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Speculating on Food Can Starve the World's Poorest
Sudden price spikes and falls in food prices cannot be explained away – the banks are making a killing from betting on food
In defending cocoa futures trading, Seth Freedman is an apologist for big bankers, the "mammon worshipping culture" he feigns to despise. He not only gets his facts wrong, he attacks the World Development Movement (WDM) and a wider social movement who are on the right side of social justice. The WDM warriors - slings, arrows and all - have it right, and he's got it wrong.
Freedman naively takes Goldman Sachs's riposte to our research at face value. Any journalist worth their salt knows that where there's smoke, there's fire. And if there was nothing behind our accusations, they wouldn't be on the defensive. Goldman said that our estimates of their profits from commodity speculation were "ludicrously overstated", which is odd considering we based the figures on their annual report. In the report, they state confidently that commodities speculation produced "particularly strong results" (that's a cool $5bn in profits by the way) for the bank in 2009.
Goldman Sachs further claim that our report is "horribly misinformed" on a number of fronts and that the "overwhelming majority" of their activities in commodity markets are on behalf of clients. This may be so, but it doesn't make it any more acceptable that they earn vast profits from an activity that affects the price of basic foods. Goldman Sachs is hardly a paragon of honest marketing to clients in the interests of the public good, as the recently imposed fines on the company would suggest.
Freedman goes on to quote Goldman Sachs saying: "Research by respected international bodies like the OECD demonstrates clearly that long-term trends, including increased meat consumption by the growing middle class in the emerging markets and the increased use of biofuels in the developed markets, have created a backdrop for global food shortages. Our own research supports those findings."
Of course Goldman Sachs's research supports what makes Goldman Sachs's profits! If Freedman had read our report, he would have found that we acknowledge that these examples and the effects of climate change have been causing food prices to rise gradually. What they cannot explain are the sudden price spikes and falls, which mirror the entry and exit of speculative hot money, which has increased the price of commodities and seriously increased volatility. He thinks we're half-baked. Well then so is Gary Gensler, the chairman of the US commodity regulator, as well as the European commissioner responsible for financial markets, the UN's Food and Agriculture Organisation and the United Nations Conference on Trade and Development. They also agree with our findings.
Goldman Sachs has also said they "support effective reform. Our lobbying effort is designed to achieve reform that will continue to allow producers to hedge their risks so that consumers get the benefit of greater price stability. To suggest otherwise is disingenuous and downright misleading."
But Goldman Sachs has consistently opposed any regulation with teeth at the European level, through its role in many of the "expert groups" convened by the commission to advise on financial regulation. Last week, an influential group of MEPs raised the red flag concerned about their undue influence over writing rules that protects the bankers, but leaves the rest of us hanging out to dry.
The evidence categorically shows that these policies hurt people in developing countries, and the gap between the haves, the have-nots and the have-yachts continues to grow. People die from hunger while the banks make a killing from betting on food. If this isn't campaigning to challenge capitalism's worst excesses, I don't know what is.
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27 Comments so far
Show AllNothing new here. Such speculation led to famine in Ireland and Germany in the 19th century, and could go back at least to the Roman Empire.
I could be wrong, but I think what's new is:
- land-grabbers are taking productive lands for food and fuel that have zero benefit for citizens
- drought is a recurring problem, placing added stress on reliable food production
- Monsanto and their ilk are attempting a hostile takeover of farming as we've known it
- the threat or reality of war destabilizes everything
I understand the NIMBY-syndrome, in fact some of my best friends are NIMBY-ite's... I wonder if their perspective will change when food speculation affects them personally. Hmm.
They shouldn't take their own greed personally. It is built into their genes, inflamed by the environment, and fully absolved by an occasional good deed, e.g patting a dog on the head or opening a door for a little old lady.
Banksters aaply the same strategies to other commodities, including energy which compounds the severity of food price spikes because energy is used at every step of food production and distribution.
Clinton-era financial industry decriminalization (more commonly called deregulation) gave commodity speculators a license to steal.
Federal Reserve Chairmen Greenspan and Bernanke's low interest rates combined with the 2008 TARP corporate welfare program gave speculators unlimited free money from US taxpayers with which to accelerate commodity speculation, resulting in record food and energy price spikes in 2008.
If you vote for any US Congressman or Senator who voted for the TARP, or who voted to reconfirm Ben Bernanke as Federal Reserve Chairman (January 2010), you will have blood on your hands from the starving people who are victims of these ruthless politicians.
"If you vote for any US Congressman or Senator who voted for the TARP, or voted to reconfirm Ben Bernanke as Federal Reserve Chairman (January 2010), you will have blood on your hands from the starving people who are victims of these ruthless politicians."
Good advice in a properly functioning 'democracy', but given the limited choices we get in our elections not very practical - and not very efficacious. Chances are very good that the other guy has the same intent as the one from whom you withheld your vote.
If voting actually changed things, it would be illegal.
I haven't read about speculation as such, but I did read about the continued export of meat to Britain during the Irish Famine. A lot of the grazing land was held by absentee-landlords in Britain. I also remember reading that British bankers were buying up land as more and more people were trying to survive by moving elsewhere. "Beyond Beef : The Rise and Fall of the Cattle Culture" by Jeremy Rifkin is an interesting read.
I wish that could remember the name of the person who discussed this very subject on Democracy Now (last week, as I recall) and described how Goldman uses its enormous pool of available cash to manipulate markets through futures trading.
When farmers purchase such contracts, they're generally protecting themselves.
When bankers do it, they're always speculating. As this fellow pointed out, Goldman's only interest is making its pile of cash bigger. Starving people do not matter.
q
The banksters love starving people who are so desperate they will work for very low wages.
The Food Bubble: How Wall Street Starved Millions and Got Away With It*
_______________________
While Goldman Sachs agreed to pay $550 million to resolve a civil fraud lawsuit filed by the SEC, Goldman has not been held accountable for many of its other questionable investment practices. A new article in Harper’s Magazine examines the role Goldman played in the food crisis of 2008 when the ranks of the world’s hungry increased by 250 million. We speak to Harper’s contributing editor Frederick Kaufman.
_______________________
* http://www.democracynow.org/2010/7/16/the_food_bubble_how_wall_street
When a commodity producer strikes a futures contract with a commodity consumer (either directly or through an exchange) the contract serves to dampen price swings and the resulting price stability benefits both, by simplifying production planning, and ultimately the whole community of end-users/consumers, by simplifying their lives.
In stark contrast, speculatory trading in futures contracts seeks out price instability, for price instability creates the opportunity to profit (steal) from others. Individual speculators usually can't create significant volatility alone but the herd phenomenon causes lots of speculators to run in the same direction at the same time, creating the price fluctuations that disturb/distract the community, causing general erosion of productivity, not to mention overall health/well-being.
USan elites don't want to the people to understand market basics. They like keeping the people in the dark, so they can pick their pockets faster.
"USan elites don't want the people to understand market basics. They like keeping the people in the dark, so they can pick their pockets faster." Yes, and the msm (as part of the USan elites) certainly oblige by spending none of their wasted hours on teaching any real market basics.
No problem.
The Free Market will take care of everything.
Didn't you know that it is Self Regulating?
It is just the greedy Zionist wall street banking criminals having a another field day of stealing from the people of the world.
Inserting the word "Zionist" into "greedy wall street banking criminals" is obviously and blatantly antisemitic.
you're right, Two Americas. There is quite a lot of anti-semitic and racist trolls on CD and it is disgusting. But it does illustrate one reason why the Left is beaten by rightwingers so often...they are united and we tend to eat our young.
ENRONed again: this time by oil futures contracts speculators who are unnecessarily and very profitably driving up the price of crude oil and hence retail gasoline prices.
by James K. Sayre
We're being ENRONed again. Curious as to why you are suddenly paying over four dollars a gallon for gasoline? No, it's not due to "supply-and-demand," no, it's not due to "OPEC," nor is it due to "peak oil." It's due to totally unregulated electronic oil futures trading in world markets. Check out the very lucid article that explains the unseen financial machinations in oil futures markets written by F. W. Engdahl on May 2, 2008, entitled, "Perhaps 60% of Today's Oil Price is Pure Speculation." It may be viewed at http://www.financialsense.com/editorials/2008/0502.html.
In a nutshell, he suggests that the Bush Administration dropped the ball in January 2006, when they allowed totally unregulated electronic trading of oil futures contracts in New York. Previously these electronic trades had been made at the London Intercontinental Exchange (ICE) Futures Market. With that decision by the Bush Administration, all of the world's oil prices were then opened to upward pressure from speculative futures contracts. In essence, oil futures contracts made by speculators, banks, hedge funds and pension funds all competed with real demand on the spot markets and had the effect of driving up both wholesale oil prices and retail gasoline prices. Speculators have made billions of dollars on their trading of oil futures contracts. All of their profits come right out of our pockets.
Even with a stable oil supply, there is a slow worldwide increase in demand for oil, which creates a long-term upward pressure on oil prices. However, with the relentless saber-rattling and war-mongering by Bush and Cheney in the last several years, and the more recent war talks by McCain and the Israelis, the oil futures markets are rife with speculation and paranoia. This war talk keeps ratcheting up the prices on the oil futures contracts and hence the wholesale spot market prices. It is an endless spiral of greed and paranoia.
As long as there is no tough and effective oversight of the electronic oil futures markets by the Bush Administration, the oil prices will climb endlessly. These oil prices will be quickly followed by hikes in the retail gasoline prices at the pump. The 60% speculation share of the $4.25/gallon gasoline price, is about $2.55/gallon, which is what we consumers are paying to these oil speculators as a "service fee." Not a bad "fee," since the speculators produce no usable goods or services...Just a few large greedy oil futures traders helping themselves to your gas money.
Without this added-on oil futures "service fee," you would be paying about $1.75/gallon for gasoline. Write, call or smoke-signal your Representatives and Senators today and suggest that they read the June 2006 report by The U. S. Senate Permanent Subcommittee on Investigations entitled, "The Role of Market Speculation in Rising Oil and Gas Prices." Then demand that they investigate and then force the Bush Administration to firmly regulate the computerized oil futures contracts trading in New York, London and Dubai.
End.
a few points
Oil has always been either taxed, subsidized or both.
Look around the world. In Europe it is heavily taxed.
In Iran or Venezuela it is almost free.
Oil is and has always been a vehicle for another purpose.
To make money or maintain order as in a bribe or subsidy.
Oil is not enshrined in the US constitution. It is not a right of man.
It is an anomaly that has transformed human and world history.
I think it is the blood of the devil. It increases human suffering
as it relieves us of our toil.
As a former commodity broker/compliance officer, re-regulating the futures markets in favor of bona-fide hedgers - farmers/growers/producers - would put a limit on speculation. So would an incremental transaction tax on futures contracts. As mentioned above, when banks engage in commodity trading, it is pure speculation. Financial futures are one thing; banks are legitimate hedgers there. Still, a transaction tax would fund the regulators. For agricultural futures, though, there should be severe limits on speculative holdings. Prior to deregulation, about 85 - 90% of out customers were self-directed and the average account was less than $10,000. It is important to remember that the smaller speculators provide needed liquidity for markets, without causing the huge price moves resulting from banks or other institutional speculators. I'm not defending the big guys - I am in favor of strict enforcement. As we are still crawling from the wreckage of the most recent financial panic, it should be noted that simple rules are easy to follow, and to enforce. Catering to Wall Street only allows for the weaponization of the contracts/derivatives.
Anti-Zionism is not necessarily anti-Semitism. I am anti-Zionist and I don't hate or dislike Jews. What I hate is immigrants killing and displacing indigenous people because they believe in a fairy tale book that says they are the true owners of land that God gave to their ancestors 3,000 years ago. Give me a break. Greedy Wall Street banksters may or may not be Zionists. It really doesn't matter to me.
And how is this is relevant to the discussion? What does Zionism have to do with Wall Street speculation in food?
Speculating on food can kill people, like putting them in gas chambers.
So I wonder: Is speculating on food ok while putting people in gas chambers is not?
This is an uncomforting question for USans, who stake a great deal of pride on their role in banishing the Nazis, while also staking a great deal of pride in their commitments to "unfettered markets".
USans may need to postpone discussing THIS question, so they can ride off into the sunset in their new Lexus SUVs, ehh? Is this not a most relevant truth today?
Don't these same USans shrug in Randite cluelessness about the plight of the vast majority of people, including Mexicans whos indigenous food production is being destroyed by clintok/gorre's "unfettered markets"?
Imagine that. First the USA illegally/immorally cornered the Mexican corn market. And then imposed Kasino Royale speculative instability on the illegally/immorally cornered market.
Are the people of the world ready to declare War on Das Kapital now? Of course it can be a non-violent war. Simply boot the USA and its military and its corporations out of your country, like Cuba and Venezuela did.
I spread around the first article on this subject... the transcripts from Amy Goodman's show with Matt Taibi, which spelled out how Goldman's did this scam or does it...
Now, I have to print this article and put the two together. Last night, round, 5;30 pm, I walked through the little town next to where I live and handed out a bunch of stuff. One, was the article "Obama a socialist? I wish... that was published yesterday.
The great hunger lottery
How banking speculation causes food crises
Take the highest stakes, riskiest economic behaviour ever devised, and marry it to the most fundamental basic need of humankind, and you have the subject of this report. Over the past decade, the world's most powerful financial institutions have developed ever more elaborate ways to package, re-package and trade a range of financial contracts known as derivatives. A derivative is not based on an exchange of tangible assets such as goods or money, but rather is a financial contract with a value linked to the expected future price movements of the underlying asset. Derivative contracts are traded on a growing number of underlying assets, from share prices, to mortgages, bonds, commodity prices, foreign exchange rates, and even index of prices.
Derivatives trading has been one of the most lucrative parts of the financial industry, but it is the increasingly complex, opaque and disconnected nature of these and similar products that ultimately triggered the collapse of the banks and the worst financial crisis in human history. Of course, the financial crisis has been an economic disaster of seismic proportions for millions around the world, plunging many countries into recession causing millions to be thrown out of work, soaring public debts and cuts in vital public services.
But while betting on the value of sub-prime mortgages or foreign currency values undoubtedly leads to disastrous consequences, there is another area where the speculative behaviour of the world's largest banks and hedge funds represents a threat to the very survival of people: food commodities.
In The great hunger lottery, World Development Movement has compiled extensive evidence establishing the role of food commodity derivatives in destabilising and driving up food prices around the world. This in turn, has led to food prices becoming unaffordable for low-income families around the world, particularly in developing countries highly reliant on food imports.
Nowhere was this more clearly seen than during the astonishing surge in staple food prices over the course of 2007-2008, when millions went hungry and food riots swept major cities around the world. The great hunger lottery shows how this alarming episode was fueled by the behaviour of financial speculators, and describes the terrible immediate impacts on vulnerable families around the world, as well as the long term damage to the fight against global poverty.
In the report we describe how the current situation came to pass, the risks of another speculation induced food crisis, and what specifically can be done by policymakers here in the UK as well as in the US and EU to tackle the problem.
But at its heart, The great hunger lottery carries a very straightforward message: allowing gambling on hunger in financial markets is dangerous, immoral and indefensible. And it needs to be stopped before any more people suffer to satisfy the greed of the banks.
...
In 2007 and 2008, there was a huge increase in the price of food and energy. The International Monetary Fund's (IMF) food price index increased by more than 80 per cent between the start of 2007 and the middle of 2008. Oil prices went to almost $150 a barrel. The impacts were felt across the world. In rich countries, consumers were paying more for food and energy. High prices contributed towards pushing countries into recession. And high levels of inflation led central banks into maintaining strict monetary policy whilst economies went into decline. The story of commodity prices is a key part of the recent financial crisis and economic difficulties.
But across the global south, the impacts were even more serious. Households in developed countries tend to spend between 10 and 15 per cent of their income on food. While poor households in developing countries tend to spend between 50 and 90 per cent.1 High food prices left households spending a lot more money on food or eating less. Combined with lower incomes due to the global economic slowdown, high food prices led to the number of chronically malnourished people increasing by 75 million in 2007 and a further 40 million in 2008.
As well as eating less food, households have been forced to:
* Eat less fruit, vegetables, dairy and meat in order to afford staple foods.
* Reduce any savings, sell assets or take out loans.
* Reduce spending on 'luxuries' such as healthcare, education or family planning.
In this report we argue that part of the reason for the spike in food and other commodity prices was financial speculation. Speculation rides on the back of underlying changes in supply and demand, amplifying their impact on price. This speculation continues to impact on price, and as long as it remains unregulated, there is a danger it will contribute to a huge spike again.
...
http://www.wdm.org.uk/sites/default/files/hunger%2...
I remember this story on the BBC during the foodgrains price spike where they were talking about everything *but* speculation by traders - including, and especially, the increased consumption of meat by the Chinese and the Indians (which could have an effect, but leaving out speculation is what made that story suspect). The other culprit mentioned was biofuel production.
BTW, I made a shorter url for the link (the same as the one in the article - 3rd paragraph:
tinyurl.com/the-great-hunger-lottery
That page has a link to the report "The great hunger lottery - How banking speculation causes food crises" (pdf file):
tinyurl.com/hunger-lottery-report-pdf
India banned futures trading in chickpeas, Argentina stopped soybean exports, Spain and Egypt (iirc) stopped rice exports, and Mexico set corn prices for farmers. Keeping the food at home, preventing its leaving for more lucrative markets may have helped many survive.
And the president of Uruguay (a former revolutionary) went to a farm equipment trade show and advised the attendees:
"prices are high right now, and if you've got the money maybe you should buy equipment, but don't take on debt to do so, because the prices will be falling"