Earlier last year, we got a letter from Delta Airlines - mailed out to all the retirees and employees - that really surprised us. The CEO of Delta, together with the CEO’s from 12 other airlines, stated that the precipitously rising cost of oil was not due to the usual market forces such as supply and demand, but had another, more sinister cause. Oil commodities speculators and some of our most respected financial giants.
Ron and I weren’t so much surprised at the message but rather at the messenger. It isn’t often that the heads of the lions of corporate American come together to speak out in this way.
Just so you have a basis to judge the rest of this information, here is the original letter:
An Open letter to All Airline Customers:
Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.
For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers.
Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.
Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the
transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick
up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.
Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure,
transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.
The nation needs to pull together to reform the oil markets and solve this growing problem.
We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.
The above letter was signed by the following:
Richard Anderson, CEO, Delta Air Lines, Inc., Gary Kelly, CEO, Southwest Airlines Co., Glenn F. Tilton, CEO, United Airlines, Inc., Douglas Steenland, CEO, Northwest Airlines, Inc., Douglas Parker, CEO, US Airways Group, Inc., Gerald Arpey, CEO American Airlines, Inc., Mark Dunkerley, CEO, Hawaiian Airlines, Inc., Tiothy Hoeksema, CEO, Midwest Airlines, Lawrence Kellner, CEO Continental Airlines, Inc., Dave Barger, CEO, JetBlue Airways Corporation, Bill Ayer, CEO, Alaska Airlines, Inc., and Robert Fornaro, CEO of AirTran Airways.
Having been around the airline business for a long time, I can tell you it’s a cold day in hell, when you get all the CEO’s of the airlines to sit down and agree to make a public statement like this.
But, of course, there were still a lot of naysayers out there, as the letter- later sent to airline customers - made its way around the media and blogosphere.
The very next day, Timothy Noah, of Slate went on to rant about being a non-voting resident of Washington D.C. and the fees the airlines were adding in order to offset the extraordinary costs of fuel while missing the real point entirely, saying ( the bold emphasis is mine) :
United Airlines spammed me today. Its e-mail urged me to ask Congress to tighten regulation on oil speculation. “Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs,” explained the e-mail, which was also signed by AirTran, Alaska Airlines, American, Continental, Delta, Hawaiian Airlines, Jet Blue, Midwest, Northwest, Southwest, and US Airways. These airlines were kind enough to draft my constituent plea for me. That’s helpful, because I have no idea what the London Loophole and the Enron Loophole are (apparently I want to end them) and only the vaguest notion of what “position limits” are (apparently I want to bring them back). My task is but to click here; enter my zip code, name, and address; and click “send message.”
Nothing doing. There wouldn’t be much point, because my representative, Eleanor Holmes Norton, though a very fine person, is not permitted to vote on the floor of the House (I live in the District of Columbia) and doesn’t sit on any committees relevant to this beef. I have no senator to write to, because D.C. doesn’t have one.
Setting aside my disenfranchisement, I doubt that speculation has much to do with the price of oil, which as I write is trading at $142 per barrel. (Click here for an update.) “Some market experts” (emphasis added) cited by the airlines may put the cost of oil speculation at $30 to $60 per barrel, but most say that the oil futures market plays little to no role in setting prices. See, for example, this fairly persuasive column by Joseph Nocera of the New York Times, or this one by James Surowiecki of The New Yorker, or this one, by Paul Krugman of Princeton and the Times op-ed page. If I were to pester Rep. Norton about the high price of oil, I wouldn’t ask her to rein in oil speculation. I’d ask her to get the Justice Department or the World Trade Organization to bust the OPEC cartel.
Whoops. I wonder what he’s thinking now.
Sixty Minutes just aired a segment that is pretty persuasive, at least in my opinion, leading to only one conclusion - that oil speculators were, indeed, at the root of the recent spike in fuel prices. Watch the following:
Watch CBS Videos Online
Yes, perhaps a lot of the big economics and finance gurus didn’t believe that oil speculators could have held that much sway in the markets, but then I didn’t notice them ringing the alarms about the subprime mess that was about to engulf the economy either. Maybe they just couldn’t see that forest for the trees.
Do you ever get the feeling that a lot of so-called experts don’t have a tight grasp of what’s about to go down these days? Do they just spend so much time running with the wolves ( and being wined and dined by them) that they’ve forgotten what it’s like to be a hapless sheep?
With the change that the Obama administration promises, I think we also have to demand a change of who we call an expert. Simply because they appear on the pages of The New York Times or the screen of a major network shouldn’t give them unquestioned credibility.
The takeaway here is this: we need to be ever vigilant, inclusive of many viewpoints and play the skeptic - and in keeping with my New Years resolution- challenge assumptions, since if we don’t we could end up with egg on our face and empty wallets - perhaps like Mr. Noah.
maven
Friday, August 13, 2010 at 20:51 
