanley – holds 68,334,088 ordinary shares of EDP, which represent 1.86% of EDP share and capital and 1.86% of the voting rights and 16,745,810 convertible bonds into EDP shares, which represent .46% of EDP share capital and an imputation of .46% of the voting rights;

But wait, there’s more…

• Morgan Stanley & Co. Incorporated – which is owned by Morgan Stanley – holds 9,485,622 shares representing .25% of the share capital and .25% of the voting rights;

• MSDW Equity Finance Services I (Cayman) Ltd – which is owned by MSDW Offshore Equity Services, which is owned by Morgan Stanley – holds 1,000,000 shares corresponding to .02% of the share capital and .02% of the voting rights;

• Morgan Stanley Capital (Luxemborg) S.A. – Which is owned by Morgan Stanley International Holdings Inc, which is owned by Morgan Stanley – holds 316,552 shares representing .00% of the share capital and 0.00% of the voting rights;

• Bank Morgan Stanley AG (Zurich) – which is owned by MSDW Equity Finance Services I, which is owned by MSDW Offshore Equity Services, which is owned by Morgan Stanley – holds 21,200 shares corresponding to 0.00% of the share capital and 0.00% of the voting rights.

Whew.

Written by jmorey

November 14, 2009 at 6:04 pm