Big Banks Face Criticism For Speculative Role In Global Food Crisis

Today, rising food prices are wreaking havoc in the developing world. While some blame overpopulation, and others ethanol, another culprit has emerged of late: banks and the role of speculative commodity indexes.

The primary danger of the indexes, according to a new article by Frederick Kaufman in Foreign Policy, is that they fundamentally alter the food market by transforming key stapes into a financial asset that performs more or less like a stock. So while billions worldwide scramble to find money pay for food, food prices are often subject to intensified distortions of supply and demand from speculative markets.

Since 1999, when the government first deregulated the commodities market, Kaufmann explains, investors have flocked to investing in food. The basis for that excitement is a Goldman Sachs-developed innovation known as the commodity index. Today, Kaufmann says, it's a tool that has been replicated throughout the banking industry.

The excitement over commodities trading has only picked up in the years since the financial crisis first brought the world economy -- and the U.S. housing bubble -- to its knees. That, Kaufmann says, was when this really kicked off:

"The money tells the story. Since the bursting of the tech bubble in 2000, there has been a 50-fold increase in dollars invested in commodity index funds. To put the phenomenon in real terms: In 2003, the commodities futures market still totaled a sleepy $13 billion. But when the global financial crisis sent investors running scared in early 2008, and as dollars, pounds, and euros evaded investor confidence, commodities -- including food -- seemed like the last, best place for hedge, pension, and sovereign wealth funds to park their cash... In the first 55 days of 2008, speculators poured $55 billion into commodity markets, and by July, $318 billion was roiling the markets. Food inflation has remained steady since."

Criticism of this speculation has heated up in recent weeks, with the Asian Development Bank releasing a report critical of the trend and recommending the elimination of policies "that create hurdles in transferring food from surplus to deficit regions." Last September, the United Nations Special Rapporteur On The Right To Food wrote that "a significant portion" of rising food prices was due to the role of speculation.

And then last week, Barclays Capital, the United Kingdom's biggest commodity trader according to World Development Movement, became the target of protests by anti-poverty groups. "First, it was sub-prime mortgages, now it's food commodities," Deborah Doane, director of the World Development Movement, said, according to the Guardian. "The lack of transparency in these markets bears worrying resemblance to the behaviour that led to the 2008 financial crash."

Regardless of the reason, there is no denying that rising food prices have had a tangible affect around the globe. In mid-April, the World Bank reported that with food prices rising 36 percent from last year, at least 44 million people worldwide have been pushed into poverty since last June. With 1.2 billion people living on less than $1.25 per day, even small food price shocks can be devastating.

Read the full Foreign Policy piece here.

Comments

[onsight78]

04:50 PM on 05/06/2011

The commodities market has been around for decades. Of course, with the dollar, euro, etc; falling, Wall Street bet on FOOD. It is a daily requirement! So, the greedy few avariciously sieged the world food SUPPLY & DEMAND. These elite investors mentioned will make billions off starvation of millions of people. Nothing knew. In 1920's America's largest corporations helped build Hitler's Reich.Our auto industries motorized the Reich. One large international corporation helped gather data on the Jewish population in Germany to better organize the Holocaust; Whether these and other American companies knew of Hitler's intentions remains a mystery. With millions of dollars to be made, the mystery is marginalized. Legistration is before Florida House requiring voters have and present government issued identification cards to vote. Other states are following.
I'm 61 born in NYC. In 1954 my family moved to Atlanta. My father was a lawyer. His friend was an African-American lawyer who could not vote in 1960 presidential race. He failed the literaracy test. One question was, " how many bubbles in a bar of soap"? In 1969 I witnessed a riot at the Marine Corps brig in DaNang, Viet Nam. All Marines were put on "dim rats" stood for diminished rations(bread, lettuce, a carrot and water) by the 3rd day they were lying in racks sleeping. Tough 18, 19 yr.old combat marines to tired to stand up.. Listen Up: You go out with a Wimper not a Bang!! Good-bye Democracy. Welcome to the Plutocracy!@#

[HeliosOne]

10:08 PM on 05/05/2011

Oh gee, the banks messing with the economy again? Why do we allow these people to do this? I thought there was supposed to be some social value for having banks. What's the social value here?

Whether it's food, oil, or mortgages, you can trust Wall Street to gamble with YOUR future and leave YOU with the bill.

[Kenz300]

12:28 PM on 05/04/2011

Too many people ... too little resources....

The world added a billion people in the last 12 years and will add another billion people in the next 12 years. Where will all the jobs, food, water and oil come from to support this massive population? This is a recipe for civil unrest.

[gdvickery1]

01:19 PM on 05/04/2011

There is no food shortage. "Official surveys indicate that every year more than 350 billion pounds of edible food is available for human consumption in the United States. Of that total, nearly 100 billion pounds are lost to waste by retailers, restaurants, and consumers" (http://www.soundvision.com/Info/poor/statistics.asp). This is just the US waste every year. Nearly every developed nation reports similar numbers. More food goes to waste every year than is used to sustain life on our planet.
The funny thing about population growth and the job market is that they drive one another. The more jobs there are the more stable people feel and they tend to settle down and procreate. Then these children grow up spending money, which creates jobs. The more the populace spends the more jobs are created. If the populace quits spending you see job cuts.
The thing that is causing instability is speculation by Wall Street on food, oil, etc (http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_sachs_created_the_food_crisis). The speculative markets need to be shut down, but this will not happen because Wall Street owns a majority of the political influence in the US. It will take a million person march on Wall Street to get the attention of the government. Until the almost non-existent middle class, and the poor stand up for themselves nothing will be accomplished. Yes we do need a class war.

[laura r]

06:07 PM on 05/03/2011

Revolutions have started because of food shortages. Marie Antoinette could tell you, it didn’t go well for her. If you tell the people “let them eat cake” heads will roll.

These capitalists generally act harmoniously and in concert, to fleece the people.
Abraham Lincoln

[OldTulsan]

10:51 PM on 05/03/2011

http://seekingalpha.com/article/261860-food-prices-and-global-hunger-equal-riots-civil-wars-and-revolution
Food Prices and Global Hunger Equal Riots, Civil Wars and Revolution - Seeking Alpha

"...Accord­ing to the IMF, each 10 percent increase in food prices doubles the likelihood of civil disorder, riots or worse by 100 percent [The Food Riot and Revolution Index]..."

[laura r]

11:41 PM on 05/03/2011

Well, they did say that Jordan's riots were because of food prices going up. Their riots last 3 days.

[OldTulsan]

10:52 PM on 05/03/2011

http://www.sparknotes.com/history/european/frenchrev/summary.html
SparkNotes­: The French Revolution (1789-1799­): Summary of Events

"No one factor was directly responsibl­e for the French Revolution­. Years of feudal oppression and fiscal mismanagem­ent contribute­d to a French society that was ripe for revolt. Noting a downward economic spiral in the late 1700s, King Louis XVI brought in a number of financial advisors to review the weakened French treasury. Each advisor reached the same conclusion­—that France needed a radical change in the way it taxed the public—and each advisor was, in turn, kicked out.

Finally, the king realized that this taxation problem really did need to be addressed, so he appointed a new controller general of finance, Charles de Calonne, in 1783. Calonne suggested that, among other things, France begin taxing the previously exempt nobility. The nobility refused, even after Calonne pleaded with them during the Assembly of Notables in 1787. Financial ruin thus seemed imminent.
The Estates-Ge­neral

In a final act of desperatio­n, Louis XVI decided in 1789 to convene the Estates-Ge­neral, an ancient assembly consisting of three different estates that each represente­d a portion of the French population­. If the Estates-Ge­neral could agree on a tax solution, it would be implemente­d. However, since two of the three estates—th­e clergy and the nobility—w­ere tax-exempt­, the attainment of any such solution was unlikely..­."

Sounds like what is going on today.

[laura r]

11:34 PM on 05/03/2011

Yes, I know my history too. This was just Kidding for some fun. Do you agree with the mess our economy is in, we all could use a good laugh.

[consumerist]

01:24 PM on 05/03/2011

Corporations were always for profit at any cost. It was the case with early 20th century Robber Barons, it has been the case with all of them even if they have very respected brand names like GE (polluting our rivers), Apple (wasteful packaging, unmindful of labor conditions of their vendors, non-energy efficient focus), IBM (outsourcing king),...countless examples. You don't have to even take the recent financial crisis examples.

The genie is out of the bottle. The politicians and the judiciary have been sold. There are two ways to recover from this - a French Revolution style which is a natural phenomenon once the condition becomes unbearable (we are nowhere near that today) and the other is voting with your feet. The later approach can bring change.

Do an audit on where you spend your money and where you invest your savings. Make sure they are not going to corporations that don't value social responsibilities.

[Taz2212]

04:26 PM on 05/03/2011

Fanned because you have hope and faith in the voting process. I keep going to the polls like a monkey to the food bar, pressing, pressing and hoping something good comes out. I hope this next generation has people who can't be bought and can see down the road for future generations...too many in my generation have gold coins jingling in their pockets and commody ETFs in their portfolios.

[OldTulsan]

10:46 PM on 05/03/2011

http://www.reclaimdemocracy.org/corporate_accountability/history_corporations_us.html
Hidden History of Corporations in the United States

"When American colonists declared independence from England in 1776, they also freed themselves from control by English corporations that extracted their wealth and dominated trade. After fighting a revolution to end this exploitation, our country's founders retained a healthy fear of corporate power and wisely limited corporations exclusively to a business role. Corporations were forbidden from attempting to influence elections, public policy, and other realms of civic society.

Initially, the privilege of incorporation was granted selectively to enable activities that benefited the public, such as construction of roads or canals. Enabling shareholders to profit was seen as a means to that end.

The states also imposed conditions (some of which remain on the books, though unused) like these:

* Corporate charters (licenses to exist) were granted for a limited time and could be revoked promptly for violating laws.

* Corporations could engage only in activities necessary to fulfill their chartered purpose.

* Corporations could not own stock in other corporations nor own any property that was not essential to fulfilling their chartered purpose.

* Corporations were often terminated if they exceeded their authority or caused public harm.

* Owners and managers were responsible for criminal acts committed on the job.

* Corporations could not make any political or charitable contributions nor spend money to influence law-making.

For 100 years after the American Revolution, legislators maintained tight controll of the corporate chartering process..."

[consumerist]

01:43 AM on 05/04/2011

Thanks for the link. Very informative. Amazing that I have to go back 100 years to loose their influence. We definitely have to build a grass-root movement, not focussed on winning the Presidency. We have to take back control of the State legislatures, then the Governors, then the Congress. Presidency will follow. Without that approach, it will be like pissing into the wind.

[Joseph Joyal]

12:36 PM on 05/03/2011

Bank do not care about people, We've know that for years so what they face now meens nothing to them.
They have caused so much damage to the worlds economy and have gotten away with it way should this be any different.
They control our Oil, Food and Jobs we are little more than slaves in their minds

[gdvickery1]

10:05 PM on 05/04/2011

I could not agree with you more. They also influence politics to the point that their minions cut their taxes and abolish our entitlements and on top of it do their best to keep us dumb by cutting our education.

[floodmfx]

11:04 AM on 05/03/2011

As if the big American banks care about starving people.
American business leaders are all about greed and the bottom line.

There is no such thing as social responsibility in American Business.

[jtabs]

12:09 PM on 05/03/2011

Way to broad as it is mostly true for large multinationals there are many small American businesses that practice a better balance between profit and social good. The real problem lies in the short sightedness of businesses favoring the short run over the long term.

[fineartgalaxy]

10:42 AM on 05/03/2011

Goldman Sachs is the other face of terrorism.

[guveqzero]

10:30 AM on 05/03/2011

Mathematically is is proven that these speculative indexing schemes do not make a more stable market when they can't be regulated properly.

[muck-raker]

09:15 AM on 05/03/2011

three decades of continuous economic liberalization have not led to an abundance of food, but to hunger on a scale never before seen in the history of mankind.

Of course, governments sometimes play a role in creating these problems, but the worst crop failures occur in free markets. Shortages of grain and other products only motivate businesspeople to indulge in profiteering. As prices skyrocket, profiteers — anticipating even higher prices — find it more advantageous to hold on to their goods than to sell them to consumers. And the longer a particular foodstuff can be stored, the faster the price for it soars.

Most of the huge sums of money the government allocated to fight the economic crisis from 2008 to 2010 never reached the real sector but were used for speculating on the market. Prices are outpacing demand, thereby creating new imbalances and hampering economic development. Rising prices have made food an unaffordable luxury for entire social groups and even countries. In Russia, where hunger has thankfully not reached epidemic proportions, high food prices have quickly lowered the standard of living, disrupted consumption patterns and sharply aggravated social conditions.

In the Middle East, the food crisis has already turned into a social explosion. The "bread revolutions" shaking Tunisia, Egypt, Yemen, Libya and Algeria are the natural outcome of many years spent developing a system in which human needs, and even the right to life itself, are subordinated to the whims of the market.

http://www.counterpunch.org/kagarlitsky03182011.html

[Miss Peaches]

09:14 AM on 05/03/2011

The mindset of speculators is bleed it until its dry. I work on a trade floor and the mission statement is: "We are here to make money!"

They are like a parasite that leaves behind a wake of destruction and dispair. This is digusting.

[BobHiggins]

08:20 AM on 05/03/2011

The GSCI is a criminal conspiracy against the working people of the world and when instituted it was a death sentence for millions of the poor. When the boys in the Gucci loafers pay off the politicians to turn what was once illegal into "god's work" it's time for felony indictments, felony trials and felony prison time, not "criticism."

They will soon do the same by putting water on their roulette wheel. It's happening now.

[Joseph Joyal]

12:40 PM on 05/03/2011

I agree but we all know they control the courts as well.

[BobHiggins]

01:02 PM on 05/03/2011

You're right, from Citizens United all the way back to Santa Clara v Southern Pacific we find that majorities can be purchased on the court as well as in the congress or state leges.

[fineartgalaxy]

07:48 AM on 05/03/2011

Criticism is not enough. Criminal charges are needed because we are a nation of laws and the law applies to everybody.

[Miss Peaches]

09:10 AM on 05/03/2011

Not really. They only apply to those who can not afford legal representation.

[fineartgalaxy]

10:40 AM on 05/03/2011

And I am afraid you are right. I stand corrected.

[April22]

07:40 AM on 05/03/2011

Will eating become a privilege only the wealthy can afford and deny those who cannot?

Money and the stock market surpass humanity.

What a sad and pathetic nation America has become and our government a greedy and corrupt body.

[floodmfx]

11:06 AM on 05/03/2011

Let me make a Swift Modest Proposal - the poor can always eat their children

[mgrant33301]

07:06 AM on 05/03/2011

this system must be regulated or it will drive many into poverty. THIS is where government is supposed to lead!