The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders (29 page)

14 percent of their combined total fixed-income revenue
:
“Coalition Index—2012,”
Coalition Development Ltd
., February 2013.

a quarter of Goldman’s pretax income
:
Gregory Zuckerman and Susanne Craig, “To Weather Rocky Period, Goldman Makes Riskier Bets,”
Wall Street Journal,
December 17, 2002, http://online.wsj.com/news/articles/SB1040074780804862913.

$4 billion in trading profits
:
Kate Kelly, “How Goldman Won Big on Mortgage Meltdown,”
Wall Street Journal,
December 14, 2007,
http://online.wsj.com/news/articles/SB119759714037228585.

$9 billion write-down
:
Morgan Stanley, “Morgan Stanley Reports Fourth Quarter and Full Year Results,” news release, December 19, 2007, http://www.morganstanley.com/about/ir/shareholder/4q2007.pdf.

a quarter of the country’s crude-oil production
:
Lawrence Kumins and Robert Bamberger, “Oil and Gas Disruptions from Hurricanes Katrina and Rita,”
Congressional Research Service Report for Congress
, October 21, 2005, http://fpc.state.gov/documents/organization/55824.pdf
.

gas contracts rose 20 percent
:
Jad Mouawad, Simon Romero, et al., “Gas Prices Surge as Supply Drops,”
New York Times
, September 1, 2005, http://www.nytimes.com/2005/09/01/business/01oil.html?pagewanted=all&_r=0.

George W. Bush vowed to tap
:
Ibid.

John Mack, a veteran
:
Gregory Cresci and Adrian Cox, “Morgan Stanley Makes Mack Chief Executive to Replace Purcell,” Bloomberg, June 30, 2005, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aYfgRpHtthcE&refer=home.

$3.2 billion on an order for a dozen
:
Massoud A. Derhally and Andrea Rothman, “Emirates May Sell 30% Stake in Initial Public Offer,” Bloomberg, November 13, 2007, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apCr91hDXFbc&refer=europe.

was being criticized
:
“Debt Crisis Puts Spotlight on Dubai World,”
CBC News,
November 27, 2009, http://www.cbc.ca/news/world/debt-crisis-puts-spotlight-on-dubai-world-1.832960.

two drunken British travelers
:
Barbara Surk, “British Tourists Get Three Month Sentence in Dubai Sex-on-Beach Trial,”
USA Today
, October 16, 2008,
http://usatoday30.usatoday.com/travel/news/2008-10-16-dubai-sex-on-beach-trial_n.htm.

5.
THE REGULATORS

demise of the energy trader Enron
:
Richard Oppel and Andrew Ross Sorkin, “Enron’s Collapse: The Overview; Enron Collapses as Suitor Cancels Plans for Merger,”
New York Times
, November 29, 2001, http://www.nytimes.com/2001/11/29/business/enron-s-collapse-the-overview-enron-collapses-as-suitor-cancels-plans-for-merger.html.

Its seminal report
:
Permanent Subcommittee on Investigations,
The Role of Speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Street
, 109th Cong., 2d sess., 2006, S. Prt. 109–65.

In 1975, it opened for business
:
Emily Lambert,
The Futures: The Rise of the Speculator and the Origins of the World’s Biggest Markets
(New York: Basic Books, 2011). Bagley was interviewed for this book in October 2013. Some of the details he recounted can also be found in Lambert’s
The Futures
. Additional details on the Hunt brothers’ soybean corner and the London options scandal can be found in the works below.

a soybean-market manipulation by the Hunt brothers
:
Harry Hurt III,
Texas Rich: The Hunt Dynasty from the Early Oil Days Through the Silver Crash
(W. W. Norton, 1982).

a group of con men
:
“Business: Options Scam in Boston,”
Time
, January 30, 1978, http://content.time.com/time/subscriber/article/0,33009,945904-1,00.html.

$4 per gallon
:
Jad Mouawad, “Congress Looks for a Culprit for Rising Oil Prices.”

In 1990, he advised the National Football League
:
Kurt Eichenwald, “Investment Bankers Play Football’s Newest Position,”
New York Times
, March 19, 1990, http://www.nytimes.com/1990/03/19/business/investment-bankers-play-football-s-newest-position.html?src=pm.

major financial scandal
:
Paula Dwyer et al., “The Lesson from Barings’ Straits,”
BusinessWeek
, March 12, 1995, http://www.businessweek.com/stories/1995-03-12/the-lesson-from-barings-straits.

Barings Bank
:
Richard W. Stevenson, “Young Trader’s $29 Billion Bet Brings Down a Venerable Firm,”
New York Times
, February 28, 1995, http://www.nytimes.com/1995/02/28/us/collapse-barings-overview-young-trader-s-29-billion-bet-brings-down-venerable.html.

“murder boards”
:
A commonly used term in Washington. Insights into the origins of the term can be found here: William Safire, “On Language: Murder Board at the Skunk Works,”
New York Times Magazine
, October 11, 1987, http://www.nytimes.com/1987/10/11/magazine/on-language-murder-board-at-the-skunk-works.html.

Gensler’s twin brother
:
Mara Der Hovanesian, “The Gensler Twins: Identical? Don’t You Believe It,”
Bloomberg Businessweek,
November 17, 2002, http://www
.businessweek.com/stories/2002-11-17/the-gensler-twins-identical-dont-you-believe-it.

hometown of Baltimore
:
Hanah Cho, “Longtime T. Rowe Manager Robert Gensler to Retire,”
Baltimore Sun
, April 13, 2012, http://articles.baltimoresun.com/2012-04-13/business/bs-bz-trowe-gensler-retirement-20120413_1_research-analyst-money-manager-media-telecommunications-fund.

first financial-services industry speech
:
Gary Gensler, “Remarks of Chairman Gary Gensler Before the Managed Funds Association” (keynote address, Managed Funds Association Forum, Chicago, Ill., June 24, 2009).

Kenneth Medlock and Amy Myers Jaffe
:
Kenneth B. Medlock III and Amy Myers Jaffe, “Who Is in the Oil Futures Market and How Has It Changed?,” The James A. Baker III Institute for Public Policy, Rice University, August 26, 2009, http://bakerinstitute.org/media/files/news/94bb2e2c/EF-pub-MedlockJaffeOilFuturesMarket-082609.pdf.

immediately panned the study
:
Craig Pirrong, “Have You Heard the One About the Baker Institute and the Oil Speculators?,” Streetwise Professor blog, August 28, 2009, http://streetwiseprofessor.com/?p=2454.

Energy users like
:
Will Acworth, “CFTC Examines Position Limits,”
Futures Industry
, September 2009, http://www.futuresindustry.org/downloads/Sep_09-Pos_Limits.pdf.

proposed energy position limits in the
Federal Register
:
Commodity Futures Trading Commission, “Position Limits for Derivatives,”
Federal Register
76, no. 17 (January 2011): 4752.

during a lunch
:
Ian Katz and Robert Schmidt, “A Goldman Guy Turns on the Street,”
Bloomberg Businessweek
, February 11, 2010, http://www.businessweek.com/magazine/content/10_08/b4167068042271.htm, plus additional reporting by the author.

who had gotten his start at PhiBro
:
Julia Werdigier and Julie Creswell, “Trader’s Cocoa Binge Wraps Up Chocolate Market,”
New York Times
, DealBook blog, July 26, 2010, http://dealbook.nytimes.com/2010/07/26/traders-cocoa-binge-wraps-up-chocolate-market/.

nearly every bean
:
Jack Farchy, “Hedge Fund Develops Taste for Chocolate Assets,”
Financial Times
, July 16, 2010, http://www.ft.com/intl/cms/s/0/e50feefc-9120-11df-b297-00144feab49a.html#axzz2tnvm8YRW.

had shot to their highest price since 1977
:
Christopher Leake and Rob Cooper, “Choc Finger: Meet the Real-Life Willy Wonka Who’s Just Bought an Incredible £658m of Cocoa Beans,”
Daily Mail
, July 18, 2010, http://www.dailymail.co.uk/news/article-1295608/Choc-finger-Meet-real-life-Willy-Wonka-Anthony-Ward-whos-just-bought-incredible-658m-cocoa-beans-.html.

published pictures of him
:
Ibid.

Ward’s face on a pig’s body
:
Werdigier and Creswell, “Trader’s Cocoa Binge.”

German Cocoa Trade Association
:
Ibid.

cocoa fell dramatically
:
Caroline Henshaw, “Armajaro Releases Stocks as Cocoa Bet Melts,”
Wall Street Journal
, December 16, 2010, http://online.wsj.com/news/articles/SB10001424052748704828104576021501880774790?mod=rss_markets_main.

6
.
THE HEDGER

world’s biggest consumers of fuel
:
Hunter Keay (managing director, senior airline analyst, Wolfe Research), in phone call with author’s researcher, November 2013.

“out of control”
and “silent killer”:
Mary Jane Credeur, Mary Schlangenstein, and Paul Burkhardt, “United, Delta Profit at Risk on ‘Silent Killer’ Hedges,” Bloomberg, January 31, 2011, http://www.bloomberg.com/news/2011-01-31/united-delta-profit-at-risk-from-silent-killer-in-fuel-hedges.html.

considering making fare hikes
:
Ibid.

having cut six thousand jobs
:
“Court Approves Delta’s Emergence from Bankruptcy Protection,”
New York Times
, April 26, 2007, http://www.nytimes.com/2007/04/26/business/worldbusiness/26iht-delta.1.5448309.html?_r=0.

A Texas native
 . . . new chief executive:
Dan Reed, “Executive Suite: Delta Chief Takes Unlikely Flight Path,”
USA Today
, February 14, 2008, http://usatoday30.usatoday.com/travel/flights/2007-10-21-delta-ceo-anderson_N.htm and author reporting.

$1.2 billion
:
Matt Cameron, “Airlines Use Aircraft as Alternative to Cash in Margin Calls,”
Risk
, August 17, 2009, http://www.risk.net/print_article/risk-magazine/news/1530797/airlines-aircraft-alternative-cash-margin-calls.

new record high each month
:
Food and Agriculture Organization of the United Nations, “World Food Prices Reach New Historic Peak,” February 3, 2011, http://www.fao.org/news/story/en/item/50519/icode/.

twenty-six-year-old Tunisian fruit and vegetable vendor
:
Kareem Fahim, “Slap to a Man’s Pride Set Off Tumult in Tunisia,”
New York Times,
January 21, 2011, http://www.nytimes.com/2011/01/22/world/africa/22sidi.html?pagewanted=all&_r=0.

Facebook, Twitter, and other social media
:
David D. Kirkpatrick, “Tunisia Leader Flees and Prime Minister Claims Power,”
New York Times
, January 14, 2011, http://www.nytimes.com/2011/01/15/world/africa/15tunis.html?pagewanted=1&_r=0.

Their ranks soon swelled to hundreds of thousands
:
“Egypt Protests—Friday, February 4,”
Guardian,
February 4, 2011, http://www.theguardian.com/world/blog/2011/feb/04/egypt-protests-day-departure-live.

food prices were a particular stressor
:
Sternberg, “Chinese Drought, Wheat and the Egyptian Uprising.”

which produced about 1.6 million barrels
:
International Energy Agency, “Efforts to Restore Oil Production in Libya Are Progressing Faster Than Anticipated,” http://www.iea.org/newsroomandevents/news/2011/november/2011-11-15.html.

David Becker
:
Becker had been made a managing director at Citi at the relatively young age of thirty-four and would have eventually headed commodities there. But he was fired from the firm in 2004, and, two years later, he pleaded guilty to criminal charges that he falsely inflated commodities-trading profits in order to win a bigger personal bonus. He was eventually sentenced to fifteen months in prison. See United States Attorney for the Southern District of New York, “Former Head of Citibank Commodities Sentenced to 15 Months for Falsely Inflating Profits by up to $20 Million,” news release, March 19, 2007, http://www.justice.gov/usao/nys/pressreleases/March07/beckersentencingpr.pdf;
and David Glovin, “Ex-Citigroup Trader Claimed ‘Widespread’ Wrongdoing,” Bloomberg, March 2, 2007, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVLH7JTz2EaE.

Trafi also exposed Ruggles
:
The raid Ruggles remembers came during a period when Trafi was under intense scrutiny by regulators in both the U.S. and abroad. The next year, Trafi would plead guilty in federal court to selling oil to U.S. companies under false pretenses—namely, that they were shipments legitimately obtained through the United Nations oil-for-food program, introduced in the 1990s to help Iraqis suffering from international trade embargoes. As part of its guilty plea, Trafi paid nearly $10 million in fines and penalties and forfeited another $10 million that had been frozen in a corporate bank account. See Harvey Rice, “Firm Pleads Guilty in Oil-For-Food Case,
Houston Chronicle,
May 26, 2006, http://www.chron.com/business/energy/article/Firm-pleads-guilty-in-Oil-for-Food-case-1862731.php
.