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How Goldman Gambled On Starvation

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http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-how-goldman-gambled-on-starvation-2016088.html

By now, you probably think your opinion of Goldman Sachs and its swarm of Wall Street allies has rock-bottomed at raw loathing. You're wrong. There's more. It turns out that the most destructive of all their recent acts has barely been discussed at all. Here's the rest. This is the story of how some of the richest people in the world – Goldman, Deutsche Bank, the traders at Merrill Lynch, and more – have caused the starvation of some of the poorest people in the world.

It starts with an apparent mystery. At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people – mostly children – couldn't afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it "a silent mass murder", entirely due to "man-made actions."

Earlier this year I was in Ethiopia, one of the worst-hit countries, and people there remember the food crisis as if they had been struck by a tsunami. "My children stopped growing," a woman my age called Abiba Getaneh, told me. "I felt like battery acid had been poured into my stomach as I starved. I took my two daughters out of school and got into debt. If it had gone on much longer, I think my baby would have died."

Most of the explanations we were given at the time have turned out to be false. It didn't happen because supply fell: the International Grain Council says global production of wheat actually increased during that period, for example. It isn't because demand grew either: as Professor Jayati Ghosh of the Centre for Economic Studies in New Delhi has shown, demand actually fell by 3 per cent. Other factors – like the rise of biofuels, and the spike in the oil price – made a contribution, but they aren't enough on their own to explain such a violent shift.

To understand the biggest cause, you have to plough through some concepts that will make your head ache – but not half as much as they made the poor world's stomachs ache.

For over a century, farmers in wealthy countries have been able to engage in a process where they protect themselves against risk. Farmer Giles can agree in January to sell his crop to a trader in August at a fixed price. If he has a great summer, he'll lose some cash, but if there's a lousy summer or the global price collapses, he'll do well from the deal. When this process was tightly regulated and only companies with a direct interest in the field could get involved, it worked.

Then, through the 1990s, Goldman Sachs and others lobbied hard and the regulations were abolished. Suddenly, these contracts were turned into "derivatives" that could be bought and sold among traders who had nothing to do with agriculture. A market in "food speculation" was born.

So Farmer Giles still agrees to sell his crop in advance to a trader for £10,000. But now, that contract can be sold on to speculators, who treat the contract itself as an object of potential wealth. Goldman Sachs can buy it and sell it on for £20,000 to Deutsche Bank, who sell it on for £30,000 to Merrill Lynch – and on and on until it seems to bear almost no relationship to Farmer Giles's crop at all.

If this seems mystifying, it is. John Lanchester, in his superb guide to the world of finance, Whoops! Why Everybody Owes Everyone and No One Can Pay, explains: "Finance, like other forms of human behaviour, underwent a change in the 20th century, a shift equivalent to the emergence of modernism in the arts – a break with common sense, a turn towards self-referentiality and abstraction and notions that couldn't be explained in workaday English." Poetry found its break with realism when T S Eliot wrote "The Wasteland". Finance found its Wasteland moment in the 1970s, when it began to be dominated by complex financial instruments that even the people selling them didn't fully understand.

So what has this got to do with the bread on Abiba's plate? Until deregulation, the price for food was set by the forces of supply and demand for food itself. (This was already deeply imperfect: it left a billion people hungry.) But after deregulation, it was no longer just a market in food. It became, at the same time, a market in food contracts based on theoretical future crops – and the speculators drove the price through the roof.

Here's how it happened. In 2006, financial speculators like Goldmans pulled out of the collapsing US real estate market. They reckoned food prices would stay steady or rise while the rest of the economy tanked, so they switched their funds there. Suddenly, the world's frightened investors stampeded on to this ground.

So while the supply and demand of food stayed pretty much the same, the supply and demand for derivatives based on food massively rose – which meant the all-rolled-into-one price shot up, and the starvation began. The bubble only burst in March 2008 when the situation got so bad in the US that the speculators had to slash their spending to cover their losses back home.

When I asked Merrill Lynch's spokesman to comment on the charge of causing mass hunger, he said: "Huh. I didn't know about that." He later emailed to say: "I am going to decline comment." Deutsche Bank also refused to comment. Goldman Sachs were more detailed, saying they sold their index in early 2007 and pointing out that "serious analyses ... have concluded index funds did not cause a bubble in commodity futures prices", offering as evidence a statement by the OECD.

How nice of the bankers.

Making us all poor to make themselves rich.

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How nice of the bankers.

Making us all poor to make themselves rich.

Next you will be telling me that these brilliant minds should toil for a pittance :rolleyes:

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Guest Noodle

I did say this would happen, over the last two years, many times on here.

For these evils to prosper they create bubbles in basic human needs. Add to that in countries like this where the price farmers can sell their produce for, to wealthy middle men, is government controlled . . . Bangkok burns.

I've had one guy that owns one of the big farms up here come to me to ask about smuggling . . . rice to Africa!

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I did say this would happen, over the last two years, many times on here.

Indeed you did Sir! - Those posts will go down as some of the most definitive of the decade.

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We really should eat the rich....

Some of us are vegetarian <_<

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In 2007-8 Bangladesh Govt party-line was to blame it on "natural disasters" (hiding the betting on World food prices by speculating Wall street traders!)

"2007 President of World Bank urges International Action on food prices" -

they already knew the REAL 'Speculating Scum' reason why World food prices had risen!

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Guest UK Debt Slave

How nice of the bankers.

Making us all poor to make themselves rich.

Entirely deliberate of course......... ;)

Modern banking = resourse allocation

All the resources and wealth to them, bugger all for anyone else

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"So while the supply and demand of food stayed pretty much the same, the supply and demand for derivatives based on food massively rose – which meant the all-rolled-into-one price shot up, and the starvation began. "

Could someone explain that part to me.

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Food (wheat, beans etc) is on the verge of a bull market that will shock people again.

Go long.

Could well happen. Or producers stop producing becuase they cannot afford the input costs!

http://seekingalpha.com/article/212723-china-s-food-price-inflation-is-starting-to-affect-the-rest-of-the-world

China's Food Price Inflation Is Starting to Affect the Rest of the World

From Say hello to China's Price/Wage spiral:

Like Japan in its heyday, China and India have been enhancing export competitiveness by maintaining artificially low currency rates. Their well publicized growth trajectories will be proved to be chimeras.

Well, China has been printing a lot of money for a long time in order to keep the Yuan low which befitted their export sector. As a result of their policy they accumulated massive foreign exchange reserves, and had giant trade surplus. Since China over one billion people and since most of them where farmers up until the 1990's the money printing didn't cause wages to rise dramatically. (Money flows to places where supply is tight and China had abundant labour).

So the money went into commodity, real estate, and stock prices in China. But now something totally different is happening. China trade surplus is gone, food prices are rising and wages too. This, combined with weak exports, a weak euro is killing China corporations margins and we have a classic wage and price spiral.

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Why can't we just take the top management teirs of all the worlds major bank and investment houses,

place them up against a wall and put a bullet into their heads? I know it sounds a bit Stalinist, but in reality

its the only way we are going to save capitalism.

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"So while the supply and demand of food stayed pretty much the same, the supply and demand for derivatives based on food massively rose – which meant the all-rolled-into-one price shot up, and the starvation began. "

Could someone explain that part to me.

In the past only farmers and people involved in food production/distribution really traded in food derivatives and hedges.

When it was clear that the housing market was going burst, speculators moved money into the food market and bought them up.

They traded them between themselves for a bit bidding up the price so that cost of basic foods like rice triple or even quadrupled. This was a fairly safe tactic as they were always going to able to sell it on in the end to a desperate government that would borrow money to feed it's rioting people.

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Food (wheat, beans etc) is on the verge of a bull market that will shock people again.

Go long.

I have been. Probably the only asset to completely miss out on the post March 2009 bounce.

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<br /><br /><br />

In January 2006, small amounts of genetically engineered rice turned up in a shipment that was tested - we don't know why - by a French customer of Riceland Foods, a big rice mill based in Stuttgart, Ark. Because no transgenic rice is grown commercially in the U.S., the people at Riceland were stunned. At first they figured that the test was a mistake or that tiny bits of genetically modified corn or soybeans had somehow gotten mixed up with rice during shipping. They said nothing.

Then came another shock. Testing revealed that the genetically modified rice contained a strain of Liberty Link that had not been approved for human consumption. What's more, trace amounts of the Liberty Link had mysteriously made their way into the commercial rice supply in all five of the Southern states where long-grain rice is grown: Arkansas, Texas, Louisiana, Mississippi and Missouri. Bayer and Riceland then informed the U.S. Department of Agriculture, which announced the contamination last August.

By then the tainted rice was everywhere. If in the past year or so you or your family ate Uncle Ben's, Rice Krispies, or Gerber's, or drank a Budweiser - Anheuser-Busch (Charts, Fortune 500) is America's biggest buyer of rice - you probably ingested a little bit of Liberty Link, with the unapproved gene. (A very little bit - perhaps ten to 15 grains of transgenic rice in a one-pound bag of rice, which contains about 29,000 grains.)

http://money.cnn.com/magazines/fortune/fortune_archive/2007/07/09/100122123/index.htm

Not_ice the global foodstuff monopoliser uses the Witty Word 'Liberty' whilst its monster seeds will only be resistant with a vastly overpriced proprietory weed killa!

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I remember The Motley Fool was recommending its readers jump on the food etf bandwagon at the time and I wrote the following to them:

http://boards.fool.co.uk/Message.asp?mid=11034684&sort=postdate

He responded:

http://boards.fool.co.uk/Message.asp?mid=11034818&sort=postdate

you should post that article on there now.....well done..

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of course in a free market goldman would have been bust a long time ago - problem solved

food bull market yep - the powers that be may nul and void your futures contracts though

Indeed they wouldn't still be in business, but we don't have capitalism, we have crony capitalism.

The Government should be arresting and seizing the assets of all present and former Goldman Sach employees. If you know someone who works for Goldman, make their life hell.

Time to destroy the giant squid and restore the free market.

If you want to see where an unimpeded Goldman will take us, just check out the latest Foxconn slave thread.

Edited by Mikhail Liebenstein

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Indeed they wouldn't still be in business, but we don't have capitalism, we have crony capitalism.

The Government should be arresting and seizing the assets of all present and former Goldman Sach employees.  If you know someone who works for Goldman, make their life hell.

Time to destroy the giant squid and restore the free market.

If you want to see where an unimpeded Goldman will take us, just check out the latest Foxconn slave thread.

Agreed this company should not exist

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http://www.independe...on-2016088.html

So Farmer Giles still agrees to sell his crop in advance to a trader for £10,000. But now, that contract can be sold on to speculators, who treat the contract itself as an object of potential wealth. Goldman Sachs can buy it and sell it on for £20,000 to Deutsche Bank, who sell it on for £30,000 to Merrill Lynch – and on and on until it seems to bear almost no relationship to Farmer Giles's crop at all.

That article is remarkably shallow and light on facts. Large parts of it make no sense at all, such as the paragraph above. It can't even make it's mind about what the problem is: is that investors manipulated the market for their own benefit, that they bought too much food and subsequently lost a lot of money on it, or something else entirely. Obviously, the problem is that people starved but I don't see it then follows that it must be an investment bank's fault. It may very well be, but it hardly helps to blame Goldman on the basis they must have been somehow involved; the introduction does not even say why they get singled out. The Ethiopians seem to starve and require food aid with some regularity, so only so much can be deduced from them also starving this time round.

The article also omits to mention that high food prices prevent hunger. They cause less food to be wasted and more food to be grown. An efficient market would ensure that this happens well before people actually starve. I think the market might not be efficient (as evidenced by the large spike), but the author of the article seems set against food prices being set by the market at all. Just what is the alternative (the worst answer might win a tenner towards a one-way ticket to North Korea)?

So, does anyone know the facts behind this? Why did the spike in prices really happen and is there any genuine evidence consistent with market manipulation?

Edited by MongerOfDoom

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That article is remarkably shallow and light on facts. Large parts of it make no sense at all, such as the paragraph above. It can't even make it's mind about what the problem is: is that investors manipulated the market for their own benefit, that they bought too much food and subsequently lost a lot of money on it, or something else entirely. Obviously, the problem is that people starved but I don't see it then follows that it must be an investment bank's fault. It may very well be, but it hardly helps to blame Goldman on the basis they must have been somehow involved; the introduction does not even say why they get singled out. The Ethiopians seem to starve and require food aid with some regularity, so only so much can be deduced from them also starving this time round.

The article also omits to mention that high food prices prevent hunger. They cause less food to be wasted and more food to be grown. An efficient market would ensure that this happens well before people actually starve. I think the market might not be efficient (as evidenced by the large spike), but the author of the article seems set against food prices being set by the market at all. Just what is the alternative (the worst answer might win a tenner towards a one-way ticket to North Korea)?

So, does anyone know the facts behind this? Why did the spike in prices really happen and is there any genuine evidence consistent with market manipulation?

Are you taking the piss and did you bother reading the thread?

In the past only farmers and people involved in food production/distribution really traded in food derivatives and hedges.

When it was clear that the housing market was going burst, speculators moved money into the food market and bought them up.

They traded them between themselves for a bit bidding up the price so that cost of basic foods like rice triple or even quadrupled. This was a fairly safe tactic as they were always going to able to sell it on in the end to a desperate government that would borrow money to feed it's rioting people.

Speculators had never been involved in trading things like rice.

The farmer produced the rice, sold it to the processor who put it on the market and it was purchased by a distributor.

Vast amounts of money moved from conventional trades into the food market and caused chaos, they disrupted the normal operation between producer and distributor.

At the time the food spike caused the price of rice to go from £2.50 to £3.00 at my local Indian takeaway, big deal.

Unfortunately that just demonstrates how cheap rice is in this country. For the billions of people in the rest of the world it meant either the brink of starvation or actual starvation.

The traders could just sit on the rice and watch governments get more and more desperate as their people started to riot because of starvation. Eventually they sold and took their profit.

As far as 'high food prices prevent hunger', I'm gobsmacked.

You actually think that when the price of rice quadruples in the space of two months that somehow means that the winter turns to summer and you can plant more rice?

Please explain this concept to me from an agricultural perspective. Do high prices cancel winter? Do they mean you get an extra two growing seasons in the year?

Do high prices mean that more fertile land suddenly appears from the sea?

How exactly does a quadrupling of the price of rice that lasted for less than a single growing season mean more rice became available?

Given that if you had planted rice on the first day of the bubble it still would not have matured by the end of it? But the same timescale was enough for people to starve?

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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