I write this piece on something a friend reminded me of going back to the late 1970’s, my very first experience with the concept of “Grandfathering” the status of old versus new assets.
I was called by two different Executive Recruiters to work for an offshoot of a major Commodities Trading Firm, coming out of a “Translation” presentation I did in Chicago for a large group on non-technical professionals on the use of options and futures for hedging. Both times I turned down the interview. I would come to know later how lucky (or not) I had been.
After the 1974 Oil Crisis, the US Government vastly expanded incentives for exploration and production of US and other oil reserves, principally through creation of aggressive tax shelter incentives for these activities.
With the move to the unheard of levels of prices for Oil of $18.00 a barrel, production was quickly bumped up. As profits of these and related enterprises exploded, there was a move in Congress to legislate “Price Controls” on the resulting production and services businesses, designed to limit profits of Oil Producers. The compromise bill resulted in Oil being categorized into two new classes, “Old” Oil, meaning that produced from wells drilled before tax incentives, and “New” Oil, meaning that produced as a result of exploration resulting from increased tax incentives. The “Old” Oil was left to be sold at free market prices, while strict price limits were imposed on “New” Oil, limiting the profits from this class of product.
A few very agile minds quickly realized that if they could “re-classify” New Oil (which in raw form was undistinguishable from “Old” Oil physically), they could radically increase their profits in the sale of such converted assets. Certain multi-national persons began to do this aggressively with creative, but essentially criminal, book-keeping and paper transaction shuffling designed to “lose” the identity of oil in their control, and thereby making it possible for them to re-sell “New” Oil at the higher of market versus regulated prices.
In a conversation with a friend this week on the counterfeiting crisis of illegal naked shorting without settlement, I realized I was looking at an old idea simply recycled for another time and problem. When the SEC grandfathered pre-existing naked shorts and their related counterfeit longs, it was repeating the old fraud I had first seen applied to Oil in the 1970’s. This was the scam that forced Mark Rich to flee the US in front of a Federal Indictment, only to be pardoned by Clinton over 20 years later.
Nietzsche said “The Past is Prologue”. Santayana’s famous quote was a variant of the same theme: “Those who forget history are condemned to relive it.” When we realize that everything that happened in the 1929 Crash was repeated in the 2000 Raid, we should start to see a pattern unless we are dense, or in some form of twisted denial.
I have previously noted that the Tax Reform Act of 1986 was an Ex Post Facto law precedent for financial and tax issues, with no precedent in the Constitution.
I am beginning to be certain that there is nothing new ANYWHERE. Mark Twain said it best about Politicians, equally applicable to Regulators: “They need to be handled like diapers, changed frequently and for the same reason.”
Somewhere along the line, we better get our Government officials to find a way to lighten up here, or rue the results.
One of many variants of the old Poker Game theme is applicable here. Our Stock Markets are completely rigged casinos. What was the most valuable lesson I learned my first year on Wall Street? The Poker Game variant is that if you sit down at a table full of gamblers, and you don’t see the sucker, you’re it!
We all need to wake up and smell the napalm. Money and Flesh both make an ugly smell when they are burning.