Goldman Sachs and Bank of America have made hundreds of millions of dollars from the recent electricity crisis and blackouts in the state of Texas. Similar scandal was created by Enron 20 years ago. Enron had made billions out of the electricity crisis in California.
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Last month, the Texas electric grid failed due to the polar vortex blast. This resulted in unexpected fluctuations in electricity prices. Bank of America made profits of hundreds of thousands by “highlighting the upside for Wall Street from mayhem that knocked out power and heat across the state, industry executives and traders said.”
The electricity contracts, which were owned by the bank’s energy triaging group based in Houston, had risen owing to the rise in Texas power prices in the third week of February. Texas power prices got as high as 10,000% to a cap of 9,000 USD per megawatt-hour.
Blocked supply of natural gas and frozen coal pipes resulted in widespread blackouts that lasted for days.
BofA is an active participant in the Texas Energy Market. BofA used to trade power and gas and make the generators capable of handling the fluctuating prices. As a result, BofA turned into a repository of power contracts whose value surged during the blackouts.
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The bank’s website says – “The volatility of the energy market has heightened the value of risk management.”
To ease its conscience – and preempting the angry populist chants in front of its Texas office – the bank pledged $1.1 million – or a tiny fraction of its power revenues – to charities to provide shelter, water, food and other essentials after the weather catastrophe.
The bank’s Austin market president, Nikki Graham said – “From the Rio Grande Valley to the panhandle, this winter storm affected the entire state, including our 19,000 employees in Texas, and for many, the recovery is just beginning.”
On the other hand BofA said: “Revenue related to this activity will be offset by losses and reduced revenues related to investments in wind and other alternate power suppliers in Texas and other affected markets.”
BofA has also lended credit of 480 million USD to the electricity generation and transmission company, Brazos Electric Power Co-operative. Brazos is unable to pay back the loan and therefore filed for bankruptcy.
During this time when all other banks were not declaring any of their trading activities, the Australian Macquarie reported the gain of 300 million Australian Dollars, through its Houston based energy business.
“So far we’re only hearing from the losers, and furthermore, we’re only hearing what the losers have chosen to tell us,” said Ross Baldick, an emeritus professor of engineering at the University of Texas at Austin.
In addition to the BofA, one more bank has made significant profits out of this Texas energy crisis and that is the Goldman Sachs.
Goldman Sachs was recently found guilty for being involved in the biggest corruption scandal, through which it gained billions from Malaysia’s Sovereign Wealth fund.
“The polar vortex drove volatility in energy markets, and, as a market-maker and liquidity provider, we were positioned to help our clients manage their risks in that challenging environment,” Maeve DuVally, a Goldman Sachs spokeswoman said in a statement.
Other organizations that gained huge profits out of the Texas Electricity crisis are Morgan Stanley and pipeline operators Energy Transfer LP and Oneok Inc.