Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock.
- Matt Taibbi
How was this bubble created? Remember the four elements:
- An Intangible Market. Goldman Sachs peddled oil futures, not oil in the here and now.
- A Broken Rule. In 1936, the CFTC was given authority to regulate speculative trades in commodities. In 1991 a Goldman-owned subsidiary was given an exemption from the speculative trades limit, and 14 other companies eventually obtained similar exemptions.
- An Insider. While Goldman’s “oracle of oil” was predicting a “super spike” in oil prices in the future …
- A Hedge. … Goldman was heavily invested in oil and profiting from the rapid increase in price in the here and now.