09-10-09 by dugan
Who knew that investment giant Goldman Sachs was in the oil business? I’m picturing top execs earning their tens-of-millions bonuses in hard hats and oil-streaked yellow overalls. The news is part of an otherwise depressing Wall Street Journal story on how hard, and successfully, the financial industry is lobbying against regulations to cure the fever in energy markets that trashed the economy last year.
The revelation comes near the end of the article:
Goldman and Morgan Stanley were expected to face tougher oversight
after they converted last fall into bank holding companies overseen by
the Federal Reserve, a move to gain access to government funding and
ease concerns about their stability.Both have dialed back their bets with borrowed money. For every
dollar of trading assets on their books, the firms are holding roughly
twice as much capital as they did in prior years, according to Brad
Hintz, an analyst at Sanford C. Bernstein & Co. This deleveraging
makes their businesses safer but less lucrative.But much remains the same. Both firms were expected to sell power
plants and oil rigs they own in their commodities-trading businesses,
because commercial banks generally aren’t allowed to hold such physical
assets. But the banks, after a discussion with the Fed, believe they’re
allowed to keep them because of a provision in federal law that allows
newly formed bank holding companies to retain certain long-held assets,
according to people familiar with the matter.
Here’s what these power plants and oil rigs mean: Chief among the proposed new futures-market regulations are tougher curbs on the size and structure of purely speculative trading in energy futures markets. Companies that produce oil and natural gas, and companies like airlines and utilities that buy a lot of energy products, would not be subject to the tighter controls. So owning an oil rig or a piece of an electric utility, no matter how small a part of their businesses, has fantastic loophole value for Goldman Sachs and Morgan Stanley.
In the real world, Goldman Sachs is no more an oil producer than I’m a NASCAR driver, even though I own a car. But in a world where an Armani Army of lobbyists wins most of its battles, common sense does not apply. If the financial speculators win, the rest of us can just brace for a new round of $4.50 gasoline and and oil prices back to $145 a barrel–or worse.