Comment

Comment by Alex Catgirl on July 8, 2010 at 9:28am

Hari obviously doesn't know the difference between a derivative, and a future. You can't securitize agriculture contracts like you can with mortgages as somebody(one entity) has to take delivery. If a contract comes due, it's not unusual for a holder to get a call from the farmer asking where do they wish their xxx,xxx bushels of corn or wheat. If they are in no position to take delivery(as they do not have silos), they have to pay storage fees to somebody, and those commodities have a shelf-life. It's a big part of the reason as to why most people do not invest in the commodities market. It's more complicated than that, there are options on futures, which are always worth more than the future(the physical thing) themselves, and how margin/leverageing works, but there are books and websites that describe those mechanism in great detail...That Mr. Hari obviously didn't bother reading.

As for supply and demand, Farmer Gill sells a contract for a portion of his harvest for £10,000, the process of investors trading it between themselves is called PRICE DISCOVERY.

I don't trade agriculture futures, I trade crude, which works in a very similar fashion. When I got in 2007 Jan, oil was trading at ~50/barrel, I KNEW that it was worth much more than that, my target was $125/barrel.

That was my investment thesis, I knew that your average idiot would cut back on things like food/entertainment/housing before giving up their oil-bloated lifestyle, so I joined the ranks of oil "speculators" and drove the price up to $137/Barrel, when the press and governments began threatening investigations I bailed.

Was I wrong? If anything the markets proved my thesis correct, the price of oil could rise to $125/barrel and it will have no effect on demeand, the only difference being who pocketed the money. Petroleum supplier and traders became significantly wealthier, while retail consumers - the idiots filling up their SUVs with 4.25USD/Gallon gasoline, became poorer. Proving yet again that a fool and their money are soon parted.

Comment by Фелч Гроган on July 8, 2010 at 5:43am

vespertilio: I doubt seriously that anyone at Goldman Sachs consciously thought of doing this or did it with the express purpose of murdering anyone.

That's more or less what Eichmann claimed too. He was only doing "his job".

Comment by Фелч Гроган on July 8, 2010 at 5:36am

Forgot the link. They're things you click.

Comment by Фелч Гроган on July 8, 2010 at 5:32am

Alex, seeing as you are intent on not reading what is being discussed, here is the relevant bit (which most other folks did read), just for you. Please pay attention.

==

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 and the global price is high, he'll lose some cash, but if there's a lousy summer or the 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 well.

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 financial 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 Deutschebank, who sell it on for £30,000 to Merryl Lynch - and on, and on, provided they think the price can be jacked up, until it seems to bear almost no relationship to Farmer Giles' 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 twentieth 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 broke with straightforward representation of reality 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. As Lanchester puts it: "With derivatives... there is a profound break between the language of finance and that of common sense."

So what has this got to do with the bread on Abiba's plate? How could this parallel universe of speculation affect her? Until deregulation, the price for food was set by the forces of supply and demand for food itself. (This was itself 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 contracts that were speculating on theoretical food that would be grown in the future - and the speculators drove the price through the roof.

Here's how it happened. In 2006, financial speculators like Goldman's pulled out of the collapsing US real estate market, and they were looking for somewhere else to make their stash of cash swell. They started to buy massive amounts of derivatives based on food: they reckoned that food prices would stay steady or rise while the rest of the economy tanked. Suddenly, the world's frightened investors stampeded onto this ground and decided to buy, buy, buy.

So while the supply and demand of food stayed pretty much the same, the supply and demand for contracts based on food massively rose - which meant the all-rolled-into-one price for food on people's plates massively rose. The starvation began.

The food price was now being set by speculation, rather than by real food. The hedge fund manager Michael Masters estimated that even on the regulated exchanges in the US - which take up a small part of the business - 64 percent of all wheat contracts were held by speculators with no interest whatever in real wheat. They owned it solely to inflate the price and sell it on. Even George Soros said this was "just like secretly hoarding food during a hunger crisis in order to make profits from increasing prices." 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.

Comment by david hartley on July 8, 2010 at 5:08am

Without getting into later developments such as derivitives etc you may find this youtube video about the basis of the monetary system useful.
http://www.youtube.com/watch?v=lXb-LrVkuwM
It is a little 'conspiracy theorist' but as that is your point Patricia it may help explain some of the underpinnings of the whole financial system. I have put the link up for the first segment and there are a number of them or you will be able to link to the full movie from here. At the very least it begins to explain the complexities of the system we have and although it may shock you it will exemplify the iniquities you speak of but also perhaps why we can't just throw our hands up and say 'if we stop this or that action' everything will be hunkey dorey. Change will take time and as some of the other posters have made the point that it's not only us that must look in the mirror but the Ethiopians themselves.
It is about power and greed but our expectations are the fuel.

Comment by Patricia Plunkett on July 8, 2010 at 2:28am

Alex Catgirl,
Yes the Ethiopians are to blame by not using birth control, doesn't mean we turn a blind eye to there situation. Education is the answer and as far as I know it is being done by many organisations from countries all over the world. The interference by religious leaders is holding back this education by making contraception a "sin". Same with aids, two wrongs do not make a right. To manipulate markets for profit at the cost of lives is wrong.

Comment by Patricia Plunkett on July 8, 2010 at 1:34am

Vespertilio
"A cheap Propaganda Ploy" It is also termed as making people aware. So we aren't supposed to complain about anything just let it carry on regardless. Somebody at Goldman Sachs new exactly what their manipulation of the market would do, yes they murdered millions by doing it, but they didn't see or care, they only saw the the profit margins. I have no shares in any company and I would if I had the money to invest seek out a more ethically based company to do it with. And yes I am angry that so much of BP's investments are tied up in pension funds because as has been done so often in the past those relying on their pension fund to see them through their later years won't get a penny. By the time they pay for the mess in the Gulf, which they caused, there won't be enough left for the pensioners. This is the kind of thing that big corporations do and is the reason that they should be stopped. I don't own anything and I am happy. I am not painting any sort of picture false or other wise, they live lives of prosperity by exploiting poverty to make their money, there is and always has been a "them and us" whether it has been classed based or money based, it has got wider and has grown with the introduction of the Free Market. Aye I am a Scot, love my country warts and all what shames me is that some of my fellow Scots are just as bad as the Goldman Sachs, BP, RBS and other big corp companies at stealing from the poor to make themselves rich and their investors. It is always the poor who are victims and end up paying the price for the gamblers in stock markets. "I live in Florida in the US" you should be villifying BP, they knew before they started the first drilling programme the outcome of their drilling in that area. BBC news knew also but sat back on the information. Now many sea creatures who have no voice are being murdered, they have just slapped another ban on the reporting teams and been given carte blanche control. Will you complain when the people earning a decent living off the products from the sea no longer can ? What I am saying to you is quite clear, we all must make our voices heard change our current lifestyle drastically, we can no longer sit back and say nothing, but pessimistic views and such apathetic views also are letting it all happen, there are more of us than there are of them, it's about time we made a stand. So I will continue villifying corporations and people like you it is also my right to do so.

Comment by ryan cameron on July 7, 2010 at 10:46pm

its a lot easier to blame a corporation than to change your personal habits and try to influence others to do the same. I'm as guilty as any corporation for buying goods at far below what I should be paying, not voting intelligently when elections come around, and not being inquisitive enough about the ramifications of all my decisions. I do think, however, if we simply sit around pointing fingers instead of using them to do something practical as individuals, we'll continue with status quo of haves and have nots.

Comment by Alex Catgirl on July 7, 2010 at 10:57am

For one thing perishables are traded on the FUTURES, not derivative markets, they are two very different things.

You can not create a derivative on perishables, there are too many independent variables....er well you can create a derivative for just about anything, but nobody with an inkling of understanding would buy them.

And yes , manipulating any market causes it to fluctuate wildly as it attempts to re-establish some sort of equilibrium, such is the nature of complex systems.

As for your why are some crops traded on the open market and not others? Um preference? People prefer rice, wheat, corn, soy over say milt, as the market for preferred crops is both larger and broader than non-preferred crops, it makes sense to trade them on the global market rather than in local farmer's markets as you are probably going to get a better price as the shortages and surplus of the local markets cancel each other out.

Comment by Фелч Гроган on July 7, 2010 at 10:23am

Alex, why do you persist in showing you have either not read the articles in question, or simply not been capable of comprehending them. Every comment you have made in each thread has zero relevance to the points that were raised - that linking food crops to complex derivates trading caused unforeseen and wildly erratic fluctuations in price of those food crops that had no relation to either supply or demand, and that food crops not linked to these derivatives showed no such price variations.

For fuck's sake - read and comprehend BEFORE you respond.

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