Are these feeder funds like the Ariel Fund, aggrieved victims, conspirators or just professionally negligent and/or incompetent in losing their clients’ money in Madoff’s scheme? Many pocketed hefty fees to fund lifestyles. Bernard L. Madoff was arrested on December 11, 2008 and charged with federal securities laws violations. His highly sophisticated and massive fraud is considered to be the largest in history.

“The complicated relationships between Bernard L. Madoff Investment Securities, its feeder funds, and those funds’ investors are already creating a complicated tangle of lawsuits, with investors suing both Madoff and the feeder funds, while the feeder funds themselves [. . .] consider their own legal options (FINalternatives 2009-01-08).”

Madoff Feeder Funds: FIM Kingate funds, London, UK; Fairfield Greenwich Group, Conneticut/NY; Ariel Fund,

tags: feeder funds, hedge funds, Madoff, Kingate, Ariel, New York University, white collar crime, regulation, complex financial instruments,
faceted tagging
categories

Webliography and Bibliography

2009-01-08. “Madoff Feeder Funds Consider Lawsuit Against Accused Ponzi Schemer.” FINalternatives: Hedge Funds & Private Equity News.

Berenson, Alex; Konigsberg, Eric. 2008-12-21. “Firm Built on Madoff Ties Faces Tough Questions.New York Times.

It reads more like fiction than mainstream news.

“But, at about the time of High ‘Change, Pressure began to wane, and appalling whispers to circulate, east, west, north, and south. At first they were faint, and went no further than a doubt whether Mr Merdle’s wealth would be found to be as vast as had been supposed; whether there might not be a temporary difficulty in ‘realising’ it; whether there might not even be a temporary suspension (say a month or so), on the part of the wonderful Bank. As the whispers became louder, which they did from that time every minute, they became more threatening. He had sprung from nothing, by no natural growth or process that any one could account for; he had been, after all, a low, ignorant fellow; he had been a down-looking man, and no one had ever been able to catch his eye; he had been taken up by all sorts of people in quite an unaccountable manner; he had never had any money of his own, his ventures had been utterly reckless, and his expenditure had been most enormous. In steady progression, as the day declined, the talk rose in sound and purpose. He had left a letter at the Baths addressed to his physician, and his physician had got the letter, and the letter would be produced at the Inquest on the morrow, and it would fall like a thunderbolt upon the multitude he had deluded. Numbers of men in every profession and trade would be blighted by his insolvency; old people who had been in easy
circumstances all their lives would have no place of repentance for their trust in him but the workhouse; legions of women and children would have their whole future desolated by the hand of this mighty scoundrel. Every partaker of his magnificent feasts would be seen to have been a sharer in the plunder of innumerable homes; every servile worshipper of riches who had helped to set him on his pedestal, would have done better to worship the Devil point-blank. So, the talk, lashed louder and higher by confirmation on confirmation, and by edition after edition of the evening papers, swelled into such a roar when night came, as might have brought one to believe that a solitary watcher on the gallery above the Dome of St Paul’s would have perceived the night air
to be laden with a heavy muttering of the name of Merdle, coupled with every form of execration (Dickens 1857).

Using Google Maps we can actually follow in space and time, the story of this giant Ponzi scheme. This post is a draft and a work in progress . . .

Items on this Google Map have not been fully edited.

Items in the bibliography have not been properly edited yet . . .

to be continued . . .

I want to watch Midsomer Murders now . . .

Notes

Circumlocution Office is Dickens’ (1857) term to ridicule governmental offices that delayed business by passing through the hands of different officials. “That brilliant invention the Circumlocution Office was made up at a time when examinations were introduced for the Civil Service. Dickens felt that bureaucratic indolence and incompetence were responsible for the sufferings of British soldiers in the Crimean war. “This glorious establishment had been early in the field, when the one sublime principle involving the difficult art of governing a country, was first distinctly revealed to statesmen … Whatever was required to be done, the Circumlocution Office was beforehand with all the public departments in the art of perceiving – HOW NOT TO DO IT.” (Meaning, in Dickens’s time, how to avoid doing anything.) ( Byatt 2008-11-1.”

The Circumlocution Office is inhabited by a family of Tite Barnacles and relations.

General Motors (GMAC) The U.S. Federal Reserve on Wednesday approved GMAC Financial Services’ application to become a bank-holding company, a status that would give the auto-financing arm of General Motors Corp. access to government bailout dollars and the Fed’s discount window. The move complements a $17.4 billion emergency loan package the government extended to GM and (Wall Street Journal 2008-12-24)… “Merkin, who is chairman of GMAC LLC, is named in the lawsuit brought by NYU, along with his Gabriel Capital LP fund and Ariel Fund Ltd. GMAC is the finance business owned by General Motors Corp and private equity firm Cerberus Capital Management LP. The Funds ‘feeding’ money to Madoff, including Ariel, made a conscious effort to conceal Madoff’s involvement from their own investors,” the NYU lawsuit said. “This concealment was a requirement dictated by Madoff, which was agreed to by Merkin and other ‘feeder’ funds (McCool Reuters 2008-12-24).”

Electronic Communications Networks (ECNs) trading model

Who’s Who

National Market System (NMS) Bernie Madoff presented his arguments at SEC hearings (2004-04-21 SEC) on the redesigning of “the existing national market system (“NMS”) rules to maximize profits and efficiency.

U.S. Securities and Exchange Commission (SEC) Washington, DC.

Selected Timeline

1823 Charles Dickens’ father, John Dickens, was imprisoned in the infamous debtors’ prison in Borough High Street, the Marshalsea. At twelve-years of age the future novelist was sent sent to work in a boot-blacking factory. John Dickens was the model for both Mr. Dorrit in Little Dorrit and Mr. Micawber in David Copperfield. Charles Dickens is in effect, Little Dorrit. In a prescient move, the BBC broadcast its adaptation of Dickens’ (1857) Little Dorrit, a month before Bernie Madoff’s arrest in his luxury Upper East Manhattan apartment. The similarities between the two stories are uncanny. See Byatt, A. S. 2008-11-15. “Little Dorrit: Within the walls of the Marshalsea.” The Guardian.

1857 In Charles Dickens’ introduction of his 1857 novel Little Dorrit he apologized for any similarity between factual events in Britain and Ireland and the context and character of his fictional banker, Mr. Merdle, who embarked on a fraudulent scheme now being compared to Madoff’s.

“If I might offer any apology for so exaggerated a fiction as the Barnacles and the Circumlocution Office, I would seek it in the common experience of an Englishman, without presuming to mention the unimportant fact of my having done that violence to good manners, in the days of a Russian war, and of a Court of Inquiry at Chelsea. If I might make so bold as to defend that extravagant conception, Mr Merdle, I would hint that it originated after the Railroad-share epoch, in the times of a certain Irish bank, and of one or two other equally laudable enterprises. If I were to plead anything in mitigation of the preposterous fancy that a bad design will sometimes claim to be a good and an expressly religious design, it would be the curious coincidence that it has been brought to its climax in these pages, in the days of the public examination of late Directors of a Royal British Bank. But, I submit myself to suffer judgment to go by default on all these counts, if need be, and to accept the assurance (on good authority) that nothing like them was ever known in this land (Dickens 1857).”

Thanks to these sources for making the Madoff-Merdle link: Paul Krugman, The New York Times Op-Ed columnist, in his 2008-12-19 blog post entitled “Madoff/Merdle“; McCann, Vincent. 2008-12-20. “Separating fact from fiction in financial fraud case.” Scotsman.com News.

1920s Financial frauds of the 1920s. See Galbraith, John Kenneth. 1954. The Great Crash: 1929. Boston: Houghton Mifflin.

1960 Bernie Madoff started his firm Bernard L. Madoff Investment Securities with $5,000. Bernard L. Madoff Investment Securities LLC.

1938 Bernard L. Madoff was born?

1970s The creation of the consolidated system for disseminating market information generated enormous benefits for investors (SEC 2004-02-27).”

1980s The incorporation of The Nasdaq Stock Market, Inc. (“Nasdaq”) securities into the NMS generated enormous benefits for investors (SEC 2004-02-27).”

1990s The adoption of the Order Handling Rules in the 1990s generated enormous benefits for investors (SEC 2004-02-27).”

2004-02-27 SEC published Regulation NMS for public comment. “In addition to redesignating the existing national market system (“NMS”) rules adopted under Section 11A of the Securities Exchange Act of 1934 (“Exchange Act”), Regulation NMS would incorporate four substantive proposals that are designed to enhance and modernize the regulatory structure of the U.S. equity markets (SEC 2004-02-27).”

2004-04-21 Bernie Madoff presented his arguments at SEC hearings (2004-04-21 SEC) on the redesigning of “the existing national market system (“NMS”) rules held at the InterContinental The Barclay.

“The central objective of this review is to determine how the regulations governing the U.S. equity markets should be modernized. Our markets are continually evolving because of such factors as innovative trading technologies, new market entrants, and changing investment patterns. We believe that one of our most important responsibilities is to monitor these changes and to ensure that the U.S. regulatory structure remains up to date. In this way, we can help our markets retain their position as the deepest and most efficient in the world – markets that offer a fair deal to all types of investors, large and small.”

2004 Bernie Madoff presented his arguments at hearings on the redesigning of “the existing national market system (“NMS”) rules adopted under Section 11A of the Securities Exchange Act of 1934 (“Exchange Act”), Regulation NMS would incorporate four substantive proposals that are designed to enhance and modernize the regulatory structure of the U.S. equity markets.

Discussion: “Is access to markets through the members of an SRO and through the customers or subscribers of ECNs or market makers sufficient to assure fair and efficient access to their displayed quotes? Are there barriers to access that must be removed for this indirect access to be feasible?”

Participants: Ivan K. Freeman (Morgan Stanley), John C. Giesea (Security Traders Association), Robert Greifeld (Nasdaq Stock Market), Larry Leibowitz (Schwab Capital Markets), Bernard L. Madoff (Madoff Investment Securities) and Thomas Peterffy (Interactive Brokers Group)

2008-01 Bernard L. Madoff Investment Securities claimed their investment advisory business managed $17.1 billion for 11 to 25 clients and boasted of an “unblemished record of value, fair-dealing and high ethical standards (Zambito and Smith 2008).”

2008-11-15 In a prescient move, the BBC broadcast its adaptation of Dickens’ (1857) Little Dorrit, a month before Madoff’s arrest in his luxury Upper East Manhattan apartment. The similarities between the two stories are uncanny. See Byatt, A. S. 2008-11-15. “Little Dorrit: Within the walls of the Marshalsea.” The Guardian.

2008-12-10 Andrew Madoff and Mark Madoff, Bernie’s sons and his employees claimed to be innocent victims of a fraud that they knew nothing about. They called the Securities and Exchange Commission, which told the FBI (Zambito and Smith 2008).”

2008-12-10 Special FBI Agent Theodore Cacioppi and a colleague questioned Madoff at his $9M East Manhattan luxury apartment on Thursday morning to investigate the possibility of any “innocent explanation.” “There is no innocent explanation,” Madoff replied. Within hours, investors who had trusted the 70-year-old Madoff for years – including the owner of the New York Mets – were reeling at charges that one of the most trusted names on Wall Street was a full-time fraud (Zambito and Smith 2008).”

2008-12-12 “[A]ngry investors crowded a Manhattan federal courtroom hoping to find out if the SEC would come to their rescue. Manhattan Federal Judge Louis Stanton issued an order freezing Madoff’s assets, as well as those of his firm, and named lawyer Lee Richard to oversee the business. The hearing was canceled, leaving investors bewildered (Zambito and Smith 2008).”

2008-12-23 “[H]edge fund executive Thierry Magon de la Villehuchet, 65, was found dead in his office in an apparent suicide, reportedly distraught over being duped by Madoff. New York City Police Commissioner Raymond Kelly said Villehuchet had cuts on his wrists from a box cutter and pills nearby. The Frenchman’s Access International had an exposure of $1.5 billion, officials said (McCool 2008-12-24).”

2008-12-24 Washington: “The U.S. Federal Reserve on Wednesday approved GMAC Financial Services’ application to become a bank-holding company, a status that would give the auto-financing arm of General Motors Corp. access to government bailout dollars and the Fed’s discount window. The move complements a $17.4 billion emergency loan package the government extended to GM and …” Wall Street Journal McCool, Grant. 2008-12-24. “(McCool 2008-12-24) New York University sued fund executive over Madoff
2008-12-24. “Fed Grants GMAC’s Request to Become Bank-Holding Company.” Wall Street Journal.

Webliography and Bibliography

Byatt, A. S. 2008-11-15. “Little Dorrit: Within the walls of the Marshalsea.” The Guardian.

McCool, Grant. 2008-12-24. “New York University sues fund executive over Madoff.” Reuters.

Quinn, James. 2008-12-16. “An American Tragedy.” Financial Sense.

Zambito, Thomas; Smith, Greg B. 2008-12-13. “Feds say Bernard Madoff’s $50 billion Ponzi scheme was worst ever.” New York Crime. Daily News.  

2008-12-22. “Jewish leaders bracing for Madoff fallout.” The Boston Globe.

Unlikely Player Pulled Into Madoff Swirl.”NYTimes.com

A.G. takes himself out of Madoff probe | Deseret News (Salt Lake City) | Find Articles at BNET

Fund Fraud Hits Big Names – WSJ.com 

2008-12-14.Bodyblow to Wall Street at The Brian Sullivan Blog

Business News – AOL Money Canada 

U.S. Congress to probe SEC role in Madoff affair

edmontonsun.com – World – $50B fraud plot thickens

Madoff Mess manoeuvres 

Judge orders Madoff to tally his assets

Don’t Be Scammed by Madoff Investor Sob Stories – Seeking Alpha

Madoff investors unlikely to regain money

Madoff bad omen for fund of hedge funds industry – AOL Money Canada

Run by investors, for investors – North American Markets end lower, Madoff scandal raises concerns over financials – North American Market Summary

More banks reveal exposure to Madoff scandal – Yahoo! Canada News
Bernard Madoff scandal draws publishers 

IOC has nearly $5 million tied to Madoff – AOL Sports Canada

Some Madoff investors may have to give back gains – Dec. 19, 2008

Madoff’s auditor Friehling and Horowitz doesn’t audit? – Dec. 17, 2008 
Did Bernard Madoff act alone? – Dec. 18, 2008

Answers to 6 Madoff questions – Dec. 18, 2008

A stock exchange caught in the Madoff mess – Dec. 18, 2008

‘A Giant Ponzi Scheme’ 

reportonbusiness.com: Madoff debacle reveals stunning failure of due diligence

Midas Letter –  Health, Wealth and Prosperity

Meet the real Ponzi behind the ‘scheme’ – Dec. 15, 2008

TheStar.com | Business | Banks, funds among clients who lost billions

Charities hit hard as Madoff fraud losses mount 

Madoff: ‘Bloodbath’ for Twin Cities investors

Pigeon King owes $23 million | Farm andDairy – The Auction Guide and Rural Marketplace

globeandmail.com: Farmers should have been warned about pigeon venture: critics

The Canadian Press: Royal Bank says clients have $50M in exposure to alleged Madoff fraud

Ponzi schemes strike in U.S., Russia and Colombia | Worldfocus

Bloomberg.com: Worldwide

The Madoff Fraud: How Culpable Were the Auditors? – TIME

Madoff Victims Look for Ways to Recover Their Money – TIME

Wall Street’s Latest Downfall: Madoff Charged with Fraud – TIME

How I Got Screwed by Bernie Madoff – TIME

Bernie Madoff’s man to see – The Boston Globe 

Bull Market 

Top Trader Is Accused of Defrauding Clients – NYTimes.com

Bernard L. Madoff News – The New York Times

The New York Times > Books > Sunday Book Review > His Last Name Is Scheme

A Scheme With No Off Button – NYTimes.com 

Ponzi Schemes – News – The New York Times

Even Winners May Lose With Madoff.” NYTimes.com

Madoff Agrees to Security ‘to Prevent Harm or Flight’ -NYTimes.com

“Talking Business – Avoiding a Financial Collapse, Indian-Style.” – NYTimes.com

“Madoff Scheme Kept Rippling Outward, Across Borders.” NYTimes.com

“Madoff Ponzi Scheme Lawsuit: Attorneys for Defrauded Investors.”

Madoff Scheme Kept Rippling Outward, Across Borders.” NYTimes.com

“Top Trader Is Accused of Defrauding Clients.” NYTimes.com

Op-Ed Columnist – The Brightest Are Not Always the Best -NYTimes.com

Wall Street fallout shakes economy

 

Ross Levin, a NYC hedge fund analyst with Arbiter Partners, who calls himself a “passive speculator in securities” met Lionel Lepine, a member of the Athabaskan Chipewyan First Nation whose family and friends living on the contaminated watershed upriver from the oil sands’ effluence are suffering from unprecedented numbers of cancerous tumours.

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A number of recent stories intersect here: Harper’s apology for past treatment of Canada’s First Nations, the pollution of the Athabaskan River north of the oil sands, the impatient development of nonrenewable resources, the meteoric rise of oil commodities market directly caused by irresponsible speculators playing with volatile, unpredictable hedge funds that play havoc with the market making a fortune for some while destroying economic, social and ecological environments all around them.

In a rapid visit to the local library yesterday I grabbed Jake Bernstein’s How the Futures Markets Work. Although it is quite old for the fast-paced risk management industry, there are certain fundamentals that ring true. He briefly traced the history futures contracts leading to the volatile environment where agricultural futures were replaced by the less predictable currency markets. Of course, his book was written long before the meteoric rise of private equity funds.

My concern remains with the absent ethical component on trading floors. Ethical responsibilities are as elastic as the regulations that govern the centuries old practice of hedging. In the period of late capitalism and the emergence of risk society, the cost of destructive unintended byproducts have created havoc in ways that far exceed the commodities/service value. The road to profits and impatient money, is paved with casualties.

Berstein’s facts of market life are telling. He encourages simple methods and systems which require few decisions and little mental conflict. Too much thought is not conducive to successful trading. Too much analysis costs lost opportunities. Keep systems simple. Control your emotions. Practice caring less so that you remain more objective. Don’t ask why. Knowing why may hinder you more than it will help you. Patterns are the best indicators available (What feeds into a “pattern” however is not a science). Timing is what makes money in the futures market (Bernstein 2000:282-3).

In other words, futures’ gurus encourage young hedge fund analysts to not think too much about factors such as displacement of peoples, the degradation of living conditions and the way in which they unwittingly contribute to making vulnerable ecologies and peoples even more vulnerable. Their gurus tell them to not think about the impact of their actions. They are told to not ask why the prices of essential commodities like fuel and food that they are playing with, are pushing certain groups into unimaginable levels of social exclusion. In the end groups at-risk to health degradation are always those least able to protect themselves. How convenient that the gurus do not factor in these social issues. They are entirely absent from finance reports.

But then a lot of information is purposely not included in financial and business reports. Bernstein argues that the simpler systems that take fewer things into consideration will lead to more profits. Yet when he lists off all the potential factors in operation in even a simple fundamental analysis, it is not at all simple. It begins with the highly complex. The algorithms involved may appear to be simplified through the use of databases that seem to generate accurate, objective hard facts. In reality, the accuracy of any query depends on what was fed into it.

Futures trading, also known as commodities trading, the final frontier of capitalism, became a popular speculative and investment vehicle in the US in the 1960s (Bernstein 2000:1). These financial instruments offer unlimited profit potential with relatively little capital. Speculators are drawn to the possibility of quick money or what I like to call impatient money. The great wealth accumulated from speculative financial instruments has spawned careers in brokerage, market analysis, computerized trading, computer software and hardware, accounting, law, advertising which themselves subdivide into more recent opportunities such as those related to risk-management.

While gurus such as Bernstein argue that gambling is for anyone but speculation is for professionals, the chaos and unpredictability of the current global economy have been linked to a growing culture of gambling in futures trading rather than level-headed professionalism. Gamblers create risk simply by placing a bet; professional speculators “transfer risk from the hedgers to the speculators” and it therefore called risk management instead of gambling.

“It rained last night so the price of soy beans will be down today.” Although the basis of fundamental analysis in economics is supply and demand, the actual fundamental analysis of specific markets that might generate accurate price predictions are complicated as numbers of factors overlap and massive quantities of data need to be considered. The simple equation involves how much of a commodity or service are buyers willing to pay at a given time and place. There used to be a correlation between price and consumption. Factors that impact on price of commodities include the state of the economy (local, regional, national and international – inflationary, recessionary with rising or falling employment), availability of alternate products or services, storage possibilities, weather, seasonality, price cycles, price trends, government subsidies, political influences, protectionist attitudes, international tensions, fear of war, hoarding, stockpiling, demand for raw materials (sugar, petroleum, copper, platinum, coffee, cocoa), currency fluctuations, health of the economy, level of unemployment, housing starts. Most technical systems are not effective in making traders money.

In spite of this there is still a persistent belief that there is an invisible hand that guides market correcting imbalances like a living organism or finely-tuned machine.

“Markets work perfectly as they respond to the multiplicity of forces that act upon them. It is our inability to find, parse, and correctly weight the impact of these factors that limits our results and success of our fundamentally based forecasts (Bernstein 2000:162).”

The bottom line is that wealth disparities continue to intensify and that these inordinate extremes of wealth and poverty destabilizes society. These distorted economic relationships deprive us of any sense of control over economic forces that threaten to disrupt the foundations of our existence. National governments have been either unwilling or unable to deal effectively with this situation in which we live where the deplorable superfluity of great wealth exists alongside the acute suffering of those living in miserable, demoralizing and degrading abject poverty even in countries like Canada.

Social equality is an entirely impracticable chimera. Even if equality could be achieved it could not be sustained. Wages and income should be unequal and should correspond to different efforts, skills and capacities. However, equal justice for all is not only necessary but urgently needed.

As long as those involved in the financial and energy industries remain in denial of their role by hiding behind economic and ideological polemics and simply dismissing concerns from others there can be no productive change. A fresh look at the problem should involve people like Lionel Lepine who are directly involved with decisions, along with experts from a wide spectrum of disciplines. There will not be a voluntary ethical turn so for now we desperately need public policies that will regulate industries.

Selected Timeline of Critical Events

1710 The first modern organized futures exchange began with the Dojima Rice Exchange in Osaka, Japan. The Japanese feudal landowners began to use certificates of receipt against future rice crops. As these futures certificates became financial instruments in the general economy the value of the certificates would rise and fall as the price of rice fluctuated. The Dojima Rice Exchange emerged as the world’s first futures market where speculators traded contracts for the future delivery of rice or “certificates of receipt.” The Japanese government outlawed the practice when futures contracts (where delivery never took place) began to have no relationship to the underlying cash value of the commodity leading to wild and unpredictable fluctuations (Bernstein 2000:30).

1848 The Chicago Board of Trade (CBOT) was formed as a price risk occurred in the grain markets of Chicago.

1865 The Chicago Board of Trade (CBOT) organized trading of futures contracts.

1919 – 1945 The Chicago Mercantile Exchange (CME) traded futures in eggs, butter, apples, poultry and frozen eggs (Bernstein 2000:70).

1960s Futures trading, also known as commodities trading, the final frontier of capitalism, became a popular speculative and investment vehicle in the US in the 1960s (Bernstein 2000:1).

1970s There was increasing volatility in international currency exchange rates as the Bretton Woods agreement began to break down. Business people transferred risk of volatility in international markets by hedging with speculators willing to take the risk. Futures markets began to expand into foreign currencies as fluctuated wildly competing against each other and the US dollar.

1972 The total volume of futures contracts trading was 18 million and the top ten most actively traded future contracts were agricultural futures (Bernstein 2000:71).

1974 The US Congress passed the Commodity Futures Trading Commission Act and established Commodity Futures Trading Commission (CFTC) to protect participants in the futures market from fraud, deceit and abusive practices such as unfair trading practices (price manipulation, prearranged trading, trading ahead of a customer), credit and financial risks, and sales practice abuses (Bernstein 2000:32). Individual nation states have similar regulating bodies.

1982 Futures trading in the US was self-regulating and anyone in the business had to become a member of the National Futures Association (NFA).

1986 The total volume of futures contracts trading was 184 million and the T bonds were among the most actively traded future contracts (Bernstein 2000:71).

1990 The price of crude oil rose dramatically when Hussein invaded Kuwait.

1999 The most actively traded future contracts were interest rates, futures, stock index futures, energy futures, currency futures and agricultural futures (Bernstein 2000:72).

2000 The Chicago Mercantile Exchange (CME) trades futures in livestock futures, currency futures, interest rate futures, stock index futures (Bernstein 2000:70).

2000 More than 90 foreign futures exchanges emerged with the ever-increasing demand for new financial instruments “to hedge against fluctuating interest rates, changing foreign exchange rates and institutional securities portfolios (Bernstein 2000:46).

2008 Calgary has a high percentage of young millionaires with lots of disposable income. There are also c.4000 homeless people in Calgary, the oil capital of Canada. c. 40% of the homeless are working poor who are unable to afford housing.

Webliography and Bibliography

Bernstein, Jake. 2000. How the Futures Markets Work. New York Institute of Finance.

The article (2008-05-29) entitled “Is it “peak oil” or a speculative bubble? Neither, really” published in The Economist generated a robust on-line debate. It has been criticized for offering limited or overly simplistic scenarios: text book supply-demand [1] and its extreme variation peak oil and speculation. What about the weak US dollar some ask? See Lewis (2008-06-09) [4] What about the long list of factors listed in the most recent (2008-05-13) Oil Market Report of the International Energy Agency (IEA)? [2] And what about the role of the increasingly complex, volatile, unpredictable, interconnected and potentially destructive financial instruments that are now available to anyone with access to the Internet and capital? The bank of the world’s central banks is very concerned about public policy and their own role in managing (or not) these unmanageable instruments [3]. There was a time when economists could argue that the market would correct itself invisibly. Now all hands are wearing gloves, players are blindfolded and nothing is predictable and certainly not transparent.

The OMR claimed that the system is self-adjusting to bring the market into balance as the bull market driven by demand potential that has outstripped the slow supply growth – notably non-OPEC. Prices had to rise to choke off demand growth (IEA 2008-05-13:3). Events such as accidents, unplanned or unannounced maintenance and technical problems (Canada and the US:, labour strikes (UK), political unrest (Iran), guerrilla activity (Nigeria), wars and weather-related (Canada) affected supply losses. US companies, in particular, had very low refinery activity allegedly due to maintenance and unplanned outages by Shell, Chevron, ExxonMobil, Valero and BP refineries all during the same period. Lower discretionary driving, more fuel-efficient cars, higher volumes of ethanol blended into the gasoline pool cut into some demand in the US. However, the poorest Americans in rural areas have begun to choose fuel over food to keep mobile. The emergence of other markets, including China of course, as net gasoline importers will offset the so-called gasoline crack. The OMR also indicated that many nation states fearful of even higher prices and concerned about supply security, have been rebuilding their inventories at any cost since January 2008. This has increased competition for oil, bolstered demand and increased price pressures in 2008. While Saudi Arabia is blamed for not increasing oil production to balance the supply-demand equation, one wonders at the maintenance requirements claimed by American oil refineries that have contributed to supply problems and record profits for their companies sustained during the same period.

The rising price of oil has also been linked to the increasingly opaque and highly complex financial instruments, that oil executives, politicians, bankers or economists seem to be unable to fully understand and therefore control let alone manage. The unintended consequences of these financial instruments contributed to the mortgage meltdown and the credit crisis. The Bank for International Settlement report also warned of a major principal-agent problem as buyers of derivative and futures contracts lack skills and information required “to manage the risks inherent in the complex instruments they are buying?” (BIS 2007-05-29:9). The Economist‘s on-line forum [1] included a suggestion that technological and communications advances as a democratization of gambling have contributed to expanding the high-risk field of hedge funds (once only for the UHNW or oil industry elites) to include new, inexperienced and aggressive players who are unconcerned about unintended consequences. The increased competition and rates of return were already declining in 2006 leading to riskier and more aggressive hedging evident even in established banking institutions. Many neglect due diligence and are engaged in originating credit then transferring the risk exposure to others through securitisation or derivatives markets (BIS 2007-05-29:9).

The Bank for International Settlement report also revealed concerns over a year ago that short-term inflation could lead to long-term inflation due to high crude oil commodity prices (BIS 2007-05-29:59).

The Bank for International Settlements (BIS) report included “pivotal questions in terms of regulation of the oil commodities markets:

  1. What is the appropriate role of monetary and credit aggregates in the formulation of monetary policy?
  2. Assuming that occasional the credit-driven boom-bust cycles are possible, should the public sector seek to prevent the build-up of imbalances, or rather just clean up afterwards?

“Indeed, in the light of massive and ongoing structural changes, it is not hard to argue that our understanding of economic processes may even be less today than it was in the past. On the real side of the economy, a combination of technological progress and globalisation has revolutionised production. On the financial side, new players, new instruments and new attitudes have proven equally revolutionary. And on the monetary side, increasingly independent central banks have changed dramatically in terms of both how they act and how they communicate with the public. In the midst of all this change, could anyone seriously contend that it is business as usual? There is, moreover, a special uncertainty in the area of monetary policy. While the commitment of central bankers to the pursuit of price stability has never been stronger, the role played by money and credit is being increasingly debated, against the backdrop of the uncertainty about the inflation process referred to above. For some central banks, and indeed many leading academics, neither money nor credit is thought to play any useful role in the conduct of monetary policy. For others, in contrast, the too rapid growth of such aggregates could be either a harbinger of inflation or the sign of a financially driven boom-bust cycle with its own unwelcome characteristics. Against this background, neither central banks nor the markets are likely to be infallible in their judgments. This has important implications. The implication for markets is that they must continue to do their own independent thinking. Simply looking into the mirror of the central banks’ convictions could well prove a dangerous strategy. The implication for policymakers is that they should continue to work on improving the resilience of the system to inevitable but unexpected shocks (BIS 2007-05-29:145-150).”

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“In the light of history, it is both important and welcome that creditors and debtors increasingly realise the extent to which their fortunes are now intertwined.” (BIS 2007-05-29:9).

Notes

[1] Useful comment on The Economist article by ….Professor ???:

“I might also add, in response to QueenElisabeth, that there is no reason to think inventories would be accumulating unless the futures price rose significantly above the spot price, as it does in many textbook examples indicating one way in which arbitrage drives the futures price into equivalence with the spot price. Since the world doesn’t often behave like textbook examples, the spot price is tracking the futures price closely because every up tick in the futures price causes an almost immediate decrease in supply (which is the part of the process that should lead to inventory accumulation), and a simultaneous increase in demand as buyers seek to avoid higher prices in the future. It’s the increase in demand in response to higher expected future prices, expectations created entirely by goings on in the futures market, that is keeping inventories low. The lack if inventory buildups, in other words, is no evidence of all that futures prices aren’t playing a role in rising oil prices, unless you believe the last word in financial theory can be found in the “derivatives” chapter of a Money, Banking and Financial Institutions textbook. Aside from the usual suspects seeking to exhonerate themselves, which tends to lead one toward the opposite conclusion they would have us reach, the fact that oil prices have risen by about 30% since mid-March suggests that something far more than supply and demand for use are driving oil prices to their current record levels. The coincidence of trouble in the CDO market and rapidly rising commodity prices, as the flow of funds quickens into areas that are less risky and promise higher returns than mortgage backed securities, such as highly liquid commodity derivitives, strenghtens the case for the speculation hypothesis even more. I might also add that, as a financial economist, I typically teach that futures play an important role in facillitating a more efficient inter-temporal allocation of goods that look to become more or less scarce in the future. If futures prices have no effect on the price of the underlying commodity, and therefore on efficient resource allocation, we should have no reluctance about drastically curtailing the market since they would then serve no meaningful economic function that couldn’t just as well be served by less volatile financial instruments like forward contract. If they do effect current prices, as I believe they do, then strict prohibitions against their use for certain puposes should seem no more out of the ordinary, given the importance of oil in determining the structure of the international division of labor, than–for instance–legal arrangements preventing private individuals who have no legitimate reason to be in the market from purchasing opium or plutonium. You can’t have it both ways: either futures prices drive current prices and play an important role in determining the distribution of income and allocation of resources, among many other things, or they’re just financial instruments that serve as substitutes for betting on athletic contests or political elections. If the latter is the case, why not work toward their elimination entirely, and the return to non-standardized forward contracts, which were the main hedging vehicle in oil markets prior to 1983? Of course, the price of forward contracts would serve just as well as futures to indicate what the market thinks is going to happen in the future, and what it would therefore be most prudent to do in the present. The argument made here, and by economists like Paul Krugman, focus on the absence of inventory buildups as evidence that speculation in oil futures is playing an insignificant role in the current run-up in oil prices. One would expect to see rising inventories only if the futures prices rose significantly above the spot price. The spot price has been tracking futures prices closely, however. Why? To put it as simply as possible, a rise in the futures price not only decreases supply, as those who have the commodity seek to withhold it from the market in order to get a higher price in the future, but also an increase in demand, as buyers seek to avoid the higher price in the future by buying in the present. The effect on spot prices is unambiguous, but the effect on the quantity of oil bought and sold should roughly offset. As a result, the price rises, the amount of oil bought and sold remains roughly constant, and inventories neither accumulate nor de-accumulate. It’s insane to attribute a 30% rise in oil prices since mid-March to increased demand for use. Speculation is playing a huge part in this current price run up, as it is in the market for many commodities.”

[2]The Oil Market Report (OMR), published under the responsibility of the Executive Director and Secretariat of the International Energy Agency (IEA) provides an overview of the global oil market including a full disclosure of supply and demand.

[3] A useful explanation of the complexity and volatility of the world economy and the confusion surrounding analysis based on supply and demand, can be found in the 77th annual report of the Bank for International Settlements (BIS).

“[More] scepticism might be expressed about some of the purported benefits of having new players, new instruments and new business models, in particular the “originate and distribute” approach which has become so widespread. These developments have clear benefits, but they may also have side effects, with associated costs. In emerging market economies, the essential point is that liberalisation needs to be preceded by structural changes that will allow financial systems to remain resilient in the face of both domestic and external shocks. While much progress has been made, much more is still needed” (BIS 2007-05-29:151).

[4] “The weak dollar has had very little impact on the rapid rise in energy prices, Eric Rosengren, president of the Boston Federal Reserve Bank, said today. Although the decline in the dollar against other currencies has been a popular explanation for oil’s record run, Rosengren said that the data show the increases in oil prices have far outstripped the pace of the slide of the dollar in recent years.” (Boston Globe 2008-06-10)

[5]

Excerpt from “Challenges in formulating a policy response” in BIS report:

“There are a number of difficult and important questions facing central bankers, to which there are no agreed answers. A first issue has to do with the appropriate role of monetary and credit aggregates in the formulation of monetary policy. A second issue isclosely related: assuming that occasional credit-driven boom-bust cycles are possible, should the public sector seek to prevent thebuild-up of imbalances, or rather just clean up afterwards? Concerning the first issue, three schools of thought can be identified, each with at least some adherents in most central banks. A first school emphasises the short-run effects on inflation of gaps betweenaggregate demand and supply, with longer-run inflation trends being largely determined by expectations about such gaps. The role of money and credit is generally played down by this group. A second school attaches more importance to monetary developments in influencing longer-run trends in inflation. In practice, this would imply a continuing emphasis on the influence of demand-supply gaps on inflation, but with policy conclusions being systematically cross-checked against the monetary data. Finally, a third school of thought also attributes great importance to monetary, but above all credit, developments, albeit for a rather different reason. Adherents of this school become concerned when they see rapid growth of the aggregates along with rising asset prices, particularly if also associated with substantial and sustained deviations of spending patterns from traditional norms. They admit that the medium-term outcome could be rising inflation, but fear rather more that a boom-bust cycle might have significant economic costs, potentially including unwelcome deflation over a longer-term horizon. Both historical experience and intellectual fashion have played a role in these divergences. Adherents of the first school would contend that forecasts of inflation using gap methodology have proven reasonably accurate in many countries over many years. Their refusal to countenance any more formal role for money rests in part on the unsuccessful “monetarist” experiment of the 1970s, but also on the failure of econometric work to reveal a stable and causal relationship with inflation in their countries. Supporters of the second school of thought would note that their belief in the money-inflation nexus is deeply rooted in theory. Moreover, the Deutsche Bundesbank and the Swiss National Bank have been translating such beliefs into effective anti-inflationary policies for decades. The third school of thought has been influenced not just by pre-World War II business cycle theory but also by the wrenching historical experience of the booms and busts referred to earlier. While fashions come and go, it appears that the influence of the second and third schools has been growing. In recent years, a number of central banks, when raising policy rates, have cited concerns about very rapid growth in both credit and asset prices. A number of other central banks have announced their intention to lengthen their normal policy horizon, to allow them to better evaluate the full range of possible effects arising from their policies. Finally, almost everywhere, one hears reference being made to the “normalisation” of policy rates, a concept which logically implies that the appropriateness of policy cannot be judged on its short-run impact alone. Behind this shift in thinking have been a number of influences.”

“Forecasting inflation using traditional methodologies has become more difficult everywhere. Central banks are therefore looking for new guideposts, and these include the use of monetary and credit aggregates. Indeed, research in some central banks has recently identified what appears to be a reliable relationship between their monetary aggregates and inflation over long periods. Moreover, with the passage of time, new crises and the further analysis of old ones have provided empirical evidence to support the specific arguments for concern expressed by the third school. Finally, as evidence has accumulated that the global economy is characterised both by many imbalances and by a flatter short-run Phillips curve, the potential economic losses in a subsequent downturn have also been revised upwards. In sum, the possible implications of getting policy wrong have grown. All of these factors have helped to spur debate, and even sometimes to change minds. A second question, eliciting diverse answers, is how best to deal with what seems to be the natural procyclicality of the financial system. Should policy sometimes lean against an upturn, even in the absence of inflationary pressures? And if so, how? Should it rather lean primarily against the subsequent downturn, and if so how? Or, reflecting our lack of understanding, and the shortcomings of each of the individual policy instruments we currently possess, should it do both, using a number of policy instruments simultaneously? Short of serious re-regulation of financial markets, which would create many harmful inefficiencies over time, this more pragmatic approach to procyclicality in the financial system might have much to recommend it.”

“The principal argument for tightening monetary policy in the upswing is to moderate the excesses in economic and financial behaviour and, in so doing, contain the costs of the downturn. There are of course some significant practical difficulties with this approach. How do policymakers evaluate when imbalances are building up to such a size as to warrant action? What degree of tightening would be required to moderate market euphoria, and might it do serious harm to unaffected parts of the economy? These points have been made repeatedly, and validly, in connection with the hurdles that central bankers would face in targeting asset prices. But the suggestion being made here is different. It is rather to react when a number of indicators – not just asset prices but also credit growth and spending patterns – are simultaneously behaving in a manner that indicates increasing exposures. In principle, such a configuration of developments would be both rarer and easier to identify. Moreover, the more widespread the euphoria, the less worry there will be that tighter policy might inflict collateral damage on unaffected sectors. (BIS 2007-05-29:145-150).”

Some useful terms

Arbitrage < Trade and Freight: “The purchase of physicals or futures in one market against the sale of physicals or futures in another market in order to exploit price differentials between these markets. In moving physical oil between markets, the price differential has to be large enough to cover freight, insurance, volumetric loss and other handling charges. When this condition is met, the ‘arbitrage window’ is said to be open.” (OMR 2008-0

Supply ‘Push’ < Trade and Freight: When trade is motivated by output surpluses at the point of origin often signalled by weakness in local refining margins and/or by weak relative prices.

Bearish and Bullish < Prices: Factors which are likely to depress prices are defined as bearish while factors which are likely to raise prices are defined as bullish.


Derivative contracts
based on different types of assets such as oil commodities, equities (including private equities), interest rates, etc reduce the risk for one party by increasing it for another. By entering into contracts based on imagined or virtual futures, contracts attempt to manage risk by mitigating uncertainties based on the availability of the commodity (supply) or on price uncertainties (demand).

Futures Contract < Prices: A regulated, legally binding agreement made on the trading floor of a futures exchange to buy or sell a fixed quantity of a commodity for delivery at a specified time and location in the future.

Futures Transaction < Prices: Purchase or sale of a futures contract; exchange of a futures position for the physical or cash commodity.

Hedge < Prices: A financial transaction to mitigate risk. For example, taking an equal and opposite position on the futures market to that held in physicals to reduce price exposure in physicals (see Short Position, Long Position, Basis Risk).

Long Hedge < Prices: The purchase of futures or other paper contracts, against the sale of physicals (to reduce exposure to a price rise). Also called a Buying hedge. (See Short Hedge.)

Long Position < Prices: The net exposure of a trader (or group of traders) when their bought (long) physical or paper exposure exceeds their sold (short) positions (see Short Position).

NYMEX – Prices: New York Mercantile Exchange, the commodities futures exchange.

Short Hedge < Prices: The sale of futures against the purchase of physicals (to reduce exposure when a price decline or bearish trend is perceived) (see Long Hedge).

Short Position < Prices: The net exposure of a trader (or group of traders) when their sold (short) physical or paper exposure exceeds their bought (long) positions (see Long Position).

Spot < Prices: A one-time open market transaction where physical oil or products are traded at current market rates. The term is also often used to refer to a front-month futures contract.

A Selected Timeline of Related Critical Events

1930-05-17 The Bank for International Settlements (BIS) was established as an international bank for central banks which promotes international monetary and financial cooperation and strongly advises caution against fraudulent schemes. It is still functional and valued as a source of research accuracy in 2008.

1930s The Bank for International Settlements (BIS) acknowledged that economics is not a science as revealed in such glaring knowledge gaps as this lack of predictions of the Great Depression of the 1930s (BIS 2007-05-29:139).

1970 “The Great Inflation in the 1970s took most commentators and policymakers completely by surprise, as did the pace of disinflation and the subsequent economic recovery after the problem was effectively confronted (BIS 2007-05-29:139).”

1990s Economists were unable to predict the crises which affected Japan and Southeast Asia in the early and late 1990s (BIS 2007-05-29:139).

1995 Due to a naive, under-regulated and poorly managed financial environment, Nick Leeson, a trader at an old respected financial institution, Barings Bank incurred a $1.3 B. loss for the bank causing its bankruptcy by making large, unauthorized investments in index futures trading.

1998 In terms of microeconomics, economists were unable to predict the failure of LTCM in 1998, “the firm faced price shocks in various markets that were almost 10 times larger than might reasonably have been expected based on previous history. As a result, its fundamental assumptions – that it was adequately diversified, had ample liquidity and was well capitalised – all proved disastrously wrong” (BIS 2007-05-29:139).

2005-Q4 The combined turnover in the world’s derivatives exchanges for exchange-traded derivatives (ETD) and over-the-counter (OTC) derivatives was $344 USD trillion (Bank for International Settlements).

2006 Buoyant economic growth from January through June 2006 led to concerns that the global economy might be approaching a “speed limit”. “Oil prices increased by more than 35% in dollar terms between February and August on the back of persistently strong demand growth. Moreover, signs that slack was evaporating in major economies gave rise to concerns about overheating. Long-term inflation expectations in financial markets rose temporarily in the first half of 2006, especially in the United States (see Chapter IV), and financial market volatility increased sharply, if briefly, in May (see Chapter VI).” (BIS 2007-05-29:12).

2007-06 The total outstanding notional amount of over-the-counter (OTC) derivatives market was $516 trillion USD (Bank for International Settlements).

2007-05 The Bank for International Settlement report revealed concerns that short-term inflation could lead to long-term inflation due to high crude oil commodity prices in the spring of 2007 (BIS 2007-05-29:59).”

2008-01 through 2008-06 The price of oil on the futures markets climbed 40% between January and June 2008 (Lewis 2008-06-09).

2008-06 “Oil’s six-year rally has gathered pace this year, with futures markets climbing by roughly 40 percent since January (Lewis 2008-06-09).”

2008-06-06 The dollar plunged on Friday after U.S. economic data showed the biggest jump in the U.S. unemployment rate for 22 years, denting expectations the Federal Reserve would raise interest rates. It has been suggested that The weakness of the U.S. currency has been a major factor behind price gains across the commodities complex as dollar-denominated raw materials are relatively cheap for non-dollar buyers and offer investors a potential hedge against inflation. (Lewis 2008-06-09).

2008-06-09 “Oil fell on Monday, but held close to record levels after the biggest one-day price gain in the history of the market left traders and analysts divided over the explanation (Lewis 2008-06-09).”

Who’s Who

The Bank for International Settlements (BIS) “is an international organisation which fosters international monetary and financial cooperation and serves as a bank for central banks. The BIS fulfils this mandate by acting as a forum to promote discussion and policy analysis among central banks and within the international financial community, a centre for economic and monetary research, a prime counterparty for central banks in their financial transactions and an agent or trustee in connection with international financial operations. The head office is in Basel, Switzerland and there are two representative offices: in the Hong Kong Special Administrative Region of the People’s Republic of China and in Mexico City. Established on 17 May 1930, the BIS is the world’s oldest international financial organisation. As its customers are central banks and international organisations, the BIS does not accept deposits from, or provide financial services to, private individuals or corporate entities. The BIS strongly advises caution against fraudulent schemes.” Bernanke, an MIT professor appointed by President Bush to head the Federal Reserve is also on the Board of Directors of the Bank for International Settlements.

Webliography and Bibliography

2008-05-29. “Double, double, oil and trouble.” The Economist print edition.

BIS. 2007-06-24. 77th Annual Report. Basel, Switzerland. 244 pp.

International Energy Agency (IEA). 2008-05-13. “Oil Market Report (OMR).” PARIS, France.

Krauss, Clifford. 2008-o6-09. “Rural U.S. Takes Worst Hit as Gas Tops $4 Average.” Business. New York Times.

Lawler, Alex. 2008-06-10. “Oil’s record jump defies single explanation.” Reuters UK.

Lewis, Barbara. 2008-06-09. “Oil falls after record $11 surge.” Reuters. Boston Globe.

Ticker. 2008-06-10. “Rosengren: Dollar’s impact on oil is modest.” Boston Globe.

More state intervention through laws and regulations: the future of financial intruments as mortgage-meltdown reveals high cost of unfettered markets. The US heads towards recession, shares plungs, oil prices have reached a $120 peak, gold a $1000, OPEC spurns US call for more oil production, activist shareholders call for more transparency and accountability of CEOs, but complex financial instruments used by hedge funds and private equity funds that operate outside of regulation, continue to create more wealth for the wealthy. Wealth disparities intensify as hedge funds and private equity funds skim off the cream of global markets by operating from tax-free offshore locations using everything from emotions, gut feelings, intuition, chaos theory and complex financial algorithms (based on variables, outcomes and values that might be realized in the future and money that is more cyber that really real. These financial institutions with their rhizome-like roots have permeated practically every aspect of our economic lives through our pensions, mortgages and investments. They have create havoc in the economies of nation states and lower quintile households. They gamble big and lose big. When their losses cause the inevitable domino effect, nation states and citizens are forced to cover their losses to prevent the worst. The financial crisis has been triggered by the invisible hand impatient for higher returns, controlled not by a law of nature, human or otherwise, but by an insatiable addiction to a money game. Law makers and regulators from the state and the market are calling a halt.

Bajaj, Vikas. 2008. “Mortgage Defaults Reach a New High.” New York Times. March 6, 2008.

Other related New York Times stories:

  • Bush and Fed Step Toward a Mortgage Rescue (March 5, 2008)
  • Bundled Mortgages and Dubious Fees Complicate Foreclosure Cases (March 4, 2008)
  • Spitzer to Present a Plan to Reduce Foreclosures (March 4, 2008)
  • Other related stories:  

    Acharya, A., H. Almeida, and M. Campello, 2006, “Is cash negative debt? A hedging perspective on corporate financial policies.” Journal of Financial Intermediation.

    Bates, Thomas W.; Kahle, Kathleen M.; Stulz, René M. 2007. “Why do U.S. firms hold so much more cash than they used to?”  (October 2007). Fisher College of Business Working Paper No. 2007-03-006 Available at SSRN: http://ssrn.com/abstract=927962

    Dittmar, A., and J. Mahrt-Smith. 2007. “Corporate governance and the value of cash holdings.” Journal of Financial Economics 83, 599-634.

    Johnston, Megan. 2007. “Whatcha doin’ with all that cash?: Summer money scramble to be one hot topic at AFP confab.” Financial Week. October 22, 2007.

    McDonald, Ian. 2006. “Cash Dilemma: How to Spend It.” Wall Street Journal. May 24, 2006. p. C3. McDonald, Ian. 2006. Capital Pains: Big Cash Hoards.” Wall Street Journal. July 21, 2006. p. C1. Polczer, Shaun. 2008. Scientific investor finds predictability in chaos: Check your emotions before acting.” Calgary Herald. March 04, 2008.

  • Relief for Homeowners Is Given to a Relative Few (March 4, 2008) 
  • Walter Zimmerman, principal partner in New York-based United Energy brokers, applies chaos theory to commodity markets. ” Chaos theory is not based on chaos but on the theory that extremely complex phenomena, like the market, have underlying hidden patterns that can be revealed by delving deeply to glean predictive information about that which was seemingly chaotic. He bases his market predictions on the assumption that markets are reflections of human nature and that both are unchanging, both are more emotional than logical, and that behavioural patterns of human nature/herd instinct/the market will be repeated over time. He advises his clients, the bigger oil producers in Calgary to hedge production against high commodity values (oil at $120 a barrel). If the economy continues to unravel, oil prices will correct lower to about $70 or $80.  He argues that governments cannot fight a recession and inflation at the same time. Cutting interest rates to fight recession leads to inflation and fighting inflation depresses economic activity. Summary of (Polczer 2008-03-04).

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