Opinion

Felix Salmon

Counterparties: More price manipulation by Barclays

By Felix Salmon
November 1, 2012

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With an estimated 4.6 million homes and businesses without electricity across the East Coast, including the vulnerable elderly, it’s hard to imagine a worse time to be accused of manipulating the energy market. That’s where Barclays finds itself, facing a record $470 million fine from the Federal Energy Regulatory Commission.

Here are the details from Reuters:

The team of four traders… exchanged messages explaining how they would “crap on” certain prices in one market to profit in another.

The traders are alleged to have manipulated power prices [from late 2006 throught 2008] — driving up or down physical power prices to make money with their financial swap positions. That is alleged to have caused losses for rival power traders of $139 million — and netted the bank gains of $34.9 million.

If that sounds familiar, it should. The traders at the heart of the investigation formerly worked at Mirant, which paid $11 million to settle federal charges that it manipulated natural gas markets in 2000. At the same time, Enron’s traders were bragging about causing “Grandma Millie’s” sky-rocketing electricity bills.

Trying to move physical power prices so that your swap book benefits is an order of magnitude away from attempting to take power plants offline, but adding “Enron-esque” and “scandal-ridden” to the list of Barclays descriptors must smart. Particularly for the bank’s new law-and-order chairman.

A separate investigation into Barclays’ relationship with the Qatar Investment Authority at the height of the financial crisis has moved stateside. The WSJ’s David Enrich reports that the US is investigating possible violations of the Foreign Corrupt Practices Act. The UK Serious Fraud Office is already pursuing allegations that the bank paid £300 million in advisory fees to the Qataris in order to secure an $7.1 billion investment in Barclays. And in case you missed it, Barclays reported £1.7 billion in profits for the third quarter. — Ben Walsh

On to today’s links:

Terrible
Sandy’s economic toll: $30-50 billion in total damages – EQECAT

Sobering Reminders
If you care about food, the future, or other people, you need to care about the Farm Bill – Daniel Imhoff

Real Talk
Businessweek’s new cover story: “It’s global warming, stupid” – Businessweek

EU Mess
Spain meaningfully addresses economic crisis by extending irrelevant ban on short selling – Market Watch
Spanish government in no rush to request the bailout the EU designed for them - AP

Cheery
Governor Romney wasn’t very bipartisan, tried to slash benefits for the disabled and insisted on having his own elevator – Zach Carter and Jason Cherkis

That’s Totally Reasonable
Educated professionals want out of China – NYT

Endorsements
The Economist is meh on Obama, but even more meh on Romney – Economist

Regulations
“There are billions of reasons Wall St should want to stop the Democratic Party and Dodd-Frank beyond hurt feelings” – Mike Konczal

Investigations
Michael Palin on the spacial sociology of Rio’s beaches – BBC

Solutions
Swedish town sends unemployed youth on paid “Job Journeys” to Norway – Telegraph

Takedowns
“Now Nate Silver is just laughing at you” – Choire Sicha

Strangely Existential
Whitney Tilson’s blues: Yes, I’m lonely – Businessweek

Facebook
How hard did Morgan Stanley try to lose money on the Facebook IPO? – Matt Levine

Oxpeckers
“Welcome to The Atlantic’s newest channel” @TheAtlanticSEXS – Atlantic

Comments
4 comments so far | RSS Comments RSS

can someone explain to me why we need energy market futures? It being a closed market and regulated to a certain extent – why is there a need for energy futures and options?

Bankers have to make money – one way or other. So, having these kinds of markets open will only incetivize bad behavior as bankers try to strech the marketplace to make money …

The $34 mn profit that barclay’s made was a loss to either a power generator, distributor or user. what value did Barclay provide that justifies the $34 mn profit ?

Posted by InfiniteThought | Report as abusive
 

Spain dragging its feet on requesting a bailout is pretty amusing. The ECB bailout is acting like a ‘bazooka’; was that even part of the argument for it?

Posted by absinthe | Report as abusive
 

We need to stop just fining companies for stuff like the Mirant trades; we need to send people to jail. If the guilty parties walked away still rich, what lesson were they to learn from the experience? Is it any surprise they tried it again?

Posted by Auros | Report as abusive
 

Felix: Look at electric power trading at PJM & the other consortia over the past decade. Read the old power market papers by a guy named Max Duckworth & look what became of him.

This sort of thing isn’t aberrational.

Posted by Eericsonjr | Report as abusive
 

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