Here's a fascinating piece from 60 Minutes that links last year's disastrous surge in oil prices to rampant speculation made possible by deregulation — the very kind of deregulation that Enron, at its peak, lobbied aggressively for, and that other firms and investors took full advantage of, securing handsome profits before the bubble burst.
The deregulation that Enron successfully pushed for in electricity markets was painful enough in California, which suffered from price spikes and rolling blackouts in large part because of Enron's manipulation of the unregulated market. But the worldwide effect of deregulation on oil prices seems to dwarf that crisis. Until the second quarter of last year, global oil supplies were increasing and global demand was going down — but the price of oil still went way up, driven by investor demand.
Some of the investors who sunk their money into oil futures may have took a hit once the market nosedived — 60 Minutes links the fall of Lehman Brothers and AIG, both heavily invested in oil markets, to that downturn — but the real losers were the mom-and-pop businesses and paycheck-to-paycheck families who got clobbered when gas went up to $4 a gallon. From truck drivers to gas station owners to 9-to-5 commuters, these folks didn't have the kinds of finances that could stay afloat amid such cataclysmic waves of market volatility.
It's unclear whether investment houses such as Morgan Stanley, which own large chunks of the oil wholesale business and also were advising investors to put their money into commodities futures — thus driving up the price — were manipulating the market to their benefit in the same way that Enron was in California. But that's the thing about deregulation: No one has the authority to find out what's really going on.
It seems that last year's oil spike was yet another way that deregulation has contributed to our current economic malaise. Lax oversight encourages risky behavior, which is not necessarily bad: More risk means more reward on the way up, if also more remorse on the way down. But in the mortgage market, and in the electricity and oil markets, deregulation also opened possibilities and altered the incentives, so that more people got greedy and opted for less than ethical ways to make a buck. From unscrupulous lenders and borrowers to firms manipulating markets, everyone was cashing in when the government's back was turned.
