Silver Users Association November 2008

“New Commodities Exchanges: How New Liberties in the Investment Market Hurt Both Industry and Consumers”

It was only a few months ago we saw Gold over $1,000, Silver reach twenty dollars, Platinum over $2,000 and Palladium at $500. What happened? How did we get there? What caused the big rally? Was this justified? Finally why did the market collapse?

When I originally presented the idea for this topic the markets were still holding and many people were expecting the rally never to end. In fact there were pundits calling for Gold to reach $2,000 an ounce or more by year end. The fear mongering was big in the media. They just eat it up. Anything to keep the public tuned in but at the same time the constant focus may have had some positive effect as well.

In the suggested title for this talk I used the term “New Commodities Exchanges”. This term is not meant to represent any new place of business but a new way in which business is done. There have been many changes in the marketplace, some good and some not so good. But to understand these changes we have to do what intelligent people always do and should do. That is we need to go back and see how things were in the past. What worked, what didn’t work and the effect changes have had.

So I would like to take us to the past. We will take a quick stroll through the history of commodities exchanges and how they have been in and out of favor since their inception.

There have always been trading or marketplace throughout all of history but the formulation of the actual exchange as developed in the US was a sort of novelty. The first official trading pit to open was on the Chicago Board of Trade (CBOT) over 150 years ago. It was there that it first became apparent to many traders that the cash markets and futures markets moved in tandem. With that realization an entire world of market manipulation was opened to those that wanted to make profit for personal gain from those discrepancies. The first of the most famous operations for this kind of manipulation is called the “corner”.

Of course I don’t really believe the corner was invented at that time. Corners have always existed in different times and places as one group may have had an advantage over a commodity than another and would exact what they wanted. Sometimes also know as a form of extortion or usury. Depending on which side of the deal you were on of course.

However what was new in a sense is that it gave this new form a sort of legitimacy. The operations were now done on an exchange and it was all out in the open, or so it appeared. Though many objected then and to this day objections continue to arise that there are collusions.

One of the first and most infamous of these market manipulators was a gentleman by the name of Benjamin Hutchinson. His purviews were the grain markets and wheat was where he made his initial fortunes. He would manipulate markets buying incoming stocks and keeping them off the markets and forcing the price to run up. Then when the prices were high enough for his liking he would sell them. At that time it was actually more complicated and even more devious than the way it is done today. In those days he would have to pay hush money to the grain elevator operators to keep their mouths shut about inventories he may have been holding as news of these stocks would obviously have tipped his hand.

This type of manipulation would cause a short term rise but then a longer term drop which would hurt the farming industry. That is why to this day farmers are still very hesitant to get in bed with the commodities future industry. It is love-hate relationship. The farmers need to be able to know what their pricing will be and that is where hedging comes in but they don’t like what they call unnatural movements in the market place caused by wheelers and dealers that have no vested interest in the farming business other than to somehow extract a profit from the handling of the business.

It was in the early years that farmers had attempted to have legislators close down the exchanges. Their attempts were not successful and then by the beginning of the twentieth century the markets were well established. Regulation at the Federal level was very slow in coming and it was not until 1936 that the Commodities Exchange act would cover all futures markets in an attempt to regulate like the Securities Exchange Act of 1934. But unfortunately the government had created an act that was all bark and no bite and the traders at that time just let the sleeping dog lie.

Throughout the history of the commodities futures exchanges in the USA there have been many unsavory stories of corruption and greed. Unfortunately for many some of these stories are current that will never make it to the public sphere because they were not “illegal”. It is very difficult to legislate ethics and truth. The fact that we live in an increasingly relativist society where realities are subjective does not help the situation and makes it more and more difficult for the government to protect the public or industry from undue influence of the wealthy and powerful in the market.

Hutchinson put it best; “Ethics, the word has a curious rattle, its meaning is hardly known in business today. Yet no one has accused me of violating any laws….what I have done may likewise be tried by anyone who wishes to risk his fortune. The field is open to all.”

To me this statement remains true today as we see the repercussions of unethical business practices in the global economy from the collapse of the credit markets due to the sub-prime debacle, the destruction of stock value and the manipulation of the precious metals markets. With these recent events it becomes a question of whether or not governmental agencies had the power to prevent or control these events. And whether their teeth were pulled at the time they needed them most. Unfortunately for the US economy oversight was lacking and the public at large is now suffering those consequences.

During the Civil War there was gold trading going on in the Gold Room of the NYSE. The metal price was very volatile which in turn created vast interest from speculators. Huge amounts of money changed hands for those days. The news of their brisk activity was was viewed as unpatriotic and the Exchange decided to distance itself as to not tarnish their name. But it was too late as word on the street was that if the Union won a battle the traders would whistle a popular Union tune and would switch to whistling “Dixie” on a Confederate win made it rounds. The news of this behavior traveled far and wide and Abraham Lincoln was quoted as saying; “What do you think of those fellows in Wall Street who are gambling of gold at such a time as this? For my part I wish every one of them had his devilish head shot off.” In 1862 the NYSE banished the gold traders from their location.

Oddly enough even though this was an unfavorable beginning for the precious metals market it was through them that the clearinghouse concept materialized. In the summer of 1865 certain gold certificates of the Bank of New York fell under a cloud when many that were delivered were found to be forged. So in reaction to this occurrence the Gold Exchange established the New York Gold Exchange Bank to act as a clearinghouse. At first glance this appears a positive factor but it also enabled it to be much easier for speculators to participate and manipulate the price of gold.

The Gold Exchange which then was formalized by the NYSE had many important members such as E.B. Ketchum who traded gold with Pierpont Morgan for his family’s overseas accounts. This put the exchange on par with the CBOT. But that did not stop speculators from taking advantage of this new marketplace.

In 1869 Jay Gould with his firm Smith, Gould and Martin, began buying gold to drive the price higher. They bought it all the way up having an insider, the son in-law of then President Grant, Abel Corbin, giving him a comfortable advantage of knowing if and when the decision for the Treasury to release gold into the market would occur. When the decision was finally made Gould was already liquidating and had netted over $10 million dollars. He made no friends but this type of operation was viewed as legitimate and would continue on the other exchanges long after the closing of the Gold Exchange in 1879.

As the years went by there would continue to be many attempts to derail, control or close the commodities exchanges. There were even many books and popular songs written at the time that exacerbated the dislike of the Chicago Pit markets by the farming industry.

This played into the hands of the “Bucket Shops”. These were trading rooms set up off the exchange that would take bets on the activity on the exchange. The information was relayed to them by teletype. In reality they were no more than gambling shops. Like any illegal gambling shops many would take a side of a bet and never cover the other side betting that the investor/gambler would loose. Then eventually they would blow up and move to another office and start again under another name. But sadly there were many that viewed them as legitimate competition to the pit traders, which were so hated.

This was one subject the Exchanges took seriously and tried their best to curtail as they did not want the already bad press to get any worse. They informed the teletype companies not to supply any information to the bucket shops. But still the bucket shops would have “runners” inside that would with intricate signals inform the prices from the windows. It would only be a matter of time before the CBOT caught on and had the windows painted black. This is why exchanges would not have windows in the future.

Information is money, as you can tell by how much Reuters and Bloomberg are charging these days for live market data and how much security they load onto their systems.

Any kind of legal guidelines were missing in the commodities markets as well as the stock exchange. The first piece of legislation was to come only in response to a crisis. In 1915 Congress passed the first federal law regulating futures exchanges called- The Cotton Futures Act. After the Civil War trading cotton had moved to New York. This helped to enhance the city’s ever-growing interest in the commodities business. Then 1906 chaos struck when a tropical storm wiped out much of the cotton crops in the producing states. This made it difficult to deliver in a timely fashion and with the proper quality. There were endless amounts of complaints but the exchange did not react so users of the exchange approached Congress to remedy this situation. The provisions of the act essentially required the exchange to make clear, firm prices and standardized delivery grades and procedures for their contracts. This was an important step though not that apparent at the time towards the growth of commodities exchanges.

One of the oddest stories I read recently was that at the start of World War 1 the NYSE and the Cotton and Coffee exchanges closed for a few months in fear that there would be flight of capital. But in reality what was to happen and what has happened ever since is that they opened to good demand and higher prices which was a big surprise to them. This is something the market has remembered and I am not aware of any exchange closing for this reason again, at least not intentionally. They learned that War is good for business!

In 1918 Congress passed a law that was not good for business-the Food Control Act. The prices of food were considered vital to the war effort so prices were frozen and the exchanges were blocked from trading wheat, butter and eggs. All other commodities continued to trade normally and the other three were back online in two years. Though they were unhappy it was better than the other potential outcome of shutting the exchanges completely down during the war.

Unfortunately for the country a recession struck afterward. Wheat prices traded much lower and the Futures exchanges were again being blamed. Having recovered from war European farm production increased adding pressure on farm prices in the United States. Prices collapsed rapidly as a result of the recovery. Farmers harped on the Futures Market and got Congress to pass the Futures Trading Act of 1921. The Supreme Court struck this down as unconstitutional and it was quickly replaced by the Grain Futures Act in 1922. This law required that the exchanges keep records of historical prices for three years, prohibit the dissemination of false reports regarding crop production and required control of delivered products. Its supporters believed that it was designed to give the market more structure and from what I have read it seems to have done its job and got the market moving in the right direction.

In the years to follow wheat prices would jump significantly as news of possible world wide wheat shortage hit the market. American farmers of course benefitted from the climb but others in the marketplace decried market manipulation on the exchange.

Regulations come and go but the same play keeps rearing their head. By the 1970s the futures markets were poised to enter a new position of global importance. It became apparent that volatility in Treasury bills, bonds and foreign exchange markets would lend themselves as important new additions to the Futures markets. Futures traders love volatility and producers and end users seek refuge and that is why these new contracts would not only grow and be bigger than all the original commodity futures markets combined, but would also improve the image of the Exchanges as important entities for the growth of the country and in fact the international marketplace. It was during these times that terms such as rollovers, puts, calls and straddles would become common place. It was then that the birth of the derivatives marketplace came to be. But as will always be the case scandal would follow and so again it would happen in the brave new world of the 1970s futures markets.

In 1974 Congress would pass the Commodity Futures Trading Commission Act (CFTC) which was the creation of a regulatory body for the sole purpose of regulating the futures markets. Of course the Exchanges had their hands in this and under this act were permitted to create the National Futures Association, a self regulatory body that would work in partnership with the government entity. However the government entity of course would be the law giver and enforcer.

Moving into more familiar territory and some of you present here today actually lived through that time, we will take a quick look at the topic of the Hunt Brothers silver squeeze. It was as early as 1973 that Nelson Hunt began buying silver in the Middle East to accumulate a large horde there. In December of that year they had also added large positions in the futures markets at a price of $2.90. Between the physical holdings and the futures he was creating a squeeze and it drove the price up to $6.70.The classic squeeze proved profitable for them and it would not be long before he and his family and friends would take advantage of the situation. It appears that the 1973 trade may have been a test of the waters.

The squeeze is effective because of the perceived shortage of metal for the delivery against contracts. That is why it is important to at the same time hide stocks around the globe. Hence the price will increase with no real change in fundamental demand factors other than speculation.

Bunker Hunt made many trips to the Middle East in the mid 1970s where he enlisted the help of friends that did not mind making a few extra bucks. Using his connections to the oil industry he was able to convince many of these investors with substantial assets to work with him in buying up the physical silver in the marketplace. Among the investors were three wealthy Saudis, Khalid Bin Mahfouz, Prince Abdullah and Gaith Pharaon. These investors used brokers designated by the Hunts to hide their activity in the market. In addition the rumors abounded of Saudi interest in silver and that added fuel to the fire as well.

By the summer of 1976 the Hunt Brothers had accumulated a total of 53 million ounces while the price was $4.30. The CFTC contacted them about their activity and they informed them that it was against a trade related to a sugar deal in the Philippines. Barter deals were still common at the time so the excuse was accepted with skepticism.

The COMEX and CBOT, as well as the European markets, new full well of the Hunt’s activity. However the exchanges felt there was little they could do about it since the business was not coming from the floor. A corner from a pit trader is what they were used to dealing with, this operation was harder to prove or detect. But because the world was in the midst of constant turmoil at the time Silver crept to $50 an ounce due to the combined factors, the highest price ever recorded.

As gold was rising due to the turmoil of the times, Silver was also rising. That movement gave the impression that maybe silver was being used as a non-currency asset like gold by the central banks. It was “Bunk” of course. The Hunts nonstop buying gave that impression and they were able to entice other traders to buy as well, a successful ruse.

Most of the buying came from International Metals Investment Co., owned primarily by the Hunts and the Saudis. The incredible price rise caused the COMEX to raise its margin but it had no effect as they were pyramiding. That means they kept leveraging against their gains. It was becoming apparent that the corner was probably the largest in recorded history.

Then it was different measures that took hold on the Hunts. First CBOT then COMEX imposed position limits. At this point Nelson Hunt commented “the hometown boys don’t want anyone from out of town to make money in their markets.” There was no doubt that did come into play, but the free markets don’t exist to help people with deep pockets reach into others pockets by manipulating markets either.

Then the Federal Reserve began restricting money supply which drove up interest rates. This inevitably led to the tightening of credit. This was yet another stick thrown into the spokes of their machine. But it wasn’t until the silver hit that $50 price level that the COMEX initiated a temporary rule that allowed further trading for liquidation purposes only and it was not allowed to establish new positions. The effect was immediate and by March 1980 the corner was finished.

I am going to jump to Black Monday 1987 though there are interesting stories before that period as well. Unfortunately history repeats itself more often than not and as it has been taught to me those that do not know history are doomed to repeat it. That is why the best experience a new trader in the commodities business can ask for is to be trained by a seasoned professional who has been there and done that and is willing to share their knowledge.

Let’s do a quick run over of some of what we saw happen since 1987 to present. Some of the more easily memorable calamities; we had the collapse of Barings Bank PLC. This bank was over 200 years old was well respected and known as the bank to the Queen. How is it possible that one rogue trader in Singapore could force the liquidation of this venerable firm? Second, we had major losses for Sumitomo Metals again caused by a trader in Chile practically driving the company into bankruptcy. Immediately following we had another major loss at Daiwa Securities by a bond trader who was hiding his bad trades.

My basic belief is that it is a combination of greed and lack of proper controls that created these major losses. In all these instances the management had believed the traders were making money and when the persons in back office would confront the upper management with conflicts they would be pushed off. No one likes bad news but when there is an error or a report of discrepancy that could loose money you need to solve the situation and not rely only on the comments of the trader being questioned. But due to greed the management was always willing to accept bent rules as long as the bottom-line looked good in order to pad their end of year bonuses.

This is the basic driving force and cause of the recent collapse in our economic environment. I will expound on this concept but I will need to first build the scene to a point where we all recognize plainly, who, what and where these problems came to be.

On Black Monday October 19, 1987 I was trading at Piano Remittance Corp. in Manhattan. I was clueless as to why the stock market collapsed and what had been going on around me in the market place. Meanwhile that day gold reached over $500 dollars a number unseen for some time. It was mayhem on my desk as I had many customers calling up and buying gold as hedge in case the move continued. I wasn’t able to tell what had happened and the driving force was more illusive than I expected.

Derivative has always been a word I don’t particularly like or trust. I have often felt that when a company adds that word they are trying to legitimize a product that otherwise would not see the light of day in another circumstance. It is usually a product based on legitimate product that is used to somehow extract value for the proponent at a cost to the buyer. There are certain derivatives that are of course to me black and white, such as options and futures. But the market has a way of creating new products and selling them to people who believe them to be useful. The people they use to propose these products are usually Harvard & MIT graduates, also know as ”quants”, that can even make Vanilla Ice Cream a complicated issue.

The one that helped cause the market collapse on that day was the Portfolio Insurance. This is simply a hedging strategy based on the Black Scholes option model. What it would do is have a direct percentage hedge based on the stocks held against a future position such as S&Ps. This hedge would be reduced as the market went in favor of the position and would increase as the market prices went against it. Of course the one thing theses geniuses never seem to take into account is liquidity and anomalies (human error or greed).

Morgan Stanley was the firm behind this product. The market had demand for this product as it had been in a long bull run since 1982 so that many holders would want to protect their gains from the downside risk. In a short time of development of this program they were able to have over $3 billion of assets which at that time was considered a lot of money. They had major takers too such as Chrysler, Ford and Gillete.

Friday, October 16, 1987 the stock market dropped more than 100 points after the previous days’ decline of 95 points. This of course triggered covering from the “portfolio insurance programs” of which by this time Morgan Stanley were no longer the only players. By Monday morning of October 19 the market began to go into a freefall as it could not absorb the selling on the exchange the pricing pressure from the futures side of the hedge was too much. Every time the price went lower it triggered more selling and it was a self fulfilling prophecy causing the bicycle wheel to go round and round until it went flat. From that morning to the following day’s open the market was down 22 percent wiping out several years worth of GDP.

The Portfolio insurance product was responsible for at least 30 percent of the volume that day. The bottom-line, the lesson learned stocks are not as liquid as futures. It took Masters Degrees and billions of dollars in losses for them to figure out something that any clerk could have told you.

But this is the mere beginnings of the Hedge Fund industry. I guess it was so good we have to keep believing they know what they are doing? It is the Gnosticism of the financial markets. Where the normally intelligent business people invest money into all sorts of complex trading strategies believing that these people know something we don’t. That there is an inner secret to all these numbers and a select few have the wisdom to maneuver it. However from my studies and recent history we learn that what they do is create a model where they take value out for their pockets and hope it all turns out right in the end.

The next infamous debacle to come down the path was the demise of Long Term Capital Management, another Hedge Fund. There were several reasons for their demise but one of the principal factors at work was the absurd amount of money where they were able to leverage $3 billion dollars of capital into hundreds of billions of dollars with borrowed money in positions.

Why do banks lend to these funds such ridiculously large amounts of money? It is because they believe financial institutions are liquid and corporations are not. So the concept is that you can liquidate a financial company rather quickly and get a large portion of the bank’s risked money back as opposed to an ongoing business entity where its assets are the building, products and patents. The concept of liquidity is the driving force behind the lending and it is also its downfall.

If a firm is using their marked to market assets to leverage into bigger and better positions and the market turns against them, then the downturn will crush them if the move is significant. Again the same old pyramiding that we saw with the Hunts and happens over and over again.

It reminds me of how they catch monkeys? They get trapped by reaching into a small hole to grab an orange (the orange represents greed) in a coconut. Then they realize they can’t get their hands out with the orange but they refuse to let go. If they let go they would be free. Stupid Monkeys!

The odd thing about the markets, and it is unforgiving, is once that this liquidity collapse begins it feeds itself as we have seen in portfolio insurance collapse. The leveraged company needs to raise cash to meet margins. Their liquidations drive the market lower and they need to do it again. Compound that with their clients wanting to get their money out of this spiral and we are facing another failure.

I get back to my point about Long Term Capital Management. As is and has been the case, the demand for high returns on money causes companies to take greater risk than they would otherwise. That is what happened to LTCM and that is what we will continue to see happen in other sectors as well. Trading firms look for products they can take points out of, make the spread. So if you have 1 billion dollars and you can squeak out a few million dollars, that’s nice but you need better numbers to get the impressive 20% returns. Then the only choice is to leverage that money 20, 50 or even 100 to 1. But the biggest problem with that scenario is this increases your risk. If the trade goes against you, you are doomed.

LTCM was in both bonds and stocks and all of its trades had two types of risk; credit and liquidity. What do you think happened? In one of the many examples of their failures they had owned huge amounts of Russian bonds. The market was getting weaker due a downturn in the Russian economy. They were betting that it would get better and kept adding to a highly leveraged loosing position. The idea was to improve their average price but the market for the bonds kept dropping. By the time they got a clue it was already past the point of no return and the already illiquid market collapsed. It was simply greed; all the signs were there and instead of taking their losses their arrogance drove them to continue to invest. Their inevitable collapse started by this event would not only take them down but would bring down UBS as well since they were their major lender.

In the book “A Demon of Our Own Design” by Richard Bookstaber, he makes the case that the more safety checks there are that it will increase the complexity and that this would be counterproductive to the markets. His examples were both from industrial sector and oddly enough the industrial sector sure seems to have a lot less accidents than the financial sector. Certainly there are always unforeseen situations but that doesn’t mean you don’t try to prevent recurrences of those you had dealt with in the past.

I believe complexity of the derivative products and not the regulations are what have caused the greatest amount of damage. Hidden risk is the biggest danger and highly leverage just makes matters worse. The risk taken in the market place are large because there are so many interrelated issues and many not immediately knowable that can affect a traders position at any moment and force liquidations. In these cases it is always the highly leverage that will suffer the most.

I agree with Bookstaber that complexity causes problems. But it is the twofold complexity of these run amok financial investment companies with their derivative products that need to be regulated. The products themselves need to be analyzed by an outside agency when they exceed a certain amount of capital base or leverage position in the market. Even though the case of having the right to loose their own money is well and good but it is not just their money and their investors when they are leveraged. In the end it is the public’s money at risk, as we have obviously so recently learned, and learned the hard way.

You know when I sat down to write I didn’t think I would have enough to say. I thought I could probably just make my point in 5 minutes and walk out. You probably would have been happier had I done it that way. Well now I am going to sum up by commenting about current events, pointing out the factors that I call the “New Exchanges” and point out the obvious. It cost you and I money!


In the past it was believed that mortgages had little in the way of default risk. Believe it or not it was pretty much true. But then deregulation came we merged our banks and brokers. Our new mega banks which are in a sense exchanges themselves need to make more and more to show a better bottom-line. Derivatives come into play, the complex investment with hidden risks. Add to that the furious greed of everyone involved from the stock holders, commission earning bankers/brokers, bonus hungry management and we have a formula where the fox is in the hen house and he is eating all the eggs.

While the markets were increasingly taking risk and earning greater numbers. The common people were sitting around scratching there head as all this loose money was creating a hyper inflated Real Estate market. We would look at each other say “Holy Cimoli, how much did they get for that house!” The simple folk would sit around and say simple things like what comes up must come down.

(Gino Cimoli played right field for the Kansas City Athletics in the 1960’s. He made several spectacular catches going into the right field stands at Yankee Stadium, hence the expression, “Holy Cimoli!!!”)

By the way the common folk were right but the situation was worse than they expected the money was being stolen by this mix of businesses. Entities that historically were separated to keep away conflicts of interest were all now one and taking advantage of it but in the end it was the greedy feeding frenzy that drove this machine. However it was lack of oversight that allowed it to go on.

In the derivatives part of the market there were many new products out being traded in large volumes as you have seen from the examples I have put forth. Some in Congress actually took notice and wanted to investigate and regulate but the then praised Fed Chairman Alan Greenspan would rebuke them as uneducated intimating that the markets would correct themselves and a free market is the best market. He was wrong and a recent congressional grilling of the retired chairman was unfriendly to say the least.

Then in the midst of these problems the big money has nowhere to go. They have to continue to make money somehow. Where do they turn? Everyone here knows. They turn to commodities. The rise of the precious metals was no surprise as it was overly depressed but at a certain point we all knew and thought the same thing as the simple folk. As we say it in New Jersey “Hey, what gives?”

“What gives” was simple and it was the unbridled highly leveraged investment companies that drove the prices to the point where it was beginning to cripple industry. They kept feeding us the line about the Indo/China growth, as if the only commodities available to them were imported.

I first realized this was a falsehood when I saw China move onto the official chart of silver producers and in a few short years become one of the top three silver producing nations in the world according to the USGS survey report. (The report by the way is free available to all courtesy of our tax money.)

The next tip off was when South Africa had their electricity problems and the price of Platinum sky rocketed above 2,000 level. The power was brought to 90% capacity and the price refused to drop. The media kept talking traders’ books by claiming supply, shortages. These supposed supply shortages included demand by the ETF market which was a way of taking platinum out of circulation. So for a metal that its primary usage is industrial based it looked too far fetched to me.

But they weren’t done yet. The next play was an even smaller market. Rhodium was driven to $10,000 an ounce a metal that a few short years ago was $1,500. How can this be? Well, we all knew it was bizarre and smart traders got out at that level. Then it would only be a matter of time before it would finally catch up to them.

There was still one more game left in town, this time they crossed the line. They drove the money into crude artificially raising the price to historic high of $150 per barrel. Unfortunately the media and the Environmental Cultists jumped on the band wagon supporting their propaganda of shortages. All the time this was going on the Saudis were stating that there was no shortage and the market was way overpriced So it held near that level for a little while but not too long as something smelled fishy as I and millions of other citizens contacted our Congressmen and Senators to have them get to the bottom of this move.

It is one thing to hurt industry in a small way where they can pass along the higher commodity costs but it is another when you rob the American public directly and the world for that matter. I would even go so far as to call them investment terrorists as I am certain many where unwittingly devastated in the upward move.

I have a disdain for Goldman Sachs as over the years of my career I have heard many stories of corrupt market practices that would go unpunished. So now that I have said that to qualify my next statement. I remember in the summer months while everyone was crying fowl that Maria Bartiromo asked the US Treasury Secretary Hank Paulson (former Goldman Sachs) if he thought that speculation had anything to do with the price of Crude Oil and like a good puppy dog he said NO. I was shocked and upset and called my Congressman again. The same day while it was trading in the $120 range Goldman puts out an announcement that they believe Crude should be at $150. At that point I was 100% certain they were both talking their book.

But sadly, even bigger than the story of costing us money, is the fact that because of the high price of fuel the US public stopped buying their beloved SUVs. This totally crushed the US auto manufacturers. In my view it was a stake right through their hearts. The huge inventory was too much to sustain as they couldn’t sell new vehicles and the old ones were coming back off leases with nowhere to go. The effect was murderous.

Then it was pay back time as all the dominoes that the financial markets had been playing began to collide. First came the collapse of the banking industry driven by the subprime factor. Then the collapse of the stock markets because of margin calls and lack of confidence. Then finally the collapse of both precious metals and crude oil prices as highly leveraged companies needed to liquidate to make margin calls in other sectors or just pay back debt. As their performance crumbled, their investors pulled their money as well causing closing of many funds and investment companies.

In conclusion I am just a simple citizen who works in the commodities market places and have observed and read a lot. I believe that we need as a country to regulate the financial markets, especially now that we own much of what is left. After this experience with Crude Oil, I believe special oversight has to be established for the regulation and possible restrictions of energy markets. Finally I trust banks will tighten their credit parameters not just for the regular mortgage applicants but for the hot shot investment companies as well.

It is a complex issue but one that should be top priority for the US government. They need to put it on square one as the principal duty of government to ensure the just and equitable dealings in the financial markets for all the people. With the comfort of proper regulation growth and recovery will also be sure to follow.