How the financial "Big Players" gained their power

Not Sylvia Night
November 23, 2009

The international financial elites wield enormous power over governments both in developing and developed industrial countries.

Legislation in many parliaments favors large corporations and puts ordinary citizens and small businesses at a disadvantage. Wealth is being systematically transferred from the middle classes to the super-rich. The poor are getting poorer and are joined in by more and more former members of the middle-classes.

Large banks, which had brought themselves and the whole world economy to the verge of bankruptcy by their fraudulent speculations, are being bailed out with tax-payer money, while small banks with honest business practices are being swallowed by those just bailed out.

The power by which the financial elite create these processes is the power they have over the money issuing process of nations and over the world's resources.

"Permit me to issue and control the money of a nation, and I care not who makes its laws" said Mayer Amschel Rothschild, founder of the first international banking empire, about 200 years ago.

With the invention of fractional reserve banking, private bankers became the de facto money-issuing entities which now controls the money supply of all capitalist nations.

With the establishment of private, or semi-private, central banks, like the Bank of England, the Federal Reserve, or the European Central Bank, the largest private banking establishments became interconnected cartels with monopoly powers.

The history of money creation and the consequences of the process today are explained in the videos; Money as Debt, and with more details on the influence of interest payments in, Money as Debt II.

Today this ever more consolidated banking cartel, which has pushed most independent banks out of the market, controls and issues not only the money of individual nations, but also the money transfer lines between nations all over the globe. It also controls through speculation with exotic financial instruments the price of all internationally traded resources, as well as most services and manufactured goods and even the value of real estate.

In order to control prices and availability of vital resources, the financial elites do not actually need to own those very resources. It is far more efficient for them to gain control over the trade of raw-materials among nations.

In gaining trade-control the physical transit lines; using ships, pipelines, rail, trucks or airfreight, are relatively unimportant. What actually counts in international trade nowadays are the money-transfer lines.

When in October 2008 the Icelandic banking system crashed, the most important physical industry of Iceland, the fishing industry, was still doing well. Fish, the principle source of income for the Icelandic economy, was still being caught, processed and transported to retail markets abroad.

However, the whole western financial industry had in one accord put a full stop to money transfers to and from Iceland. The buyers abroad could no longer pay for the Icelandic fish they bought and transfer the money to the accounts of the Icelandic fishing-companies and processing plants.

Normally the foreign money would then have been exchanged by the exporters into Icelandic currency at the central bank. Icelandic retailers could in return have bought those foreign currencies from there to pay for their imports. These are the basics of international trade, the balances of exports and imports. And due to the boycott, the western financial elites had declared on money-transfers to and from Iceland, this was now no longer possible, to the detriment of Icelanders and their customers abroad. And so, in one stroke the Icelandic government had lost all sovereignty over it´s financial policies.

Practically every every Icelandic politician was initially opposed to allowing the IMF, the representative of the international banking-consortium, to dictate Icelandic policies. And still the Icelandic government, both the one driven out of office by the people, as well as the newly elected one, eventually saw no other option, but to surrender control over the nation´s financial policies to the IMF and obey it´s dictates, knowing full well, it would hurt the population and the domestic industry.

To be sure, Iceland is a country with a tiny population, and therefor rather helpless against the pressure from more powerful actors. But as we can see in US politics today, even the largest economies and military powers on earth have to bow down to those financial powers, against the interests of their own peoples and their own industries.

But the power of "big finance" goes far beyond purely financial policies. As is being confirmed by more and more scientific evidence, the burning of oil, natural gas and coal as energy sources does not have a catastrophic influence on our climate, but still laws are being prepared for the energy consumers of the world to have to pay carbon-taxes and trade in carbon offsetts, a trade, which soon will be controlled by the international financial markets. We also have seen it becoming more accepted by the scientific community that those hydrocarbon fuels are not really scarce resources either. We will not run out of them any time soon, and still there are reoccurring price hikes under the pretense of present or soon to come scarcity.

The financial elites with the help of pseudo-scientists nurtured those myths into existence in order to gain even more control over the world´s the energy markets and a free hand in manipulating prices.

Most prices consumers pay nowadays for the goods they purchase or the energy they use or the rent or mortgage payments they have to make, have nothing whatsoever to do with supply and demand, or production costs or the level of wages or the costs of extracting the needed raw material. The financial markets determine the prices by their speculative financial instruments and the phoney scarcity paradigm quiets any potential public discontent.

Both rising as well as falling prices will produce profits for the "Big Players" of these markets.
To see how much and in what way consumer energy prices are shaped by speculation let´s take the example of crude oil and refined gasoline:

According to the Energy Information Administration (EIA), the official US government source,

in 2006, average production costs (or lifting costs - the cost to bring a barrel of oil to the surface) ranged from
* about $4 per barrel (excluding taxes) in Africa
* to about $8.30 per barrel in Canada;
* the average for the U.S. was $6.83/barrel...

In 2008, according to the U.S. Department of Energy, the refining costs of gasoline was calculated with about 10 cents per gallon (or per 4 liters).

The next question, of course, is how many gallons of gasoline can be produced through the refining process from one barrel of crude oil?

The website "Fat Knowledge" explains, that a barrel of crude oil containing 42 gallons or about 158 liters, can be turned - using the most modern refining technology - into just as many gallons or liters of gasoline.

Using these figures we can now estimate that the combined costs of oil extraction and refining and transport, minus energy loss (about 18%) in the process, is for American-produced gasoline roughly 30 cents per gallon or 7.5 cents per liter.

Quite a bit of a difference between consumer prices and production costs, isn´t it?

Of course, some of the prices are taxes, which are supposed to be used for creating and upholding the traffic infrastructure like streets, roads and bridges. Does the rest go to the oil-companies or the oil-producing countries? A percentage of it, yes, but the real profits are being made on the financial markets.

In a November 2009 article stockbroker and financial expert Philip R. Davis writes:
The Global Oil Scam: 50 Times Bigger than Madoff

$2.5 Trillion - That’s the size of the global oil scam...
Goldman Sachs (GS), Morgan Stanley (MS), BP (BP), Total (TOT), Shell (RDS.A), Deutsche Bank (DB) and Societe Generale (SCGLY.PK) founded the Intercontinental Exchange (ICE) in 2000.

ICE is an online commodities and futures marketplace. It is outside the US and operates free from the constraints of US laws. The exchange was set up to facilitate "dark pool" trading in the commodities markets. Billions of dollars are being placed on oil futures contracts at the ICE and the beauty of this scam is that they NEVER take delivery, per se. They just ratchet up the price with leveraged speculation using your TARP money. This year alone they ratcheted up the global cost of oil from $40 to $80 per barrel.....

A Congressional investigation into energy trading in 2003 discovered that ICE was being used to facilitate "round-trip" trades. " Round-trip” trades occur when one firm sells energy to another and then the second firm simultaneously sells the same amount of energy back to the first company at exactly the same price. No commodity ever changes hands. But when done on an exchange, these transactions send a price signal to the market and they artificially boost revenue for the company. This is nothing more than a massive fraud, pure and simple....

How widespread are “round-trip’‘ trades?...

DMS Energy, when investigated by Congress, admitted that 80 percent of its trades in 2001 were “round-trip” trades... Duke Energy (DUK) disclosed that $1.1 billion worth of trades were “round-trip” since 1999 [of course these trades gained strategic leverage on broader price levels]....

There is NO shortage of oil. OPEC alone has 6-7 Million barrels a day of spare capacity, more than the total disruption of any single country and any two countries other than Saudi Arabia could offset. Additionally, ICE partners Total and JPM are part of the cartel that is totally skewing the global demand picture by storing 125M barrels of oil in offshore tankers...

Goldman Sachs issues bullish opinions on oil and builds large positions in oil, while it is the cartel’s job to hide oil in offshore tankers, and then sell forward all the oil, with futures contracts, locking in the high price....

Richard Freeman and John Hoefle describe in a June 2004 article the history and the technical process of oil speculations:

The key to the ability of the financiers behind the oil cartel to manipulate prices in the oil market, is the shift which occurred during the oil crises of 1974 and 1979, in which long-term contracts—frequently for 24 or 36 months—at stable prices were replaced with the spot market and then the futures markets...

The oil spot market was created in 1969 by the Lazard/Rothschild-allied Philipp Brothers, then the world's largest metals trader. Philipp Brothers, largely in the person of their top trader Marc Rich, began by selling small quantities of Iranian crude oil to independent refiners.

The oil shocks of 1973 and 1979, which were orchestrated by the financier oligarchy under the cover of the OPEC oil embargo and the fall of the Shah in Iran, resulted in a shift in oil pricing away from long-term contracts toward the Rotterdam-based spot market.

By "spot" is meant, that one buys the oil at a market only 24-48 hours before one takes physical (spot) delivery, as opposed to buying it 12 or more months in advance. In effect, the spot market inserted a financial middleman into the oil-patch income stream in much the same way that deregulation would later do for electricity.

Today, the oil price is largely set in the futures markets. The two principal locales which dominate oil futures trading are the London-based International Petroleum Exchange (IPE), established in 1980, and the New York Mercantile Exchange (NYMEX), which is more than a century old, but also first started trading oil futures in 1983. Traders call futures contracts "paper oil": the contracts are a paper claim against oil, which is far in excess of the volume of oil produced and actually delivered at oil terminals on behalf of those contracts.

The traders transact a large volume of derivatives bets. Speculators purchase on the IPE and NYMEX exchanges, futures contracts; each single contract is a bet on 1,000 barrels of oil. More than 100 million of these oil derivatives contracts were traded on these exchanges in 2003, representing 100 billion barrels of oil. In a year 2000 study, EIR showed that on the IPE, for every 570 "paper barrels of oil"—that is futures derivatives covering 570 barrels—traded each year, there was only one underlying physical barrel of oil. The 570 paper oil contracts pull the price of the underlying barrel of oil, manipulating the oil price. If the speculators bet long—that the price will rise—the mountain of bets pulls up the underlying price.

But worse, there is a second layer of leverage. At the London IPE, the speculator can buy a futures contract on a margin of 3.8%. That is, were the speculator to buy a single futures contract, representing 1,000 barrels of oil at, say, an oil price of $40 per barrel, then the contract represents $40,000. However, the speculator pays only $1,520 for the premium of the contract—or 3.8% of the $40,000—which gives him control over the contract. Through an investment of $1,520, the speculator controls 1,000 barrels of oil. A small group of speculators, through leverage, control the world oil price.

A NYMEX document, "How the Exchange Works," boasts that it has nothing to do with oil production. "Yet the buying and selling on the Exchange occurs amid the winding streets of the oldest section of New York, with nary an oil well or copper mine in sight. In fact, many thousands of transactions conducted on the Exchange each day are accomplished without the participants ever seeing a gallon of heating oil."...

As for London's (IPE), it has reported that its trade with Brent Crude oil contracts reached 375 million barrels in open-interest contracts on May 14, the highest level ever. This is about five times the total daily production of all sorts of oil worldwide....

The money that is being drawn out of the real world economy by these speculative practices is then being used to keep the international financial markets afloat, enticing even more real economy money into the speculative realm, creating in the process a shortage of liquid capital for ordinary consumer lending and end user purchasing, causing economic deflation in some countries, while at the same time depreciating the value of national currencies across the world.

The funds are also being used to buy up real resources and agricultural lands all over the world as well as bribing politicians and putting pressure on governments and nations to sell out their industries, public services and public lands to multi-national corporations, which are majority owned by those same financial "big players".

Today´s financial markets and their "big players" are totally disconnected from economic reality and any public good. They have become pure predators on the whole world´s population. They are destructive of the real economy. And if they ever contributed anything useful in the past, they certainly don´t any more.

The author is a frequent contributor to Aletho News and a human rights activist based in Iceland. An archive of previous articles is available at her blog. She deals with subjects like Zionism and the war against the Palestinian people, Western Islamophobia and the myths used to justify wars in the Middle East, imperialism in general, pseudo-scientific myths, falsification of history, the influence of religion on political philosophies, the human mind and how it is influenced by organized propaganda.