How Goldman Sachs Created the Food Crisis (Frederick Kaufman, Foreign Policy Mag)

[swag]

http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_sachs_created_the_food_crisis?sms_ss=twitter&at_xt=4dbac976ca5c4cd7,0

. . .

But Goldman's index perverted the symmetry of this system. The structure of the GSCI paid no heed to the centuries-old buy-sell/sell-buy patterns. This newfangled derivative product was "long only," which meant the product was constructed to buy commodities, and only buy. At the bottom of this "long-only" strategy lay an intent to transform an investment in commodities (previously the purview of specialists) into something that looked a great deal like an investment in a stock -- the kind of asset class wherein anyone could park their money and let it accrue for decades (along the lines of General Electric or Apple). Once the commodity market had been made to look more like the stock market, bankers could expect new influxes of ready cash. But the long-only strategy possessed a flaw, at least for those of us who eat. The GSCI did not include a mechanism to sell or "short" a commodity.

This imbalance undermined the innate structure of the commodities markets, requiring bankers to buy and keep buying -- no matter what the price. Every time the due date of a long-only commodity index futures contract neared, bankers were required to "roll" their multi-billion dollar backlog of buy orders over into the next futures contract, two or three months down the line. And since the deflationary impact of shorting a position simply wasn't part of the GSCI, professional grain traders could make a killing by anticipating the market fluctuations these "rolls" would inevitably cause. "I make a living off the dumb money," commodity trader Emil van Essen told Businessweek last year. Commodity traders employed by the banks that had created the commodity index funds in the first place rode the tides of profit.

Bankers recognized a good system when they saw it, and dozens of speculative non-physical hedgers followed Goldman's lead and joined the commodities index game, including Barclays, Deutsche Bank, Pimco, JP Morgan Chase, AIG, Bear Stearns, and Lehman Brothers, to name but a few purveyors of commodity index funds. The scene had been set for food inflation that would eventually catch unawares some of the largest milling, processing, and retailing corporations in the United States, and send shockwaves throughout the world.

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. "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.

. . . more

[aquart]

1. Dismantle those bastards and auction their stuff.

[Vincardog]

3. No JAIL those bastards and auction their stuff. Kill off the parasitic corporations NOW

And JAIL their creators. Start with Goldman

[BobbyBoring]

5. Why auction their stuff?

Nationalize it, then put the fuckers in jail and I mean JAIL! Hard labor. I'm talkin rock piles and road gangs! None of that Club Fed shit!

[Sonoman]

2. This is simple enough that even I understand it.

So that's why food prices are skyrocketing globally. I have wondered why the increases have been greatest in regional staples.

Those brokers should be tethered to a post and stuffed with local grain until their livers explode.

I'll eat the pate'.

Sonoman

[aquart]

4. Now there is a practical and useful idea.

But the pate would be too expensive for such as we. I do, however, enjoy the idea of millionaires eating millionaires.

Soylent green is rich people!

Okay, that's just mean. And could be construed as encouraging a class war. Whereas I say the greedy, unpatriotic bastards have no class.