AMERICAN MONETARY INSTITUTE
PO BOX 601, VALATIE, NY12184
Tel. 518-392-5387, email
Stephen Zarlenga, Director
Dedicated to the independent study of monetary history, theory, and reform
“Whoever controls the money system controls the society.”
“Front running” Against Humanity in the Oil Markets
Financial Trading or Treason against mankind?
“Front-Running is an insiders’ term applied to a normally illegal, always immoral practice in commodity and other markets. Here’s what happens:
A broker holding a client’s order to buy at a certain price, instead buys for his own account at the same price, or slightly higher, just in “front” of it. The clients order is not filled and the broker has taken an unfair advantage over other market participants, because he still controls the client’s order which will buy the position back from him and protect his trade from a loss. The same holds true for selling in front of a clients sell order.
The client loses the opportunity to gain, where his order is never filled and the market moves away from his order point, so that his buy order would have to get filled at a higher price. Any market that systematically gives such an advantage to particular participants will harm the relative position of all others. If some participants can trade with little or no risk, over time everyone else will be hurt.
This is all the more serious because Exchange Members’ margin requirements (the cash deposit they must put up) are only about 1%, sothe front running brokers have a possibility of great gain in a short time period with almost no possibility of loss.
Some exchanges put limitations on brokers trading for their own accounts, but they’re not very effective – no more than they were when the Amsterdam Stock Exchange tried to stopfront running in the 1700s. The brokersjust use what are called “bag men” who they signal to do the offending trade; while they hold back the client’s order, to protect the accomplice’s trading position from loss, and they divide the profits later.
Why is this important for public policy considerations?
Well, “front running” is one way to view what the criminal Enron executives did to the State of California. They had the client’s non cancellable, inelastic“orders” to buy electricity and they grabbed the available supply in front of that, restricted the delivery process and extorted higher prices; all the while blaming price rises onso called“market forces.”
Enron was bad enough, and the Sarbanes-Oxley law was passed to hold corporate officers criminally liable. That is a good law as judged by the corporate types screaming for its repeal. But apparently it didn’t go far enough as judged by the present bold attack against humanity taking place with an unprecedented potential for destruction and even starvation.
And the Plot thickens:
The current attack is much more insidious, taking a more heinous form – front running against the human race, with the potentially vicious results ofgenocide and even humanicide!
The manipulation ofenergy markets has widened from cheating the people of California, to a deadly attack on all of humanity.Yes!That’s what allowing speculation in oil futures is doing today. These markets aren’t engagedin a process of “price discovery” as apologists for such trading like to claim. They are mainly front running humanity and the entire world through the oil market, under the protection of a White HouseAdministration that can be counted on to serve their every need, and ignore their every misdeed!
The destruction has already been immense. It can get much worse unless Congress acts to stop it.
We’veseen the devastating effectswildly higher oil prices have had on the airlines; on the trucking industry; on food delivery and production costs; on the finances of average families trying to keep up with gasoline and living costs; on the restaurant and hotel businesses that Americans can less and less afford. Add your own examples. It’s the speculation and hoarding that is doing it. Clearly the oil companies could not be grabbing record unprecedented profits, if their costs of obtaining oil were rising.
And so I wrote an outline for this paper 8 weeks ago, but put it aside when it looked like Congress was preparing to do the inevitable – rescue the world economy from this pernicious vandalism, by limiting speculation in oil futures to a few contracts per account.That’s all it would take to stop the nonsense.
Obviously there is no reason to allow wealthy speculators to position themselves between the world’s limited oil supplies, and those who have to use that oil to keep the world economy functioning. Such hamperingof that world economy leads directly to unnecessary hardship, starvation, death and warfare.
And yes, that argument against such trading also applies to trading in foodstuffs, though the effects are not as magnified as with oil prices.
Call me naïve, but I put the outline aside – “Surely,” I thought, “Congress will finally fulfill its responsibility to act!” Well not quite – the measure failed to pass the Senate by 50 to 43, with 7 Senators not voting! See how your Senator voted at
And so you have this paper for your consideration.
Why didn’t Congress act?
Now you might ask “If what you write above is so clear, and describable in such harsh language, how could the Senate refuse to act even after the House of Representatives passed the measure? Are we dealing with a gang of demons here?”No not demons, but something potentially worse - we are dealing with a really bad idea that many people believe in – the sanctity of markets!
The Senate vote brings a central error of philosophy to the fore and exposes certain false ideas and faulty methodology at the core of our thinking processes. What stopped the bill in the U.S. Senate was an ideology with certain false axioms. Whichbeliefsare those?The vote was based on a view of markets that has been strongly promoted at every opportunity, and rarely questioned, or its negative effects fully “appreciated.”
That view gives markets a sacred character - recognize this?
Don’t try to legislate againstwhat the market does – market forces will crush your laws. (its omnipotent!)
Don’t try to instruct market behavior, with it has inputs from millions of participants it knows more than any of your regulators ever could! (Its Omniscient.)
Do the right things and the market will reward you; misbehave and you will be punished! (Its benevolent.)
Well friends, omnipotence, omniscience and benevolence – what are they defining? You got it - agod, and you don’t usually fight with a god!These are the dominant attitudes today.
What’s missing from this picture?
What is sorely missing from these beliefs/assumptions/axioms, is evidence!
Where is the evidence that removing regulation from the airline industry had good effects?
Where is the evidence that removing FCC restrictions on media ownership had good effects?
Where is theevidence that removing government regulation from any industry has had good effects?
And you realize thatit’s worse than that, don’t you? It goes far beyond a lack of evidence, because there is plenty of evidence, but evidence to the contrary!So holding those beliefs requires ignoringloads of evidence: ignoring the damage done to the airlines by de regulation; ignoring the damage done by media concentration; ignoring the continuing damage done to America’s middle class; ignoring: (insert one you are familiar with!)
“But,” you ask, “How can the proponents of leaving the markets un-regulated justify ignoring the facts? Isn’t that crazy? Well yes, but it’salso a necessary part of their false philosophic methodology which focuses on theory and is inclined to exclude experience – the facts. This is carried to extreme levels by one of their leading “lights” economist Ludwig Von Mises, who actually tells us that facts cannot disprove his theories! So we are dealing with momentous errors of judgment and methodology.
Though these men are in the U.S. Senate, they are thinking like scared children. Why? Perhaps they are terrorized to do battle with the crazed market god. But such errors should remain in children’s sandboxes, not the halls of power guiding our nation!
This battle over methodology is a very old fight.We can trace it back to our nation’s beginnings, to Ben Franklin and earlier to the philosophers Liebnitz, Descarte and Plato. How do we know what we know? Franklin’s 1729 essay “The Nature and Necessity of a Paper Currency”gave the correct methodology when he summarized the ideas he used to help Pennsylvania set up its paper money system in 1723 rescuing her from a prolonged usury crisis. Franklin told the world:
“Experience, more prevalent than all the logic in the world has fully convinced us all that paper money has been of the greatest benefit to the country.”
Hopefully as some Senators voted against stopping oil speculation, perhaps a more human inner voice from deep within them rebelled against the wrong action they were taking to block the legislation.What stifle that voice? Was smothered by an unholy combination of greed & selfishness, assuaged by their comforting belief in the utility of unbridled selfishness and greed? The false notion that selfishness “works?”
The Senators are not demonic, but their ideology, summarized as “Market worship,” whichignores the human part of the resulting tragedies, certainly is.
1