Jul 032010

This is the kind of heady stuff that makes folks phase out, but knowing just how hypocritical the GOP  struggle to protect Banksters from regulation has become.

3starve 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 [sic] 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 do we know this is wrong? As Professor Ghosh points out, some vital crops are not traded on the futures markets, including millet, cassava, and potatoes. Their price rose a little during this period – but only a fraction as much as the ones affected by speculation. Her research shows that speculation was "the main cause" of the rise.

So it has come to this. The world’s wealthiest speculators set up a casino where the chips were the stomachs of hundreds of millions of innocent people. They gambled on increasing starvation, and won. Their Wasteland moment created a real wasteland. What does it say about our political and economic system that we can so casually inflict so much pain?

If we don’t re-regulate, it is only a matter of time before this all happens again. How many people would it kill next time?… [emphasis added]

Inserted from <Alternet>

Now what does this have to do with Republicans?  By fighting tooth and nail against financial reform the GOP clearly shows that such abuse, and its draconian effect, is OK in their book.

The same thing happened here in a different way.  When the Banksters pulled out of real estate in 2006, they also speculated on gasoline, and the price skyrocketed.  If you remember earlier incarnations of this blog, I said at the time that speculation was driving the price, while the GOP was claiming it was supply and demand.  Sure enough, when the Republican recession hit in 2008, the speculation dried up, and the price fell.  That speculation hurt a lot of people, who could not afford to drive, but betting on starvation was far more evil.

This proves, once again what I keep saying:

Corporations are NOT people!  Money is NOT speech!


  14 Responses to “Republicans Support Banksters Starving Children”

  1. That’s just sick – they turned commodities into CDO’s and starved millions. I hope they can live with themselves. Food commodities should be off the open market for this type of trading so this doesn’t happen again.

    • Lisa, I agree. But I would go further. Turning any commodity into CDO’s available on the open market divorces the price of the commodity from its true economic value. As such, the practice interferes with the free market. I would outlaw them all. If speculators want to trade in commodities, let them do so on the actual commodities exchanges.

    • I don’t hope they can live with themselves. I hope they fail to teach anyone how to do what they know, then all kill themselves to give us all a good laugh as their eternal souls rocket to the deepest pit of Perdition. It’s the only way.


      • Welcome Spirit :-) I just want to stop what they’re doing here and now. I trust that God has a better handle on the hereafter than I do. Thanks for the vid!

  2. Tom as you can tell I like to shield my disgust with society with snarky comments but after reading this excellent post I want to puke. Daily I watch CNBC, along with a few other morning shows, in the closing minutes of my shift and nearly always the vilest and coldest examples of humans gleefully explain how their making of money makes them special or even heroes.

    Now I will admit some do honestly try to grow economies, create jobs, and work to advance our world but they are damn rare.

    • Beach, I’ve been known to do that very thing myself for the exact same reason. I think it falls in the same vein as gallows humor. Not all rich people are heartless exploiters, but those who are make up the lion’s share.

  3. A wise man once said “when the mysteries of an age a revealed, the age comes to an end”. One can only hope.

  4. GHNL! (Greed Hath No Limits!)

  5. Utterly disgusting. My stomach just keeps turning and turning (and turning). These corporations just do not give a rats behind about anything but money. They will not stop untill they have squandered all he earth’s resources, killed off the poor, ending up sitting on a pile of money, ultimately realizing there is nothing left.
    As a EU citizen, I was disgusted by Goldman Sachs/Paulson speculating on Greek defaults, causing immense upheaval within the Euro currency zone. I thought it could not get any worse. I guess I was wrong. The weird thing is that, at least in Dutch media, everybody blamed rising food commodity prizes on the run for bio fuels. I guess that was whispered in their ears by oil MNC’s lobbyists for obvious reasons. I am so disgusted. Why is nothing done to stop these machines. Its like Judgment Day only the terminators are replaced by the MNCs. So f’in hopeless.

    Thanks so much for unbridled capitalism, US!

    USA! USA! USA! (/sarcasm, /rant)

    • Welcome PS. :-) I fully agree with your disgust in this matter. Please bear in mind that for this unbridled capitalism to come to full gruition, the Republican party had to steal two presidential elections (2000 and 2004). This was never the will od the American people. Like Europeans, we only recently discovered what they did, as we were also misinformed that the cause was the rush to biofuels. Also, before you blame the US for all your own ills, please keep in mind that there were European Banksters working hand in hand with US Banksters on this, MNC’s are stateless.

  6. I’ve always said that the Republican Party was run by people who would steal bread from a starving child if there was a profit in it, and now I know that’s really true.