The Federal Energy Regulatory Commission fined JPMorgan $410mm today and you can see why JPMorgan would be okay with that. The details are in this marvelously complicated FERC order and settlement agreement,1 but the outlines of the story are simple. FERC built a terrible box, and the box had some buttons that were labeled “push here for money,” and JPMorgan pushed them and got money. You can understand the category mistake very easily:
FERC thought the box was for generating electricity at market prices but with a robust backup system to ensure reliable supply, and
JPMorgan thought the box was for dispensing money.
It’s a perfectly understandable mistake to make if you have spent your career building and operating boxes that dispense money, as JPMorgan global commodities head Blythe Masters has. What else could the box be for?
I suppose we should talk about how the box worked, because this is that sort of blog. Read more »
What can we make of this Barclays FERC thing? Besides, like, ha ha ha Barclays you sure like manipulating things? Quick version is: the Federal Energy Regulatory Commission has proposed to fine Barclays $470mm for manipulating California electricity markets by uneconomically buying/selling spot physical electricity in order to manipulate up/down the settlement prices it received on its electricity swaps. Barclays disagrees, etc. You can find the FERC order if you look hard enough1 and I am not an energy-trading guy and I will tell you: I found it entirely incomprehensible! So there’s that.
One quick and obvious thing to make of all this is: remember how one problem with Libor is that, though it underlies zillions of dollars of real economic activity (mostly swaps and stuff, some loans), Libor itself has for years been a nearly purely made-up number, not based on any actual transactions, so you can magically manipulate Libor by just pointing and saying “I MANIPULATE THEE”? That is not true of, God, some sort of electricity price or something: Read more »
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