The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders Read Online Free

Sometimes they profited from trading directly with those clients, buying a commodity the client was selling, for instance, and making money unexpectedly when markets moved against that client. But the real money was made in trading for the house—turning their commodity traders into mini-Andurands with purses provided by the bank’s shareholders. In 2008, for instance, two of the best-paid employees at the Swiss firm Credit Suisse were a pair of commodity traders who took home a combined $35 million after betting correctly on the crude markets. Their role was effectively eradicated in 2010 when a new law in the U.S. barred bank employees from trading for the house, prompting them and many of their counterparts to flee to less regulated parts of the industry. But the banks continued nosing around the regulatory margin, looking for ways to optimize their commodity-trading chops, and the Credit Suisse traders simply quit the bank and started their own oil-focused hedge fund.
    Lying miserably at the bottom of the commodity-trading power structure were the individuals and corporations that depended on physical commodities—the Coca-Colas, Starbucks, Delta AirLines, and small farmers of the world. Those actors were paralyzingly dependent on aluminum, sugar, coffee, and jet fuel for survival, but were, almost without exception, unable to keep up with the commodity traders at banks and hedge funds. Conservative-minded by nature, and loath to use the exotic financial products or fast-moving trading strategies that professional commodity traders employed, they lacked the expertise to game the markets and felt it wasn’t their job to try, anyway. After all, they were selling lattes and airline seats, not risky commodity contracts that required multithousand-dollar down payments. Still, with the prices of many commodities climbing, the companies couldn’t accommodate price shocks, so they often wound up hiring banks to hedge their vulnerability to volatile product markets. The result could include added fees, bad quarters—even potential bankruptcy, if large demands from banks or other trading counterparts for extra cash or collateral became too much to bear.
    And if their limited knowledge and power were not enough of an obstacle, these companies and people were also damaged by sleaze in the brokerage business. Twice in the aftermath of 2008, middleman firms that lent money to commodity-contract buyers and sellers to make trades and then finalized them on exchanges failed due to the mishandling of funds, wiping out customer money in the process. One of them, MF Global, was run by Jon Corzine, a former head of Goldman Sachs in the 1990s and later the governor of New Jersey, who at MF used small investor money to pay debts from a side bet on European bonds that had gone bad. The case against him is still cycling through the courts, and it took more than two years for MF Global’s customers to be made whole.
    The astonishing wealth of commodity trading’s inner circle was created in near-total obscurity. Because it operated within eitherclosely held companies that didn’t trade on public exchanges or deep within large banks and corporations, where commodity profits and losses weren’t disclosed separately, the commodity-trading power elite has enjoyed utter anonymity. But if the individual participants in the boom went unnoticed, their impact did not. The commodity market’s sudden growth in volume, and the parallel surge in commodity prices, along with the entrance of public investors such as the California Public Employees’ Retirement System, raised serious questions about whether traders were jacking up the prices paid for commodities by average citizens.
    In the United States, where so many people depend on car travel, fuel was an especially charged issue. During the commodity price spikes of 2008,the resultant $4-per-gallon price of gasoline sparked an outcry in the U.S.,where members of Congress held forty hearings on the