FISCAL CRISIS update: Mike Whitney

The Great Oil Swindle

How Much Did The Fed Really Know?
By Mike Whitney
5-31-8

The Commodity Futures and Trading Commission (CFTC) is investigating trading in oil futures to determine whether the surge in prices to record levels is the result of manipulation or fraud. They might want to take a look at wheat, rice and corn futures while they're at it. The whole thing is a hoax cooked up by the investment banks and hedge funds who are trying to dig their way out of the trillion dollar mortgage-backed securities (MBS) mess that they created by turning garbage loans into securities. That scam blew up in their face last August and left them scrounging for handouts from the Federal Reserve. Now the billions of dollars they're getting from the Fed is being diverted into commodities which is destabilizing the world economy; driving gas prices to the moon and triggering food riots across the planet.

For months we've been told that the soaring price of oil has been the result of Peak Oil, fighting in Iraq, attacks on oil facilities in Nigeria, labor problems in Norway, and (the all-time favorite) growth in China. It's all baloney. Just like Goldman Sachs prediction of $200 per barrel oil is baloney. If oil is about to skyrocket then why has G-Sax kept a neutral rating on some of its oil holdings like Exxon Mobile? Could it be that they know that oil is just another mega-inflated equity bubble---like housing, corporate bonds and dot.com stocks-that is about to crash to earth as soon as the big players grab a parachute? There are three things that are driving up the price of oil: the falling dollar, speculation and buying on margin.

The dollar is tanking because of the Federal Reserve's low interest monetary policies have kept interest rates below the rate of inflation for most of the last decade. Add that to the $700 billion current account deficit and a National Debt that has increased from $5.8 trillion when Bush first took office to over $9 trillion today and it's a wonder the dollar hasn't gone "Poof" already.

According to a January 4 editorial in the Wall Street Journal: "

If the dollar had remained 'as good as gold' since 2001, oil today would be selling at about $30 per barrel, not $99. (today $126 per barrel) The decline of the dollar against gold and oil suggests a US monetary that is supplying too many dollars."

Wall Street Journal 1-4-08 The price of oil has more than quadrupled since 2001, from roughly $30 per barrel to $126, WITHOUT ANY DISRUPTIONS TO SUPPLY. There's no shortage; it's just gibberish. As far as "buying on margin" consider this summary from author William Engdahl:

"A conservative calculation is that at least 60% of today's $128 per barrel price of crude oil comes from unregulated futures speculation by hedge funds, banks and financial groups using the London ICE Futures and New York NYMEX futures exchanges and uncontrolled inter-bank or Over-The-Counter trading to avoid scrutiny. US margin rules of the government's Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex, by having to pay only 6% of the value of the contract. At today's price of $128 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120. This extreme "leverage" of 16 to 1 helps drive prices to wildly unrealistic levels and offset bank losses in sub-prime and other disasters at the expense of the overall population."

So the investment banks and their trading partners at the hedge funds can game the system for a mere 8 bucks per barrel or 16 to 1 leverage. Not bad, eh? Is it possible that gambling on oil futures might be a temptation for banks that are already underwater from a trillion dollars worth of mortgage-related deals that have "gone south" leaving the banking system essentially bankrupt? And if the banks and hedgies are not playing this game, then where is the money coming from? I have compiled charts and graphs that show that nearly two-thirds of the big investment banks' revenue came from the securitization of commercial and residential real estate loans. That market is frozen. Besides, this is not just a matter of "loan delinquencies" or MBS that have to be written off. The banks are "revenue starved". How are they filling the coffers? They're either neck-deep in interest rate swaps, derivatives trading, or gaming the futures market. Which is it? Of course, there is one other possibility, but if that possibility turned out to be right than it would cast doubt on the legitimacy of the entire financial system. In fact, it would prove that the system is being rigged from the top-down by our friends at the Banking Politburo, the Federal Reserve. Here goes: What if the investment banks are trading their worthless MBS and CDOs at the Fed's auction facilities and using the money ($400 billion) to drive up the price of raw materials like rice, corn, wheat, and oil? Could it be? Could the Fed really be looking the other way so it can bail out its banking buddies while they drive prices skyward? If it is true; (and I suspect it is) it hasn't done much good. As the Associated Press reported yesterday: "The Federal Reserve announced Thursday that it will make a fresh batch of short-term cash loans available to squeezed banks as part of an ongoing effort to ease stressed credit markets. The Fed said it will conduct three auctions in June, with each one making $75 billion available in short-term cash loans. Banks can bid for a slice of the available funds. It would mark the latest round in a program that the Fed launched in December to help banks overcome credit problems so they will keep lending to customers." Another $225 billion for the bankers and not a dime for the struggling homeowner! The Fed is bankrupting the country with their permanent rotating loans to keep reckless speculators from going under. So much for moral hazard. As far as speculation, there is ample evidence that the system is being manipulated.

According to MarketWatch: "Speculative activity in commodity markets has grown "enormously" over the past several years, the Homeland Security and Governmental Affairs Committee said in a news release. It pointed out that in five years, from 2003 to 2008, investment in the index funds tied to commodities has grown by 20-fold -- to $260 billion from $13 billion." And here's a revealing clip from the testimony of Michael W. Masters of Masters Capital Management, LLC, who addressed the issue of "Commodities Speculation" before the Committee on Homeland Security and Governmental Affairs this week:

"Today, Index Speculators are pouring billions of dollars into the commodities futures markets, speculating that commodity prices will increase. ...In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China. According to the DOE, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels.8 Over the same five-year period, Index Speculators' demand for petroleum futures has increased by 848 million barrels. THE INCREASE IN DEMAND FROM INDEX SPECULATORS IS ALMOST EQUAL TO THE INCREASE IN DEMAND FROM CHINA. Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years. Today, in many commodities futures markets, they are the single largest force.15 The huge growth in their demand has gone virtually undetected by classically- trained economists who almost never analyze demand in futures markets. As money pours into the markets, two things happen concurrently: the markets expand and prices rise. One particularly troubling aspect of Index Speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing. The CFTC has taken deliberate steps to allow CERTAIN SPECULATORS VIRTUALLY UNLIMITED ACCESS TO THE COMMODITIES FUTURES MARKETS. The CFTC has granted Wall Street banks an exemption from speculative position limits when these banks hedge over-the-counter swaps transactions. This has effectively opened a loophole for unlimited speculation. When Index Speculators enter into commodity index swaps, which 85-90% of them do, they face no speculative position limits.... The result is a gross distortion in data that effectively hides the full impact of Index Speculation. "

(Thanks to Mish's Global Economic Trend Analysis; the one "indispensable" financial blog on the Internet)

Masters adds that the CFTC is pressing to make "Index Speculators exempt from all position limits" so they can make "unlimited" bets on the futures which are wreaking havoc on the global economy and pushing millions towards starvation.

Of course, these things pale in comparison to the higher priority of fatting the bottom line of the parasitic investor class. Brimming oil tankers are presently sitting off the coasts of Iran and Louisiana. The Strategic Petroleum Reserve has been filled. Demand is flat. The world's biggest consumer of energy (guess who?) is cutting back . As CNN reports:

"At a time when gas prices are at an all-time high, Americans have curtailed their driving at a historic rate. The Department of Transportation said figures from March show the steepest decrease in driving ever recorded. Compared with March a year earlier, Americans drove an estimated 4.3 percent less -- that's 11 billion fewer miles, the DOT's Federal Highway Administration said Monday, calling it "the sharpest yearly drop for any month in FHWA history." (CNN)

The great oil crunch is another fabricated crisis; another "smoke and mirrors" fiasco; another Enron-type shell-game engineered by banksters and hedge fund managers. Once again, the bloody footprints can be traced right back to the front door of the Federal Reserve. Don't expect help from the regulators either; they've all been replaced with business reps like Harvey Pitt or Hank Paulson. The only time anyone in the Bush administration finds their conscience is when they're offered a multi-million dollar "tell all" book deal.

Can you hear me, Scotty?

(Gee, does America REALLY want to wait until an election to get rid of this horrible PARASITES? )

Beating that drum about Goldman Sachs just one MORE time

from today's NYT

I notice with interest that the Plunge Protection Team AND its antics of hiding out in Wyoming are never mentioned. Nor are the voices of those who have screamed loud and long against Goldman Sachs ever heard in this article.

The links are good, though.

HANK PAULSON. Put the name in the search box to your left! Or just search for Goldman Sachs in the box. TONS and TONS material on it on this blog!!

Goldman Sachs Rakes In Profit in Credit Crisis

By JENNY ANDERSON and LANDON THOMAS Jr.

For more than three months, as turmoil in the credit market has swept wildly through Wall Street, one mighty investment bank after another has been brought to its knees, leveled by multibillion-dollar blows to their bottom lines.

And then there is Goldman Sachs .

Michelle V. Agins/The New York Times

Lloyd C. Blankfein, chairman of Goldman Sachs, said the firm would not take any write-downs related to the mortgage crisis.

Rarely on Wall Street, where money travels in herds, has one firm gotten it so right when nearly everyone else was getting it so wrong. So far, three banking chief executives have been forced to resign after the debacle, and the pay for nearly all the survivors is expected to be cut deeply.

But for Goldman's chief executive, Lloyd C. Blankfein, this is turning out to be a very good year. He will surely earn more than the $54.3 million he made last year. If he gets a 20 percent raise — in line with the growth of Goldman's compensation pool — he will take home at least $65 million. Some expect his pay, which is directly tied to the firm's performance, to climb as high as $75 million.

Goldman's good fortune cannot be explained by luck alone. Late last year, as the markets roared along, David A. Viniar, Goldman's chief financial officer, called a "mortgage risk" meeting in his meticulous 30th-floor office in Lower Manhattan.

At that point, the holdings of Goldman's mortgage desk were down somewhat, but the notoriously nervous Mr. Viniar was worried about bigger problems. After reviewing the full portfolio with other executives, his message was clear: the bank should reduce its stockpile of mortgages and mortgage-related securities and buy expensive insurance as protection against further losses, a person briefed on the meeting said.

With its mix of swagger and contrary thinking, it was just the kind of bet that has long defined Goldman's hard-nosed, go-it-alone style.

Most of the firm's competitors, meanwhile, with the exception of the more specialized Lehman Brothers, appeared to barrel headlong into the mortgage markets. They kept packaging and trading complex securities for high fees without protecting themselves against the positions they were buying.

Even Goldman, which saw the problems coming, continued to package risky mortgages to sell to investors. Some of those investors took losses on those securities, while Goldman's hedges were profitable.

When the credit markets seized up in late July, Goldman was in the enviable position of having offloaded the toxic products that Merrill Lynch, Citigroup , UBS, Bear Stearns and Morgan Stanley, among others, had kept buying.

"If you look at their profitability through a period of intense credit and mortgage market turmoil," said Guy Moszkowski, an analyst at Merrill Lynch who covers the investment banks, "you'd have to give them an A-plus."

This contrast in performance has been hard for competitors to swallow. The bank that seems to have a hand in so many deals and products and regions made more money in the boom and, at least so far, has managed to keep making money through the bust.

In turn, Goldman's stock has significantly outperformed its peers. At the end of last week it was up about 13 percent for the year, compared with a drop of almost 14 percent for the XBD, the broker-dealer index that includes the leading Wall Street banks. Merrill Lynch, Bear Stearns and Citigroup are down almost 40 percent this year.

Goldman's secret sauce, say executives, analysts and historians, is high-octane business acumen, tempered with paranoia and institutionally encouraged — though not always observed — humility.

"There is no mystery, or secret handshake," said Stephen Friedman, a former co-chairman and now a Goldman director. "We did a lot of work to build a culture here in the 1980s, and now people are playing on the balls of their feet. We just have a damn good talent pool."

That pool has allowed Goldman to extend its reach across Wall Street and beyond.

Last week, John A. Thain, a former Goldman co-president, accepted the top position at Merrill Lynch, while a fellow Goldman alumnus, Duncan L. Niederauer, took Mr. Thain's job running the New York Stock Exchange . Another fellow veteran trader, Daniel Och, took his $30 billion hedge fund public.

Meanwhile, two Goldman managing directors helped bring Alex Rodriguez back to the Yankees, a deal that could enhance the value of Goldman's 40 percent stake in the YES cable network — which it is trying to sell — while also pleasing Yankee fans. The symmetry was perfect: like the Yankees, Goldman, more than any other bank on Wall Street, is both hated and revered.

Robert E. Rubin, a former Goldman head, is the new chairman of Citigroup. In Washington, another former chief, Henry M. Paulson Jr., is the Treasury secretary, having been recruited by Joshua B. Bolten, the White House chief of staff and yet another former Goldman executive.

The heads of the Canadian and Italian central banks are Goldman alumni. The World Bank president, Robert B. Zoellick, is another. Jon S. Corzine , once a co-chairman, is the governor of New Jersey. And in academia, Robert S. Kaplan, a former vice chairman, has just been picked as the interim head of Harvard University's $35 billion endowment.

Since going public in 1999, Goldman has been the No. 1 mergers and acquisitions adviser, globally and in the United States, with two exceptions: in 2005 it came in second in the United States rankings, and in 2000 it lost the top spot globally. In both instances, Morgan Stanley took the lead, according to Dealogic.

Goldman, of course, has made its share of mistakes. It took among the most serious write-downs in the third quarter on loans that were made to private equity firms, totaling $1.5 billion. The firm runs one of the largest hedge fund operations in the world, but its flagship funds — funds whose investors include marquee Goldman clients and employees — have had two years of abysmal performance. Clients are expected to redeem billions of dollars of capital at the end 2007.

But Goldman's absence from the mortgage debacle and the strong performance of its other businesses made up for the write-down associated with the loans. The firm reported $2.85 billion in profit in the third quarter, up 79 percent. Mr. Moszkowski estimates that investment and commercial banks in the United States have taken $50 billion in write-downs related to mortgages, with more coming; Mr. Blankfein said at a conference last week that he expected to take none.

Goldman's business is built on taking risks, both for itself and its clients. In recent years, Goldman has established the largest private equity and real estate fund complexes in the world. That has led to natural tensions with private equity clients who sometimes complain, but never publicly, about Goldman's common insistence to team up with them for a piece of the deal.

"Goldman has done the best job of any firm in the U.S. or world competing with their clients but doing business with them," said one client who asked not to be named because he does business with the firm. "They've managed to get their clients to live with it."

Still, this bottom-line approach has turned off some Goldman veterans and clients. They see the firm's desire to advise, finance and invest — a so-called triple play — as antithetical to Goldman's stated No. 1 business principle of putting clients first.

And there is little question that its success in trading, investment banking and servicing hedge funds — many of the traders come right from Goldman — allows the firm a bird's-eye view on trends and capital flows in the market.

Numerous Goldman investment bankers, former and current, voice the view that Mr. Blankfein's approach — using Goldman's investment banking business to develop principal investment opportunities for the firm — creates a brand intended to feed Goldman's profits rather than relationships. But this harking back to the firm's golden days as a pure advisory firm does not find much sympathy at Goldman these days.

"I have little patience for these people who talk of the last days of Camelot," Mr. Friedman said. "Principal investing has been an important and useful business. If you want to be relevant you have to anticipate where the world is going."

Mr. Blankfein, at the conference last week, echoed that sentiment. "While the integration of our investment banking operations with our merchant bank was somewhat controversial at the time, we felt these businesses were mutually reinforcing," he said.

Money soothes a lot of concerns, of course, and Goldman has had plenty to spread around. Through the third quarter, Goldman's $16.9 billion compensation pool — the money it sets aside to pay its employees — was significantly bigger than the entire $11.4 billion market capitalization of Bear Stearns.

Goldman executives and analysts assign much of their success to smart people and a relatively flat hierarchy that encourages executives to challenge one another. As a result, good ideas can get to the top.

But the differentiator that has become clearest recently is the firm's ability to manage its risks, a tricky task for any bank. Checks and balances must be in place to turn off a business spigot even as it is still making a lot of money for a lot of people. In a world where power gravitates to the rainmakers, that means only management can empower the party crashers.

At Goldman, the controller's office — the group responsible for valuing the firm's huge positions — has 1,100 people, including 20 Ph.D.'s. If there is a dispute, the controller is always deemed right unless the trading desk can make a convincing case for an alternate valuation. The bank says risk managers swap jobs with traders and bankers over a career and can be paid the same multimillion-dollar salaries as investment bankers.

"The risk controllers are taken very seriously," Mr. Moszkowski said. "They have a level of authority and power that is, on balance, equivalent to the people running the cash registers. It's not as clear that that happens everywhere."

For all its success on Wall Street, it is Goldman's global reach and political heft that inspire a mix of envy and admiration. In the race for president, Goldman Sachs executives are the top contributors to Barack Obama and Mitt Romney, and the second highest contributor to Hillary Rodham Clinton. Mr. Blankfein has held a fund-raiser for Mrs. Clinton in his apartment and has come out publicly in her favor.

Another member of Goldman's influential diaspora is Philip D. Murphy, a retired executive who is the chief fund-raiser for the Democratic National Committee.

All of which has made Goldman a favorite of conspiracy theorists, columnists and bloggers who see the firm as a Wall Street version of the Trilateral Commission.

One particular obsession is President Bush's working group on the markets, an informal committee led by Mr. Paulson that includes Ben S. Bernanke, the chairman of the Federal Reserve; Christopher Cox, the chairman of the Securities and Exchange Commission; and Walter Lukken, the acting chairman of the Commodity Futures Trading Commission.

The group meets about once a quarter — privately, with no minutes taken — to ensure that government agencies are briefed on market conditions and issues. The group is currently examining the extent to which the packaging and distribution of mortgage loans contributed to the crisis. It also recently completed a study recommending that hedge funds not be subject to further regulation; the group's fund committee was led by Eric Mindich, a former Goldman trader who now runs a successful hedge fund.

There is no evidence that the conduct of the group is anything but above board. But to some, the group's existence adds more color to the view that Goldman is indeed everywhere — much as J. P. Morgan was in the early years of the 20th century.

"Goldman Sachs has as much influence now that the old J. P. Morgan had between 1895 and 1930," said Charles R. Geisst, a Wall Street historian at Manhattan College. "But, like Morgan, they could be victimized by their own success."

Mr. Blankfein of Goldman seems aware of all this. When asked at a conference how he hoped to take advantage of his competitors' weakened position, he said Goldman was focused on making fewer mistakes. But he wryly observed that the firm would surely take it on the chin at some point, too.

"Everybody," he said, "gets their turn."

http://www.nytimes.com/2007/11/19/business/19goldman.html?_r=1&oref=slogin

November 19, 2007

Let's try this one more time: There isn't going to be any oversight in any type of market "trading" any time soon. The US Treasury Secretary will see to THAT. He's plenty of time to do something about it but doesn't. The US Treasury is at BEST a racket designed to keep money in the pockets of only those in the highest income brackets and at worst, playing the market to its own advantage.

The market on all levels is kaput; it's dominated by LARGE players; huge-profit billionaires and big time institutional investors including government agencies from the US and around the world. Many of these (take the Quebec Teacher's Pension Fund) are now bankrupt do to "bad paper" that were backed by liar loan mortgages - paper that could not be rated. Sure there are some Joe Potatoes investors shorting and the like (although that time has pretty much passed unless you can really justify the broker's fee to pay for your trades - or have a broker's license), but in the main the money which is NOT smart has gone into futures and commodity trading that THINKS the problem is oil and therefore wants to bet on commodities' prices going up due to the "inflation" of goods prices.

But the smart money has moved on, guys - the WaPo is misleading you (I sing with a caustic tone) ...

the truth is the MONEY is in copper as it leads to URANIUM. Super profits to be had! And no one, I assure you is going to regulate that money invested. In fact, the big funds are trading off shore, far away from REGULATION!!

The "energy" trading game is really being done in negotiating behind the scenes as to who is going to benefit from so-called carbon credits AND who can get the foot up on building new nuclear reactors. That's the REAL energy trading -- and that is only subliminally referred to in this article. Biodiesel fuels may LOOK like the future but they are NOT, people will notice that no solar, wind, water, air energy is being created. They will eventually notice that the earth cannot support dirty energy mining either. But meanwhile manipulation of the energy trading market will continue UNABATED - it's the red herring in the whole pile of utter .. um .. crap.

Everybody's been HAD; this article is an example of the "too little, too late" school of charm. Would that they had noticed all this during the post 9/11 market meltdown and profit taking in 2001, eh? What happened then boyz at the WaPo? How come nothing was said about regulation and oversight THEN?

You know a useful article might be one about sticking noses into the new NASDAQ trading .. and coming to grips with gambling addiction!! But I guess we'll just sit it out on the sidelines waiting for the "1929" type suicides to occur which have been remarkably slow to start .. YET.

Energy Traders Avoid Scrutiny

As Commodities Market Grows, Oversight Is Slight

By David Cho

Washington Post Staff Writer
Sunday, October 21, 2007; Page A01

One year ago, a 32-year-old trader at a giant hedge fund named Amaranth held huge sway over the price the country paid for natural gas. Trading on unregulated commodity exchanges, he made risky bets that led to the fund's collapse -- and, according to a congressional investigation, higher gas bills for homeowners.

But as another winter approaches, lawmakers and federal regulators have yet to set up a system to prevent another big fund from cornering a vital commodity market. Called by some insiders the Wild West of Wall Street, commodity trading is a world where many goods that are key to national security or public consumption, such as oil, pork bellies or uranium, are traded with almost no oversight.

Part of the problem is that the regulator, the federal Commodity Futures Trading Commission, has had a hard time keeping up with the sector it oversees. Commodity trading has exploded in complexity and popularity, growing six-fold in trading volume since 2000 -- the year that a handful of giant energy companies, including Enron, successfully lobbied to get Congress to exempt energy markets from government regulation.

Meanwhile CFTC's staffing has dropped to its lowest level in the agency's 33-year history. Its computer systems that monitor trades are outdated. Its leadership has seen frequent turnover.

"We are facing flat budgets and exponential growth in the industry," said CFTC Acting Chairman Walter Lukken. "Over the long term this type of budgetary situation is not sustainable."

The House Agriculture Committee is holding a hearing Wednesday on whether to expand the CFTC's authority and budget. In the Senate, Carl M. Levin (D-Mich.) has proposed a bill that would require all energy commodity exchanges to register with the agency and establish trading limits on investors. But similar efforts over the last few years have failed to make it out of committee. And this year, getting the House and Senate to vote on the matter may not be easy, given their busy agendas.

Some who work in the commodities markets question whether the CFTC, even if it got more money, would be an effective monitor because much of the trading occurs in private and is untraceable. Others criticized Levin's bill as overly broad, saying it could stifle markets that, Amaranth notwithstanding, have been working well.

Lawmakers acknowledged there are issues that have to be ironed out. But they are also concerned about time running out this year.

"We need to put a cop back on the beat in U.S. energy markets to stop excessive speculation and trading abuses," Levin said. "We have all seen what can happen if we don't act."

He was talking about Amaranth and its former star trader, Brian Hunter.

Hunter started trading energy commodities at age 24. After a tumultuous stint at Deutsche Bank, he was hired in 2004 by Amaranth Advisors, a hedge fund in Greenwich, Conn.

After making the fund $100 million in profits in natural gas in 2005, Hunter was promoted to head of energy trading. He began to take gigantic positions in natural gas on a regulated exchange called the New York Mercantile Exchange, or Nymex. Hunter largely traded highly volatile futures contracts, which allow investors to make complex bets on what price a commodity will fetch at various points in the future.

At one point in the summer of 2006, Hunter controlled up to 70 percent of natural gas commodities on Nymex that were scheduled to supply companies and homes in November of last year and more than 40 percent of contracts for the entire winter season, according to a report into Amaranth's activities by the Senate permanent subcommittee on investigations.

His positions were so big he could cause the price to move in the way he wanted by buying or selling massive amounts of his holdings in the last 30 minutes of trading on Nymex, a move known as "smashing the close," federal regulators say Nymex expressed concern over Hunter's activities and sent several warnings. Finally, in August 2006, Nymex ordered him to reduce his holdings. Hunter obeyed, but then simply replicated his positions on an unregulated commodity exchange run by Intercontinental Exchange (ICE), one of dozens in the industry, the congressional report said. And Hunter kept making trades.

Because ICE was not subject to any oversight, neither Nymex nor federal regulators could see what he was doing. Nevertheless, the volatility in gas prices that summer became so severe that even Hunter predicted it might draw official attention.

"Boy I bet you see some CFTC inquiries," Hunter wrote in an e-mail to another trader, according to the congressional report.

"Until they monitor [unregulated exchanges] no big deal," came the response.

In August, natural gas prices remained unusually high due to Amaranth's activity, according to the Senate investigation, even though adequate supplies combined with unusually warm forecasts made it apparent there would be plenty for the winter.

At the same time, many utilities across the country were locking in prices they would pay for the natural gas they would receive in the winter. They had no way of knowing what Amaranth was doing, said David Schryver, executive vice president of the American Public Gas Association.

But a few hedge funds became suspicious.

One of those, Centaurus, appeared to figure out the pattern behind Amaranth's investment strategy and positioned itself to make a profit at Amaranth's expense. On the last day of trading in August, Amaranth started selling off its gas contracts for September, but Centaurus countered by buying up Amaranth's positions. The two funds battled frantically over gas prices until the closing bell. Prices moved in the way that Centaurus had bet on.

Eventually Amaranth's losses totaled $6 billion. It lost the ability to pay back its debtors and closed its doors.

But homeowners lost out, too, because many utilities locked in prices for natural gas at just the wrong moment when gas prices were high. The ultimate cost nationwide has not been tallied, but one utility, the Municipal Gas Authority of Georgia, calculated that its 243,000 customers paid an extra $18 million in the 2006-07 winter season because of Amaranth. More than half of American homes are heated by natural gas. (and also half of those have no insulation, I'll betcha!!)

The CFTC filed a civil suit this summer accusing Hunter, who is still trading natural gas, of attempting to manipulate natural gas prices in 2006. Hunter, through his spokesman, denied the charge and said he would prove his innocence in court.

"It is worth asking whether the CFTC's sudden decision to file a headline-grabbing action against Brian Hunter was politically-motivated," Brian Maddox, Hunter's spokesman, wrote in an e-mail. "The CFTC's action came after several days of hearings conducted by the [Senate] criticizing the CFTC for ineffective regulation of natural gas."

Lawmakers and even some in the industry say more oversight of commodities is needed. ICE, the unregulated exchange that hosted the debacle, has begun to share some trading information with the CFTC. But there is little agreement on how far a new law should go, or whether commodity trading can be effectively monitored.

That's in part because a significant percentage of commodity trading doesn't happen on any organized exchanges, regulated or not. They take place in private, as over-the-counter trades. It is difficult to know how many of these are occurring.

Commodities markets also have become complex with many trading futures contracts as well as financial tools called derivatives and swaps, whose value is based on the risk of futures contracts. Gathering data on these products has been a challenge for the CFTC.

The evolution of the markets has led to some tension between the CFTC and the Federal Energy Regulatory Commission, the agency that oversees the commercial use of energy resources, which is directly impacted by commodity trading. The two agencies have both gone after unscrupulous traders.

For now lawmakers are focusing on increasing the authority of the CFTC, which has a stronger relationship with the commodity exchanges.

Levin's bill would require unregulated exchanges to comply with some of the same standards that the CFTC requires of a regulated body such as Nymex. For instance, unregulated markets would have to set limits on trader positions and share trading information with the CFTC. Levin's proposal would not seek to regulate trades that occur in private. Levin hopes to attach the measure to a farm bill currently moving through the Senate.

Exchanges are wary of these moves, warning of unintended consequences. Jeff Sprecher, the chairman and chief executive of ICE, said active unregulated exchanges serve an important function in helping determine the price of a commodity. Over-regulating them could squash that activity and encourage traders to flee to the less transparent venue of over-the-counter trading.

"No one could have imagined that you would have a [commodity] energy market develop the way it did," added James Newsome, chief executive of Nymex. "The markets are changing so quickly that there is no way you could keep up with the changes from a rules standpoint."

But Dan Berkovitz, a top Levin aide, said

traders "hesitate when somebody's watching. And when nobody's watching, traders will go wild."