Russian Roulette: Taxpayers Could Be on the Hook for Trillions in Oil Derivatives

Russian Roulette: Taxpayers Could Be on the Hook for Trillions in Oil Derivatives

 

by Ellen Brown    The Web of Debt Blog   December 20, 2014

Image by Mike Licht via Flickr

The sudden dramatic collapse in the price of oil appears to be an act of geopolitical warfare against Russia. The result could be trillions of dollars in oil derivative losses; and the FDIC could be liable, following repeal of key portions of the Dodd-Frank Act last weekend.

Senator Elizabeth Warren charged Citigroup last week with “holding government funding hostage to ram through its government bailout provision.” At issue was a section in the omnibus budget bill repealing the Lincoln Amendment to the Dodd-Frank Act, which protected depositor funds by requiring the largest banks to push out a portion of their derivatives business into non-FDIC-insured subsidiaries.

Warren and Representative Maxine Waters came close to killing the spending bill because of this provision. But the tide turned, according to Waters, when not only Jamie Dimon, CEO of JPMorgan Chase, but President Obama himself lobbied lawmakers to vote for the bill.

It was not only a notable about-face for the president but represented an apparent shift in position for the banks. Before Jamie Dimon intervened, it had been reported that the bailout provision was not a big deal for the banks and that they were not lobbying heavily for it, because it covered only a small portion of their derivatives. As explained in Time:

The best argument for not freaking out about the repeal of the Lincoln Amendment is that it wasn’t nearly as strong as its drafters intended it to be. . . . [W]hile the Lincoln Amendment was intended to lasso all risky instruments, by the time all was said and done, it really only applied to about 5% of the derivatives activity of banks like Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, according to a 2012 Fitch report.

Quibbling over a mere 5% of the derivatives business sounds like much ado about nothing, but Jamie Dimon and the president evidently didn’t think so. Why?

A Closer Look at the Lincoln Amendment.... In an article posted on December 10th titled “Banks Get To Use Taxpayer Money For Derivative Speculation,” Chriss W. Street explained the amendment like this:.....     read more here

 

 

Plunging oil prices prompt analyst to cut railway profit forecasts

ERIC ATKINS - RAILWAY INDUSTRY REPORTER  The Globe and Mail    Dec. 19, 2014

Expectations for lower crude-by-rail volumes amid plunging oil prices have prompted one analyst to cut the profit forecasts for the six major North American railways.

Fadi Chamoun, an equities analyst with Bank of Montreal, said profit growth should remain strong in the rail sector, including Canadian Pacific Railway Ltd. and Canadian National Railway Co., but he is making “slight reductions” to earnings targets for 2015 and 2016.

Oil prices have plunged by 47 per cent to $56 (U.S.) a barrel since July, raising the prospect producers will reduce production or balk at the cost of using trains instead of pipelines to move oil to refineries.

“Given the sharp decline in oil prices, we have moderated our assumed growth in crude by rail across the rail sector,” Mr. Chamoun said in a research report....    read more here

Report: Proposed tank car rule is costly 

Railway Age   Dec. 2, 2014    by Douglas John Bowen

The U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) proposed a new rule on railroad tank cars in July. See here for details of the Rail Industry push-back.