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The notion of regulating risk and behavior on Wall St. was given another stunning blow today as the FT reported that one rogue broker cause a spike in oil prices earlier this week. The paper wrote “PVM Oil Associates, the world’s largest over-the-counter oil brokerage, said it had been the victim of unauthorised trading”.
Oil inexplicably jumped from $71 to $73.50 in one hour of trading on Tuesday.
The news makes it clear that even a small firm can move markets and that providing rules and watchdogs has severe limitations.
The core of much of the analysis and new regulation of the market is based on the belief that proper analysis and oversight of derivatives including mortgage-backed securities would have changed the course of the collapse of the credit markets. Better regulation and more careful monitoring would have prevented the Madoff fraud from lasting as long as it did.
The markets remain far too large and far too complex to be completely controlled by government intervention. There is always one greedy or unstable broker sitting at a desk ready to hit the “trade” button on his Bloomberg terminal.
Douglas A. McIntyre
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