Power Fix
What happens when a bank addicted to speculation is given free reign to profit from the price of public goods?
The privatisation of electricity companies and the liberalisation of the electricity ‘market’ are key conditions being imposed by the EU and the IMF in order for countries like Greece to receive more bailout money. The entire Greek public electricity company (all power stations and the entire network) is being lined up to be sold off for a price less than the value of just one of its power stations, in order to repay public debt on the orders of the creditors. At the same time, the Greek authorities are leading thousands of people into poverty and into darkness through the tax hikes levied through electricity bills, as well as cutting off people’s electricity when they cannot pay them.
A recent case from the UK shows the extent to which companies will go to profit from public goods. Barclays has found itself at the centre of yet another financial scandal, facing a fine of up to $470 million from the USA Federal Energy Regulatory Commission for a complex attempt to manipulate the prices of the energy market in California, beginning in 2006. The fine is still pending, but if imposed will be the largest ever by the regulator and much higher than the $290 million that Barclays paid in the LIBOR fixing scandal.
Four financial traders are charged with manipulating prices in the energy market to show they had incurred a loss, so they could reap profits from the parallel positions they held in derivative markets.
US regulators are charging Barclays and its employees of using investments of such large volumes to influence prices, not so they would benefit in the market they were trading in but from the simultaneous positions (their investments) they held in the swap markets. In this way, by profiting from their swap positions, they were able to cause losses to their competitors, estimated to have reached $139 million, while making profits worth $35 million.
The traders used investments in various financial markets in such a way that impacted the prices that consumers were paying for electricity. Such investments (known as ‘loss leaders’ in the financial market lingo) were common practice in the commodity markets.
In other words, they use trading in physical goods to profit from speculating on… nothing.
The cynicism and aggression of the traders of the British bank were reflected in the emails they exchanged between themselves, with perverse vulgarities a regular feature. One message detailed how they would “fuck” a certain market to strengthen a certain indicator; another how they would “shit” on the electricity to drive another indicator down. In one example, a trader wanted her colleagues to manipulate the prices in a certain way until she returned from her holiday.
Of course the traders knew these actions were unacceptable, as they had received warnings from more senior bankers that the practise was not “without problems.”
Despite Barclays’ efforts to polish its image, as long as the bank, and other colossal banking groups participate in the “liberalised” – as it is euphemistically called – energy market, the price for electricity users and consumers will remain intolerable. This is because the deregulation of the financial sector has led to a huge increase in financial instruments created by the banks that are used to speculate on energy prices. These instruments, in addition to the creation of numerous, parallel, complex and opaque markets, enable the banks to appear disassociated and out of reach from the end users of the thing being traded, their only criteria being profitability.
It is worth noting that the Barclays scandal happened after the distortions in the energy market were supposed to have been ironed out following the Enron scandal 10 years ago and black-outs in California. Paradoxically, in Europe, privatisation and liberalisation are still being presented as the solutions to countries’ energy problems.
