THE OIL FUTURES MARKET

A few years ago, my wife and I attended a movie premier for a film called “Uncommon
Friends of the 20th Century”. The film was narrated by Walter Cronkite. He originally
turned it down because he doesn’t do fiction. Then he found out it was all true. It was
about a man in Ft. Myers that was friends with Henry Ford, Thomas Edison, Harvey
Firestone and Charles Lindbergh.

In the film, Walter tells a story of a reporter from Miami that interviewed Henry Ford.
Back in the day, cars had running boards, and Mr. Ford and the reporter sat on the
running board of a new Ford for about an hour. The reporter asked his questions and Mr.
Ford graciously answered them. After the interview, the reporter thanked Mr. Ford and
reporter drove away, he asked “why didn’t you tell him what’s under the hood of that left
to write his story. Henry’s friend had watched the entire interview and as the
automobile?” Henry replied “because he didn’t ask the right question.”
reporter drove away, he asked “why didn’t you tell him what’s under the hood of that
automobile?” Henry replied “because he didn’t ask the right question.”

What was under the hood was the first V8 engine, a development that changed the auto
industry forever. The reporter sat a foot away from the biggest story of his career for an
hour and didn’t get the story because he didn’t ask the right question. I learned
something from Walter Cronkite that night. I have always been inquisitive, but I learned
the value of asking the right question, and I have never forgotten that lesson.

So, I have been paying attention to the stories about the oil prices. I distinctly remember
hearing about the OPEC meeting where they set the price of oil and decided how much
oil they were going to pump. Then something happened, the OPEC gang packed up and
went home. Well after the time they went home, I noticed that the price of oil was
increasing by the hour. I thought “that’s odd, the OPEC gang set the price a month ago
but the price keeps changing.” So that led me to the obvious question, why?

On March 30, 1983 oil began trading on the New York Mercantile Exchange futures
market. Now let me explain the futures market. It’s kind of like legalized gambling.
Someone decides it’s likely Florida will have a freeze next year cutting back on the
supply of Orange Juice, so they buy 10 tanker cars full of Orange Juice at $1.00 per
gallon. The freeze comes as anticipated and now they can sell their juice at $1.50 per
gallon and make a nice profit. The next year they do the same but the weather is
extraordinary, Florida has a bumper crop and they have to unload their juice at $0.75, a
loss of $0.25 per gallon. Oh well, you win some and you loose some.

But the oil futures market is like shooting fish in a barrel, no pun intended but very fitting.
For a better picture of how the oil futures market works, imagine this: you walk into a
Wal-Mart needing to pick up new shoes. You find the shoes you need and the price is
$9.95 but you decide to do some other shopping before putting the shoes in your cart,
after all, they have plenty on the shelf. When you come back in ten minutes, the shoes
are $10.95 and you think “what’s up with that?” when your kid asks you if he can have a
skate board he’s holding. You tell him it may have to wait because the price on your
shoes has gone up. Then you turn back around and the shoes are $11.95. What the heck
is going on here?

You grab the shoes and run to the check out and ask why Wal-Mart keeps raising the
price by the minute. The cashier explains that it isn’t Wal-Mart, they set the price at
$6.95 this morning, but Goldman Sachs bought up the entire inventory. Then they sold
them to Morgan Stanley for $7.95 who in turn sold them to Merrill Lynch for $8.95 who
then sold them to Lehman Brothers for $9.95 who sold them to J.P. Morgan the company
you actually bought the shoes from. The amazing thing is that the shoes never left the
shelf and all of the companies combined made more money than Wal-Mart and they
never even saw the product. You paid twice as much for the product because of a
perceived supply shortage created by additional middlemen.

This is exactly what’s happening in the oil business. Hedge funds and investment banks
are buying up the supplies, inflating the price claiming supply shortages created by them
buying up the supplies and never actually having physical possession of the product.

What I propose is this:

1.      Remove oil from the futures market

2.      Freeze the assets of everyone trading in oil futures that do not have the ability
to immediately take delivery of the oil.

3.      Mandate that only people that are actually, physically processing and refining oil     
can purchase crude oil.   

4.      Anyone purchasing oil must take delivery of the oil.

Now this is the time that most politicians would say “So elect me to Congress and I will
present a bill to do this.” But I’m not your normal politician, I don’t have an ego to feed, I
don’t need a photo op and I don’t care who gets the credit as long as the job gets done. I
also don’t think we should wait until after November and we already know that the
current Congress is asleep at the wheel.

What I propose is that the President issues an Executive Order to accomplish my
proposal. While some may argue against that, Article II, Section 1 of the Constitution
reads, in part, "The executive power shall be vested in a President of the United States
of America." And, Article II, Section 3 asserts that, "The President shall take care that
the laws be faithfully executed..." Since the Constitution does not specifically define
executive power, critics of Executive Orders argue that these two passages do not
imply Constitutional authority. But, Presidents of the United States since George
Washington have argued that they do.

When President Franklin D. Roosevelt found America in the panic stage of the Great
Depression, the first thing FDR did was to convene a special session of Congress where
he introduced a bill amending the War Powers Act to remove the clause excluding
American citizens from being bound by its effects. This would allow the President to
declare “national emergencies” and unilaterally enact laws to deal with them. This
massive amendment was approved by both houses of Congress in less than 40 minutes
without debate. Hours later, FDR officially declared the depression a “national
emergency” and started issuing a string of Executive Orders that effectively were the
“New Deal.” While some of FDR’s actions were considered constitutionally questionable,
history recognizes them as averting the growing panic and starting our economy on its
way to recovery.



Any questions?
Don Baldauf for Congress
5726 Cortez Road West #151
Bradenton, FL 34210

ph: 941-538-8547

Don.Baldauf@Yahoo.com
Paid for by Don Baldauf for Congress (NPA)

Copyright Don Baldauf for Congress,
all rights reserved.
Don Baldauf for Congress