The Secret Club That Runs The World, By Kate Kelly, book review: How markets really work

Mankind has been hoarding, speculating and betting on the future prices of raw materials for millennia: it’s a greed that has driven some of the world’s most terrible wars. Nothing new there, you might say. But there is – the sheer scale and complexity of speculation on day-to-day commodities is getting worse, not better.

What’s more, we know who the culprits are – a small clique of bankers and corporations that wield such power that they can force up the price of your drink can or your tank of petrol by cornering the market in essential commodities such as aluminium or oil. Thanks to this gripping new book, The Secret Club That Runs World: Inside The Fraternity of Commodity Traders, by the Wall Street journalist, Kate Kelly, we now know more about how they do it. And it’s even more shocking than you think.

Kelly is a veteran of the financial markets, having worked for CNBC for years and written the New York best-seller, Street Fighters, the history of Bear Stearns, so she’s a master of storytelling. If you didn’t know better, her book could be fiction, the story is so incredible and the individuals so grotesquely cynical. Here’s what one of her principal characters – Pierre Andurand, a French oil trader who ran a Mayfair-based hedge fund called BlueGold which had an $8 bn position in crude oil – told her when explaining what would happen to the price of oil: “Where demand is flat and supply is going up 1.5 to 2 million barrels per day, and Iran is threatening to blow up the world, you need to cut production. You should only get excited [meaning getting ready for a rise in crude prices] if you’re going to have a long, ongoing war.”

For serious cynicism, you can’t beat the role played by Goldman Sachs, which Kelly tells brilliantly. Even the big guns at Coca Cola didn’t like what Goldman was doing to the aluminium market – buying up warehouses stuffed full of the metal and storing it for months. It complained to the London Metal Exchange – almost unheard of.

More telling is her story about how Goldman Sachs’s president, Gary Cohn, had in the 1990s started buying cattle in Colorado to test out the physical commodity underlying one of the contracts of the firm’s new commodities index. Cohn and his then boss flew over their cattle ranch to inspect the goods – and saw the animals starving and stranded in several feet of snow. Cohn’s boss told him to sell the cattle immediately. Luckily, this club is no longer secret.