Rolling blackouts in California began in June 2000 and reoccurred several times over the following 12 months. This became known as the California electricity crisis and was characterised by extremely high prices, along with the blackouts.
By the summer of 2008 oil was trading at an unprecedented $140.00 US a barrel. Gasoline prices in Canada reached $1.40 a litre. This spike in the price of the world’s most precious resource had a very dramatic affect on the world’s economy and was likely the tipping point for the global financial crash which began in September 2008. Many in the media, supported by some of the financial experts - but not all, blamed the price rises on unregulated commodity speculators.
What do these two catastrophic events have in common? A company called Enron played a significant role in both situations.
Enron was an American energy company based in Houston, Texas. It employed almost 22,000 people and was one of the world’s leading electricity, natural gas, pulp and paper, and communications companies, with revenues of nearly $101 billion in the year 2000.
After a series of revelations involving irregular and fraudulent accounting procedures carried out during the 1990’s Enron filed for bankruptcy on December 2, 2001. Until the fall of Lehman Brother’s in September 2008, this was the largest bankruptcy in history.
Antonia Juhasz, in her recent book The Tyranny of Oil, indicates that Enron intentionally drove up the price of electricity in California through manipulation of the energy market. According to Juhasz, “as a result of the false scarcity of electricity and the rising prices created by Enron, people throughout the West encountered rolling blackouts and high electricity bills that many could not afford to pay”. Businesses closed down, people lost jobs and large public utilities’ declared bankruptcy. As this was occurring Enron collected the spoils. In just four months in the summer of 2000, according to Juhasz, Enron’s West Coast energy traders took in $200 million dollars. This was four times the profit they had made in all of 1999.
What precipitated the alarming rise in global oil prices during 2008 and enabled the manipulation of electricity inventories and prices in California in 2000? The answer involves an alteration to the U.S. Commodity and Futures Modernization Act which is now widely known as The Enron Loophole. Juhasz’s book describes the loophole based on a U.S. Senate Staff Report, Permanent Subcommitte on Investigations, June 25 and July 9, 2007 – “ the Enron Loophole… that exempts key energy commodities from government oversight…[has] resulted in the irrational situation in which one key U.S. energy exchange, the NYMEX, is subject to extensive regulatory oversight and obligations to ensure fair and orderly trading and to prevent excessive speculation, while another key energy exchange, ICE (The Intercontinental Exchange), operates with no regulatory oversight, no obligation to ensure it’s products are traded in a fair and orderly manner, and no obligation to prevent excessive speculation”. Not only Enron benefitted from this regulatory evasion. This change meant that any corporation, including the big oil companies, can participate directly in speculative energy trading. A great way to control the price wouldn’t you say?
A key architect of the Enron Loophole was also, incredibly, a key player in the deregulation of California’s energy commodity trading which enabled Enron’s traders to manipulate the energy market in that state. That man was Phil Gramm a former Republican Senator. You may remember Gramm. He was co-chair of John McCain’s run at the 2008 presidency and was McCain’s most senior economic adviser. Gramm would very likely be the U.S. Treasury Secretary if McCain had won the election. Gramm resigned from McCain’s campaign after referring to the American people as “a nation of whiners” in the summer of 2008. He was addressing the American electorates’ fears that they were entering a recession which Gramm said they were imagining. It is also interesting to note that according to Antonia Juhasz, in The Tyranny of Oil, after George W. Bush and Texas Senator Kay Bailey Hutchison “no elected official received more in campaign contributions from Enron than did Phil Gramm”. Also “Exxon Mobil’s … top three campaign recipients since 1990 are all from Texas and are, in order: George W. Bush, Senator Kay Bailey Hutchenson, and Senator Phil Gramm”. Apparently, according to Juhasz, Enron’s Ken Lay even served as the regional chairman of Gramm’s unsuccessful campaign for the Republican presidential nomination in 1996.
Gramm’s wife Wendy also played a significant role in the deregulation game. Wendy Gramm was deeply entrenched in the Reagan administrations’ financial regulation planning. She was the executive director of Reagan’s most important deregulatory arm, Reagan’s Presidential Task Force on Regulatory Relief. In 1988 she was appointed chairwoman of the CFTC (Commodity Futures Trading Commission). She held this position through the George H. W. Bush administration. According to Juhasz in the dying days of Bush Sr.’s administration Wendy Gramm enacted and approved a ruling that exempted key energy futures contracts from government regulation. So there’s the one-two punch. Mrs Gramm gets rid of regulation and, during Bush Jr’s first term, Mr, Gramm carries the ball a little further and has his wife’s earlier rules codified into federal law and then goes even further and adds changes to the Commodities Futures Modernization Act allowing energy traders to establish their own exchanges on which to trade contracts and then exempted the exchanges in their entirety from government regulation. After leaving her government job, Mrs. Gramm went directly to the board of directors of Enron.
As we wait for the 2009 version of spring to unfold, the news about the global economic situation keeps getting worse. Did the Enron Loophole play a role in this deepening recession that we are now experiencing? My answer is, yes, it did. High oil prices pushed an indebted system into a freefall. As Juhasz points out it’s not just the Oil companies that now control prices by establishing their own speculation exchanges. The large banks and other corporations are doing this too. According to Juhasz, Big Banks and big Oil “have heavily interlocking boards; they lobby together; and they contribute money to many of the same political candidates. They also share energy traders”. She goes on to say that “the banks have since become some of the largest beneficiaries of deregulation, particularly as they move directly into the oil business themselves. Moreover, as the banks have lost billions of dollars in the sub-prime mortgage debacle (largely caused by deregulation and market speculation), they re moving aggressively into energy trading”.
Just after Bill Clinton won the presidential election in 1993 I heard an interview with Gore Vidal on the CBC radio program, As It Happens. Vidal is an American novelist, playwright, essayist, short story writer, and politician. In the interview Vidal stated that Clinton may very well be the last popularly elected President of the United States. He went on to say that there was just one political party in that country and it was the “Corporate Party”. This party consists of two wings, the Republican wing and the Democratic wing. In other words, the system is controlled by the large corporations and Clinton, due to his popularity with the broader electorate, was not their man. Vidal opined that if Clinton fails then we would likely see the corporation’s representatives in that office far into the future. I was really struck by Vidal’s ideas in that conversation and they stayed with me. Well Clinton did screw up and the corporations got their man elected. George W. Bush was certainly an Avatar for the big Oil companies, so much so that they didn’t even have to spend money on lobbyists during Bush’s terms according to Juhasz.
We now have another popularly elected American President in office and it looks like the Yanks get another kick at the can (the rest of us too by association). Let’s hope that Obama succeeds in closing the Enron Loophole and any others that work to the determent of the larger society.
By the summer of 2008 oil was trading at an unprecedented $140.00 US a barrel. Gasoline prices in Canada reached $1.40 a litre. This spike in the price of the world’s most precious resource had a very dramatic affect on the world’s economy and was likely the tipping point for the global financial crash which began in September 2008. Many in the media, supported by some of the financial experts - but not all, blamed the price rises on unregulated commodity speculators.
What do these two catastrophic events have in common? A company called Enron played a significant role in both situations.
Enron was an American energy company based in Houston, Texas. It employed almost 22,000 people and was one of the world’s leading electricity, natural gas, pulp and paper, and communications companies, with revenues of nearly $101 billion in the year 2000.
After a series of revelations involving irregular and fraudulent accounting procedures carried out during the 1990’s Enron filed for bankruptcy on December 2, 2001. Until the fall of Lehman Brother’s in September 2008, this was the largest bankruptcy in history.
Antonia Juhasz, in her recent book The Tyranny of Oil, indicates that Enron intentionally drove up the price of electricity in California through manipulation of the energy market. According to Juhasz, “as a result of the false scarcity of electricity and the rising prices created by Enron, people throughout the West encountered rolling blackouts and high electricity bills that many could not afford to pay”. Businesses closed down, people lost jobs and large public utilities’ declared bankruptcy. As this was occurring Enron collected the spoils. In just four months in the summer of 2000, according to Juhasz, Enron’s West Coast energy traders took in $200 million dollars. This was four times the profit they had made in all of 1999.
What precipitated the alarming rise in global oil prices during 2008 and enabled the manipulation of electricity inventories and prices in California in 2000? The answer involves an alteration to the U.S. Commodity and Futures Modernization Act which is now widely known as The Enron Loophole. Juhasz’s book describes the loophole based on a U.S. Senate Staff Report, Permanent Subcommitte on Investigations, June 25 and July 9, 2007 – “ the Enron Loophole… that exempts key energy commodities from government oversight…[has] resulted in the irrational situation in which one key U.S. energy exchange, the NYMEX, is subject to extensive regulatory oversight and obligations to ensure fair and orderly trading and to prevent excessive speculation, while another key energy exchange, ICE (The Intercontinental Exchange), operates with no regulatory oversight, no obligation to ensure it’s products are traded in a fair and orderly manner, and no obligation to prevent excessive speculation”. Not only Enron benefitted from this regulatory evasion. This change meant that any corporation, including the big oil companies, can participate directly in speculative energy trading. A great way to control the price wouldn’t you say?
A key architect of the Enron Loophole was also, incredibly, a key player in the deregulation of California’s energy commodity trading which enabled Enron’s traders to manipulate the energy market in that state. That man was Phil Gramm a former Republican Senator. You may remember Gramm. He was co-chair of John McCain’s run at the 2008 presidency and was McCain’s most senior economic adviser. Gramm would very likely be the U.S. Treasury Secretary if McCain had won the election. Gramm resigned from McCain’s campaign after referring to the American people as “a nation of whiners” in the summer of 2008. He was addressing the American electorates’ fears that they were entering a recession which Gramm said they were imagining. It is also interesting to note that according to Antonia Juhasz, in The Tyranny of Oil, after George W. Bush and Texas Senator Kay Bailey Hutchison “no elected official received more in campaign contributions from Enron than did Phil Gramm”. Also “Exxon Mobil’s … top three campaign recipients since 1990 are all from Texas and are, in order: George W. Bush, Senator Kay Bailey Hutchenson, and Senator Phil Gramm”. Apparently, according to Juhasz, Enron’s Ken Lay even served as the regional chairman of Gramm’s unsuccessful campaign for the Republican presidential nomination in 1996.
Gramm’s wife Wendy also played a significant role in the deregulation game. Wendy Gramm was deeply entrenched in the Reagan administrations’ financial regulation planning. She was the executive director of Reagan’s most important deregulatory arm, Reagan’s Presidential Task Force on Regulatory Relief. In 1988 she was appointed chairwoman of the CFTC (Commodity Futures Trading Commission). She held this position through the George H. W. Bush administration. According to Juhasz in the dying days of Bush Sr.’s administration Wendy Gramm enacted and approved a ruling that exempted key energy futures contracts from government regulation. So there’s the one-two punch. Mrs Gramm gets rid of regulation and, during Bush Jr’s first term, Mr, Gramm carries the ball a little further and has his wife’s earlier rules codified into federal law and then goes even further and adds changes to the Commodities Futures Modernization Act allowing energy traders to establish their own exchanges on which to trade contracts and then exempted the exchanges in their entirety from government regulation. After leaving her government job, Mrs. Gramm went directly to the board of directors of Enron.
As we wait for the 2009 version of spring to unfold, the news about the global economic situation keeps getting worse. Did the Enron Loophole play a role in this deepening recession that we are now experiencing? My answer is, yes, it did. High oil prices pushed an indebted system into a freefall. As Juhasz points out it’s not just the Oil companies that now control prices by establishing their own speculation exchanges. The large banks and other corporations are doing this too. According to Juhasz, Big Banks and big Oil “have heavily interlocking boards; they lobby together; and they contribute money to many of the same political candidates. They also share energy traders”. She goes on to say that “the banks have since become some of the largest beneficiaries of deregulation, particularly as they move directly into the oil business themselves. Moreover, as the banks have lost billions of dollars in the sub-prime mortgage debacle (largely caused by deregulation and market speculation), they re moving aggressively into energy trading”.
Just after Bill Clinton won the presidential election in 1993 I heard an interview with Gore Vidal on the CBC radio program, As It Happens. Vidal is an American novelist, playwright, essayist, short story writer, and politician. In the interview Vidal stated that Clinton may very well be the last popularly elected President of the United States. He went on to say that there was just one political party in that country and it was the “Corporate Party”. This party consists of two wings, the Republican wing and the Democratic wing. In other words, the system is controlled by the large corporations and Clinton, due to his popularity with the broader electorate, was not their man. Vidal opined that if Clinton fails then we would likely see the corporation’s representatives in that office far into the future. I was really struck by Vidal’s ideas in that conversation and they stayed with me. Well Clinton did screw up and the corporations got their man elected. George W. Bush was certainly an Avatar for the big Oil companies, so much so that they didn’t even have to spend money on lobbyists during Bush’s terms according to Juhasz.
We now have another popularly elected American President in office and it looks like the Yanks get another kick at the can (the rest of us too by association). Let’s hope that Obama succeeds in closing the Enron Loophole and any others that work to the determent of the larger society.
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