Publications: Notes at the Margin

Beyond Greed Redux (April 27, 2020)


Forty years ago, the silver trading by the Hunt brothers, Bunker and Herbert, came close to bringing down the US financial system. Only the last-minute intervention by the Federal Reserve, led by Paul Volcker, prevented disaster. Stephen Fay recounted the debacle in a pot-boiling bestseller titled Beyond Greed.[1]


The title of this report, “Beyond Greed Redux,” references Fay’s book. We argue that today forces probably more potent than those amassed by the Hunt Brothers threaten to collapse the oil industry in the US, Europe, and China absent tighter enforcement of commodity trading rules. Indeed, the global financial system’s stability could be threatened by the same type of circumstances confronted by Volcker, who chaired the Fed in late 1979 and early 1980.


Absent change, a few individuals—senior officials of the United States Commodities Fund (USCF), the firm that manages the United States Oil Fund (USO), officials at the Chicago Mercantile Exchange (CME), which owns the NYMEX, negligent clearing members, and possibly some hedge fund managers, to name several—will make large sums as they destroy the US oil business.


Those skeptical of this assertion should consider how the 1980 Hunt silver catastrophe bankrupted or substantially shrank firms that relied on silver. Today, the USO fiasco could put many oil companies into bankruptcy, including Occidental Petroleum. Under current market conditions, liquidation and permanent closure will be the fate of the firms bankrupted by greedy funds like USO. The United States’ “energy dominance,” an achievement flaunted by the Trump administration, will become a joke.


The root cause of a CME/USO-induced oil industry collapse in the US, Europe, and China, should it occur, will be traceable back to the idea that commodities are an appropriate asset for investment. Goldman Sachs pushed this concept as early as 1991 and then academics Gary Gorton and K. Geert Rouwenhorst made it popular in their 2004 NBER working paper, “Facts and Fantasies about Commodity Futures.”[2]Their study has since become the bible for investment advisers urging individuals and pension funds to invest in commodities.

[1] Stephen Fay, Beyond Greed (New York: Viking, 1982).

[2] Gary B. Gorton and K. Geert Rouwenhorst, “Facts and Fantasies about Commodity Futures,” Financial Analysts Journal 62, No. 2 (March-April 2006) [], pp. 47-68.


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