EthicsBite™

Remember Jeff Skilling, the former ENRON CEO now serving time in the federal pen? One of Skilling’s infamous remarks while CEO was this joke: “What’s the difference between the Titanic and California? The Titanic still had the lights on when it went down.” Skilling was referring to the audacious energy trading and hedging activity being conducted by Enron that drove up the spot prices for electricity, forcing California to pay dearly. Later on we found out that Enron traders often engaged in a “game” in which market demand was temporarily created by other Enron traders for the sole purpose of driving the prices up. Enron would then profit from a trade, with California energy buyers on the other end, and release their position. Cute, huh?

This past weekend, Michael Hiltzik had an article in the Los Angeles Times discussing JPMorgan Chase’s activity in the California energy market. Hiltzik’s article was focused predominantly on the legal maneuvers the big bank and its attorneys have been taking in response to a FERC investigation of their trading activity. But along the way, almost as a sidebar to his discussion, he describes the scale of  JPMorgan’s impact in this market:

• The bank has trading rights related to ten power generation stations in the state
• After the California Independent System Operator, which manages the wholesale power market for California, closed a regulatory loophole, the bank found another one to exploit, thereby costing ratepayers over $ 5 million in five days
• The bank does not actually own any power plants

JPMorgan Chase has been allegedly exploiting “loopholes” in the trading regulations and forcing consumers to pay more for their home electric bill so the bank can have more profits — at least ENRON was in the “b’dness” as Texans put it. JPMorgan is a bank. It’s time to get the banks back to banking and out of trading commodities directly for their own profits. When banks and investment banks, acting as traders for their own accounts, increase prices that ordinary people pay for basic necessities such as food, clothing (via cotton), oil and electricity, the foundation of supply and demand based pricing slips away. For the big banks to generate profits by forcing consumers to pay higher prices than market supply and demand would have dictated is unethical.