"Front Running" Against Humanity In The Oil Markets

Stephen Zarlenga
Ami
 http://www.monetary.org

"Front running"Against Humanity in the Oil Markets
"Front-Running" is an insiders´ term for an often illegal, always
immoral practice in commodity and other markets. Here´s what happens:
A broker holding a client´s order to buy at a certain price, instead
buys for himself just in "front" of it. The clients order isn´t
filled and the broker has an unfair advantage over other traders
because he controls the client´s order which will buy the position
back from him and protect his trade from a loss.
The client loses the opportunity to gain, where his order is never
filled if the market moves away from his order point. If some
participants can trade with little or no risk, over time everyone
else is hurt.
Because Exchange Members´ margin requirements are only about 1%, the
front running brokers have a possibility of great gain quickly with
almost no risk of loss.
Why is this important to "public policy?"
"Front running" is one way to view what criminal Enron executives did
to California. They had the client´s non cancellable, inelastic
"orders" to buy electricity and they grabbed the available supply in
front of that, restricted the delivery process and extorted higher
prices; blaming price rises on "market forces."
Enron was bad enough, and Sarbanes-Oxley was passed to hold corporate
officers criminally liable - a good law as judged by the corporate
types screaming for its repeal. But apparently it didn´t go far
enough as judged by the present bold attack against humanity taking
place.
The manipulation of energy markets has widened from cheating the
people of California, to a deadly attack on all humanity. That´s what
allowing speculation in oil futures is doing today. These markets
aren´t providing "price discovery" as apologists like to claim.
They´ve driven the price of oil to destructive levels. The damage has
already been immense.
We´ve seen the devastating effects oil prices have had on airlines;
trucking; food delivery and production; on average families trying to
keep up with living costs; on restaurants and hotels Americans can no
longer afford. Add your examples. It´s the speculation and hoarding
that does it. Exxon couldn´t grab 12 $billion record 2nd quarter
profits if their costs of obtaining oil were rising.
And so I put aside an outline for this paper when it appeared
Congress would do its job -rescue the world economy from this
pernicious vandalism, by limiting speculation in oil futures to a few
contracts per account. That´s all it would take to stop the nonsense.
There´s no reason to allow speculators to position themselves between
the world´s limited oil supplies, and those who have to use that oil
to keep the world economy functioning. Such speculation leads
directly to hardship, starvation, death and warfare. "Congress will
finally fulfill its responsibility to act." I thought, but the
measure failed in the Senate with 50 for, 43 against, and 7 not
voting!
Why didn´t Congress act?
If this scenario is so clear and harsh, how could the Senate refuse
to act? Are they a gang of demons?" No, but something potentially
worse -we´re confronted with a bad idea that many people believe in -
the sanctity of markets!
The vote exposes a faulty methodology - an ideology based on false
axioms; a false view of markets that´s been strongly promoted, not
questioned; with its negative effects not understood; that view gives
markets a sacred character:
Don´t try to legislate against what the market does - market forces
will crush your laws. (its omnipotent!)
Don´t try to instruct market behavior; it has inputs from millions of
participants and knows more than your regulators ever could! (Its
Omniscient.)
Do the right things and the market will reward you; misbehave and you
will be punished! (Its benevolent.)
Well, omnipotence, omniscience and benevolence are attributes of a
god, and Senators don´t often fight with god!
What´s sorely missing from these beliefs and assumptions is evidence!
Where´s the evidence that removing regulation from the airline
industry had good effects?
Where´s the evidence that removing FCC restrictions on media
ownership had good effects?
Where´s the evidence that removing government regulation from any
industry has had good effects?
Of course it´s worse than that. It goes beyond a lack of evidence
because there´s plenty of evidence to the contrary! Holding those
beliefs requires ignoring loads of evidence: ignoring the damage done
to the airlines by deregulation; the damage done by media
concentration; the continuing damage done to America´s middle class;
ignoring: (insert your favorite)
How can proponents of unregulated markets justify ignoring the facts?
Its crazy, but it´s also a necessary part of their false methodology
which loves theory but avoids experience - the facts. One of their
leading "lights." economist Ludwig Von Mises, carries it to extreme
levels actually claiming that facts cannot disprove his theories! So
we are dealing with momentous errors of judgment and methodology.
Though these men are in the U.S. Senate, they are thinking like
scared children. But such errors belong in children´s sand boxes, not
our nation´s halls of power.
This battle over methodology is an old fight. We even see it in our
nation´s beginnings. Ben Franklin´s 1729 essay "The Nature and
Necessity of a Paper Currency" gave the correct methodology when he
summarized the ideas used to help Pennsylvania set up its paper money
system in 1723 rescuing her from a prolonged usury crisis. Franklin
told the world:
"Experience, more prevalent than all the logic in the world has fully
convinced us all that paper money has been of the greatest benefit to
the country."
Maybe as some Senators voted against stopping oil speculation,
perhaps a more human inner voice rebelled against what they did. Was
that voice stifled by an unholy combination of greed & selfishness,
assuaged by their comforting though unsupported belief in the utility
of unbridled selfishness and greed? The false notion that selfishness
"works?"
The Senators are not demonic, but their ideology, summarized as
"Market worship," which ignores the human part of the resulting
tragedies, certainly is.

See also

AMI [American Monetary Institute] 2008 Monetary Reform Conference
at Roosevelt University,  in Chicago,   Sept. 25-28, 2008
 One Theme  of the Conference: Usury
The present false definition of usury as excessive interest, was
foisted on economics by Jeremy Bentham, who also devised
utilitarianism - dropping morality in favor of supposed results. But
the real concept of usury is the anti-social misuse of the money
mechanism for private gain. The conference aims to help revive this
classical concept of usury and relate it to how our present
privatized monetary system malfunctions, for example in creating the
present banking crisis."
 http://www.monetary .org/2008conference.html