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Urban Trade Breakdowns - Financial Crises Meltdown B-rate Oil Trading

I love all kinds of crazy-ass money stories, even the straight-to-Netflix foreign art-house shit. But everyone loves a fucking blockbuster, which is what we got in 2007. It was the financial movie event of a fucking lifetime and it swept the fucking bubble awards, with A-list financial villains walking the congressional red carpet, all kinds of flashy CGI CDO special effects, and a drooling gaga press trampling over each other to cover the shit. Even though no one really understood the plot.
But other cool shit happened back then too. It was just upstaged by all that housing collapse and global bank failure shit. Too bad. Because B-list money stories are also kinda cool.
Here’s an example: did you know that the Mexican’s are probably the greatest traders of oil options in modern history (and proved it big-time in 2008)? Or that in 2009, one trader got black-out drunk and traded 69% of the global oil volume in one night? Or that Goldman was totally hedged and financially safe in their counter-party derivative obligations to AIG, but still took free TARP money, which they used for some next-level genius oil-trading shit?
If not, here’s a 2007 empty theater money story:
Mexico has been hedging oil masterfully since Saddam invaded Kuwait in 1990. In fact, that year, they hired the co-chair of Goldman, and soon to be US Treasury Secretary, Robert Rubin, to help hedge against oil risk. And they bought puts at an average price of $17/barrel and exited after the invasion at an average price of $9.75. They did this again in 2015 and banked $6.4B, then again in 2016 and banked $2.7B. But the 2009 trade was perfect. In July of 2008, just 11 days after oil reached an all-time high, they gathered in some florescent-lit government conference room in Mexico City and decided to go short. And fuck, if you are an oil exporting government and want to short government-money oil, you ain’t callin’ up no Mexican banks. So they rang up Goldman, Barclays, Morgan, and Deutsche to buy puts on 330M barrels of oil. For the bankers, this was the trade of a fucking year, and they were literally up all night selling oil and jerking each other off to visions of sugarplum Christmas bonuses. So Mexico makes the trade just as oil prices collapse from all-time highs. And over the next 5 months, they exit with a $5B profit.
So who are these Mexican oil trading geniuses, arguably the greatest traders in the history of oil options? Well, a group of civil servants, collectively known as “the men from Hacienda”. That’s all I fucking know. I’ll deal with a cease and desist order for this shit from a US court, but I draw the line at the border.
And fuck, the timing of this was great for Goldman, because earlier that year, in September of 2008, AIG got bailed out by the US Fed to the tune of $180B in TARP money. And at the time, Goldman was a counterparty to a shit-ton of the dark-web hieroglyphic derivatives AIG had wrote on the now-failing housing market. But here’s the thing, Goldman hedged that shit. In fact, they were some smart motherfuckers, and they had little to no exposure to an AIG failure. But all that TARP money had to go somewhere, so Goldman took an amount equal to who the fuck knows billions. So they had free liquid cash-money. Wait, actually, they had a lot of fucking free liquid cash-money, because the TARP bail-out happened just in time to go long oil, which Goldman rode in 2008 to record commodity trading profits. Before they went short in the service of our pre-wall southern neighbors.
But the shit gets better. About the same time Goldman was taking the Mexican short trade, they were also all-in providing capital to fund the then-new fracking industry, which paid like a motherfucker, and who knew, fracking drives up oil supply and crushed prices. Which, it turns out, is some good shit to know if you are about to help Mexico short oil.
And naturally, this brings me to drunk oil trading. In June of 2009, while all this government funded global macro oil shit was going on, Steve Perkins, a senior trader for PVM Oil, a UK-based trader of oil instruments, goes on one fuck of a bender. And at 1:22am, he trades roughly 7m barrels of oil worth $500m, or roughly 69% of the global trading volume at the time. And then shit gets hazy. That morning, at 6:30am, he calls his boss to tell him he’s not feeling well and won’t be in for work. Then, at 7:45am the compliance team calls him (oh shit) and determines that this was not cool. At 10:00am they unwind his trade, resulting in $9.7m in losses for a firm whose total annual revenue was $12m. Perkins is fired and banned from trading for some period of time that wouldn’t be too restrictive for future drunk traders.
So I’ll wrap here. Like I said, I like the B-movie money stories. But that’s because I’m not smart enough to follow the plot of all that complex blockbuster global shit. But thinking about his, I got the casting wrong. So here it is:
Best actor, global oil baller of all time: Goldman Sachs.
Best supporting actor: Mexico.
Drunk trader #1 in England: Steve Perkins

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