How Wall Street Starved Millions and Got Away With It

[G_j]

http://www.democracynow.org/2010/7/16/the_food_bubble_how_wall_street

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.


AMY GOODMAN: The author of the article, Frederick Kaufman, joins us now. He’s a contributing editor at Harper’s Magazine.

Well, explain. We’re talking about Goldman Sachs today, this—they call it a landmark settlement, but they made more after-hours in trading last night than they will have to pay. So let’s look at Goldman Sachs and its record overall.

FREDERICK KAUFMAN: Yeah, this is really—it’s really outrageous. And on a certain level, this reform bill is really a sham, because it does not cover, in any way, shape or form, what Goldman Sachs—and really, let’s be honest here, it wasn’t just Goldman; it was Goldman, and it was Bear, and it was AIG, and it was Lehman, it was Deutsche, it was all across the board, JPMorgan Chase—what these banks were able to do in commodity markets, really which reached its peak from 2005 to 2008, in what is now known as the food bubble. And as Juan points out, this is unconscionable what happened, in the sense that their speculation and their restructuring of these commodity markets pushed 250 million new people into food insecurity and starving, and brought the world total up to over a billion people. This is the most abysmal total in the history of the world.

JUAN GONZALEZ: Now, what were these commodities markets like before the Wall Street firms got involved? And you have a haunting picture, especially of the Minneapolis Exchange, what it was before, what it was like. Could you talk about how things operated and then what Goldman Sachs did precisely?

..more..

[geckosfeet]

1. Interesting. More,,,

JUAN GONZALEZ: ...Goldman, we have to understand, and a lot of these banks, are not interested in the particular structure of any of these markets. I think it’s a lot of mistake people make when they think about how these bankers are working. We think that they’re actually interested in the markets. We think that they’re—no. What they’re after are very large pools of cash for themselves. They’re after accumulating huge pools of money that they can do with whatever they like on a day-to-day basis. Right? And so, Goldman, in 1991, came up with this idea of the commodity index fund, which really was a way for them to accumulate huge piles of cash for themselves. It wasn’t really about the markets, anyway. The market was just an excuse. And so, the fact that they threw these wheat markets out of whack didn’t really matter to them.

JUAN GONZALEZ: How did this work? Instead of a buy-and-sell order, like everybody does in these markets, they just started buying. It’s called "going long." They started going long on wheat futures. OK? And every time one of these contracts came due, they would do something called "rolling it over" into the next contract. So they would take all those buy promises they had made and say, "OK, we still—we’re just going to—we’ll buy more later. And plus we’re going to buy more now." And they kept on buying and buying and buying and buying and accumulating this unprecedented, this historically unprecedented pile of long-only wheat futures. And this accumulation created a very odd phenomenon in the market. It’s called a "demand shock." Usually prices go up because supply is low, right? That’s the idea. There’s not a lot of supply, so the price goes up. In this case, Goldman and the other banks had introduced this completely unnatural and artificial demand to buy wheat, and that then set the price up. Now, a lot of people are saying, "Oh, it was biofuel production. It was drought in Australia. It was floods in Kazakhstan." Let me tell you, hard red wheat generally trades between $3 and $6 per sixty-pound bushel. It went up to $12, then $15, then $18. Then it broke $20. And on February 25th, 2008, hard red spring futures settled at $25 per bushel. This is completely beyond the pale, particularly at a—

JUAN GONZALEZ: Almost ten times its historic price.

FREDERICK KAUFMAN: Yeah. It was just completely out of control. And, of course, the irony here is that in 2008, it was the greatest wheat-producing year in world history. The world produced more wheat in 2008 than ever before.

They manipulated the markets. I do believe that there are laws on the books. Why are they not being enforced?

[G_j]

5. they sure did

amazing how brazen it was

[puzzlingpond]

2. Feingold Statement on Voting Against the Flawed Financial Regulatory Reform Bill

This is one of 'reckless practices" Feingold was talking about.


http://feingold.senate.gov/record.cfm?id=326403


Feingold Statement on Voting Against the Flawed Financial Regulatory Reform Bill

Thursday, July 15, 2010

“At the outset of the debate over the financial regulatory reform bill, I made clear that my test for this bill would be whether it prevents another economic crisis. Unfortunately, this bill falls short. The reckless practices of Wall Street sent our economy reeling, triggered the worst recession since the Great Depression, and left millions of Americans to foot the bill. Despite these cataclysmic events, Washington once again caved to Wall Street on key issues and produced a bill that fails to protect the American people from the pain of another economic disaster. I will not support a bill that fails to adequately protect the people of Wisconsin from the recklessness of Wall Street.”

[geckosfeet]

3. But he will sit in the front row at the signing ceremony.

[puzzlingpond]

6. I rather doubt that.

[Greyhound]

4. K&R, I was just listening to this outrageous story.

Where's the "change"?