baleen
Explains it all pretty thoroughly:

http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_s achs_created_the_food_crisis

gmol
That is a terrible article that deliberately obscures a basic critical understanding of commodity markets and derivatives in general.

I'll complete my thoughts tomorrow.

baleen
Look forward to it.

baleen
Is it like this?
http://www.capitalinstitute.org/blog/commodities-are-different -full-world

Oscar Wildcat
Yes, do explain how when me and a few hundred thousand other punters take long positions in commodities ( largely due to a belief that a few hundred thousand other punters are thinking the same thing ) that this doesn't have some effect on the underlying commodity price. I'm all ears (grin).

Is GS responsible for this? Well no; speculative bubbles have been around since the formation of said markets. But they sure make it easier to do.

OldScratch
I gotta go with gmol, here. The Foreign Policy article is awful. Have a look at the controversy section, here http://en.wikipedia.org/wiki/S%26P_GSCI

The video is sadly incoherent. Goldman Sachs? Grain prices? Charter schools? The fuzzy connections this crowd seems to see so clearly simply aren't articulated. And the inclusion of a clown like Cornel West does nothing to make things clearer. OWS needs a couple of well spoken economists to take the lead here.

baleen
Stiglitz tried. It's just a hard thing to do, this stuff.

By the way, West was arrested shortly after this.

wackyakmed
The connection is a hollowing at the core of American society. Decent-paying jobs are eliminated, commodity prices driven up, and education is given short shift all in the name of enriching a few at the expense of the many.

I've heard this narrowly obtuse argument given by a lot of liberals as to why they don't support occupy in general, and frankly it baffles me. We're angry about a lot of things, because the aforementioned hollowing is effecting nearly every aspect of our society.

OldScratch
Dude, I am with you. But the argument isn't narrowly obtuse. The problem for OWS is poorly articulated anger. Tea Party lunatics would also rail on about the 'hollowing' of American politics with vague references to moral/spiritual decline and The Constitution.

The systematic removal of the SEC's teeth, and the utter lack of regulation in the derivatives markets are (almost) completely removed from issues facing education in economically deprived areas (or 'fracking' or the urgency of adopting a vegan diet). It isn't like there is a big, overarching evil that can be effectively addressed by sit-ins, mock trials and drum circles. Discrete problems need well articulated, well executed solutions.

If OWS could stick to 3 high priority initiatives for campaign finance reform, boosting the SEC and regulation of derivatives market with focus on an int'l framework, it would be awesome.

In the meantime, let's listen to Cornel West talk about 'Radical Conditionedness' in rhyme....

wackyakmed
If those are the issues you care about, push your local Occupy to take them up!

I've been organizing a money out of politics group for the past three weeks that's been focusing on campaign finance reform and constitutional amendments to reverse the concept of money being free speech. We get 40-50 people every week, and there's already nationwide Occupy teleconferences about these subjects that we're hooking into.

There is a difference between tackling the root of the problems, which I agree with your assertions on, and expressing anger at the various ways these root problems manifest. Expressing anger at the manifestations is important because it shows people experiencing the pain that they fit into our larger fight. They're likely to be some of the most motivated activists, because they can feel deep down what we're doing is necessary.

Basically, there's a place for both approaches.

wackyakmed
My frustration with the more mainstream intellectual liberal crowd boils down to the fact that they want to make the entire message the same technocratic, logical, well-reasoned argument that has failed to capture the popular imagination time and time again. We actually have passionate, motivated, and maybe a little crazy people out in the streets for populist left-wing causes! Maybe they aren't all the root causes, but it's our job to articulate those root causes and situate them as the big answers to all of these grievances.

gmol
[apologies for taking so long, just couldn't type this on my mobile during the day]

The foreign policy piece is a pretty standard "blame the speculator" article, which seems to come up any time there is a bubble in any market. That isn't to say there aren't speculators, and that isn't to say they don't affect prices...but I don't really trust anyone who tells me that they can predict market outcomes ex-post by removing (ex-post) a large number of participants of said market.

There are problems with many markets: insiders, collusion, barriers to entry and regulation and deregulation. (Dear OWS: Please look at the BNY Mellon Case, the same kind of thing goes on at just about every major FX desk out there); but a relatively open market is much better than a group of insiders controlling things.

The article suggests that things were just fine in Ye Old Market Of Futures, where bearded grain millers and farmers wearing straw hats went about their daily exchanges, all in the name of keeping stable prices for consumers. Do you believe this fairytale?

The futures market was motivated by the fact that millers want their expensive machinery to keep running and making money. A miller books a contract for physical delivery of wheat with a chosen producer (somehow I doubt that this part of the process is free of all sorts of insidious business type things), and goes long a wheat delivery contract at the futures market. In this way he "borrows" wheat, instead of borrowing money from the bank, selling flour and paying it back to the bank. Of course, he has no intention of delivering wheat to the clearing house so he rolls his contract forward.

Price movements (up or down) have complicated effects on producer margins (sometimes good sometimes bad), articles like these make it sound as if everyone just "hedges" no one has to worry about any sort of risk.

Sure you can use a futures contract to hedge risk, but that's not why futures contract came about. It would be a lot like saying people mine gold so they can hedge stock.

This is getting too long, so allow me to pick up a few key sentences where I can see that the author is trying to play the reader for a fool:

"Not only did a grain "future" help to keep the price of a loaf of bread at the bakery -- or later, the supermarket -- stable, but the market allowed farmers to hedge against lean times, and to invest in their farms and businesses. "

B.S. He even admits to a "hiccup or two"...

""I make a living off the dumb money," commodity trader Emil van Essen told Businessweek last year."

Many Wall St. traders make money of of institutional flows and overcharge many of their clients on a daily basis, this quote could have come from anyone, in fact this is why statistical arbitrage is profitable and why people spend a lot of time on execution methods. Ripping clients off isn't a unique characteristic of the financial sector, I just consider it synonymous with the word "business".


""You had people who had no clue what commodities were all about suddenly buying commodities," an analyst from the United States Department of Agriculture told me. 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."

Causation, correlation...it isn't easy to figure that out here. The quote is meant to suggest that there were just a bunch new dumb people that decided to buy #2 wheat....it really misrepresents the situation. How much is does one have to know about wheat in order to be able to buy a futures contract on it? Perhaps he should have a degree in wheatology?

"Not only does the world's food supply have to contend with constricted supply and increased demand for real grain, but investment bankers have engineered an artificial upward pull on the price of grain futures"

The article does not establish the existence of this artificial pull, and no one has to my knowledge.

"One phone call to a bona-fide hedger like Cargill or Archer Daniels Midland and one secret swap of assets, and a bank's stake in the futures market is indistinguishable from that of an international wheat buyer. "

Cargill and ADM have very sophisticated trading floors of their own (and hire many of the people that work on desks on wall st.). But we should leave the Serious Business of food to bona-fides like these good chaps, right? Watch "The Informant!".


"All the while, the index funds continue to prosper, the bankers pocket the profits, and the world's poor teeter on the brink of starvation."

As far as I know, a big chunk of the world has been teetering on starvation since time began. We could just turn the entire population of America into farmers, divert all energy to food production and give away farming technology and techniques to fix the problem for good. But we don't do that, do we? Why?

OldScratch
That is a really good response, gmol. I agree that the original Foreign Policy article is a piece of poop.

@wackyakmed - I'm not even sure how to respond. 'Both approaches', 'the big answers to all of these grievances', 'technocratic'? It isn't clear what these things mean, and it is less clear how they relate to a solution to systemic economic problems. If you have some data that demonstrates how a simple and well articulated proposal for campaign finance reform, or derivatives regulation would fail, please share it. Is there any evidence that a well articulated solution would fail to capture electoral support (or 'the popular imagination')?

Let me just ruin this thread for everyone by pointing out one of the first people to argue against the damaging influence of 'speculative' versus 'productive' capital.

http://en.wikipedia.org/wiki/Gottfried_Feder

God wins!

baleen
Wackyakmed, I see where you're coming from and I am well aware that some of us, including me, are sort of sniping from the sidelines. I inherently find mob mentality and ideologues to be irritating and can get easily disenchanted by being around them, but I allow myself some whimsical sentimentality (which is why I submit this kind of stuff sometimes).

I am on a lot of the OWS forums on facebook and check their websites. The propaganda wing is often a bit stupid. They often circulate the same jackass information that the Ron Paul or NWO truther crowd do without even knowing that they're doing it. On one hand you want to let people disseminate information rapidly... but what about when it's wrong or blatantly false? where is the room for dialogue or education? This is the problem with salon vs. street action. People get absorbed in the memes of the moment and it effects the outcome of the protest. I like how OWS has organically tried to fuse the two, but a little mob mentality is going to go a far way in making me step out of it and hope that it changes policy without there being any riots.

Ursa_minor
I like you, Baleen.

Dirtchamber
I like him more!

chumbucket
Too bad this thing didn't get going 3 years ago.

baleen
People on all sides still had faith that the system would fix itself, and not many people understood what exactly was happening.