7-13-09 by dugan
Investment bank Goldman Sachs is about to report an eye-popping
profit increase, leaving the rest of the economy in the dust. That
should remind us of Goldman’s key role in the energy-price bubble
that brought us $4.11 a gallon gasoline last summer, and brought
Goldman a black-gold rush of profits. It’s a role that they are quietly
repeating.
During spring 2008, Goldman Sachs analysts issued a stream of excited predictions
about the rising price of crude oil–unsurprisingly, every prediction
(It’s going to hit $150 a barrel soon! etc.) triggered a spike in the
speculative price of oil, by as much as 2.5% in a day. Goldman’s
in-house analysts were driving a self-fulfilling prophecy.
Fast-forward
to today. Oil prices have dropped sharply in the last few weeks because
the world is awash in oil that no one is buying. But for almost all of
the 2nd quarter, oil prices rose steadily–even though there was no
economic reason for the price spike. A barrel of oil more than doubled
in price, from $30 to $70, between last December and the end of June.
Interestingly, Goldman was still putting out its rosy price estimates,
but with less fanfare.
For instance, at the beginning of June Goldman predicted oil would hit $85 a barrel by the end of this year and analysts seemed to accept that rosy prediction without doubt.
What’s Goldman up to? For a summary, read an entertaining/disheartening history of what Goldman wrought with
the
energy bubble last year, in a Rolling Stone piece by Matt Baibbi. He
relates in detail Goldman’s role in one financial bubble after another, starting with the stock mania that ended with the Great Depression in
1929. Oil is No. 4 out of 6 bubbles.
Taibbi summed up Goldman Sachs as “a great vampire squid wrapped around the face of humanity,
relentlessly jamming its blood funnel into anything that smells like
money.” If, as Goldman says, Taibbi is just another conspiracy theorist, then maybe it will call back its army of lobbyists intent on killing any oversight and regulation of its bubble-making machine.