Now, a Commodities Conundrum
Wednesday, April 30, 2008; D01
The latest is the commodities bubble — everything from oil and natural gas to gold, copper, wheat and rice. . .
. . . The difference this time, however, is that even before it bursts, this bubble is causing economic discomfort for households and businesses around the world, and misery for hundreds of millions of hungry people who suddenly cannot afford a bowl of rice or scrap of meat. The Post’s eye-opening series this week on the global food crisis has provided a grim reminder that the global economic ecosystem has become so interdependent that a drought in Australia, a tax credit in the United States, French farm subsidies and export controls in India can wind up forcing a desperate African farmer to eat his seed corn.
. . . But what turned a bull market into a bubble was the sudden arrival of large numbers of new investors and an array of new investment vehicles, many of them involving derivative instruments traded outside the confines of regulated markets. . . Many of these were the same hedge funds and hot-money investors who had gorged on sovereign debt of developing countries, tech and telecom stocks, subprime mortgages and commercial real estate and now needed a new thing to focus on. . .
To meet the needs of these investors, Wall Street and Chicago’s commodities houses came up with all sorts of new vehicles, including exchange traded funds, index funds and structured investment vehicles — the commodities equivalent of mortgage pools and asset-backed securities.
. . . Indeed, the only people who don’t believe speculation is driving a commodities bubble are the big commodity traders and the commodities exchanges, which are profiting handsomely from the soaring prices and trading volumes, and the regulators at the Commodities Futures Trading Commission, whose economists cannot seem to find statistical evidence that financial investors have had much of an impact on commodity prices.
No conundrum here at all–just another ravaging of market systems by the hedge fund industry, which serves no basic need except to make the super-wealthy super-wealthier at the expense of anyone who gets in the way.
Since the crash of ’29, we’ve had lots of people ‘getting in the way‘ of uncontrolled and unprincipled stock market activity. These include
- The Securities Act of 1933
- Securities Exchange Act of 1934
- Public Utility Holding Company Act of 1935
- Trust Indenture Act of 1939
- Investment Company Act of 1940
- Investment Advisers Act of 1940
- Securities Investor Protection Act of 1970
- Sarbanes-Oxley Act of 2002
(Washington Post) NOUAKCHOTT, Mauritania Even before he took a butcher knife to the she-goat’s throat, Likbir Ould Mohamed Mahmoud knew it would only make things worse.
The goat was a living bounty in this parched city on the Sahara’s edge, providing the sweet milk that filled his family’s stomachs at breakfast time. But as soaring food prices worldwide have hit the poorest nations of Africa the hardest, he has been forced to join many of his neighbors in slaughtering or selling off one of their only sources of wealth — their livestock.
By sacrificing the she-goat last month, the 39-year-old day laborer and goatherd traded the family’s morning milk for dinner meat. It lasted a few days. With the family unable to afford skyrocketing prices for basic foods, he said, his two young children now cry in the morning from hunger.
Likbir doesn’t make a hundred million a year, he makes a dollar and a half a day. Which would be fine, if the hundred-million dollar hedge-fund manager hadn’t so screwed commodity prices that Likbir’s purchasing power (if you can call a buck fifty a day power) is meaningless.
As an American, I’m tired of my country devastating the world of others. I’m sick to death of Congress and the U.N. dithering around while markets fail, Mauritanians sell off their milk-goat and listen to their children cry and Wal-Mart destroys Main Street.
Before they became entirely investor-driven, commodity exchanges smoothed out the bumps and crises of food-shortages. For hundreds of years we had an occasionally flawed (but mostly useful) investment-based stock market that built industries that built things, things America and the world needed. Since our founding, we had a banking system that (along with its own occasional shortcomings) actually knew the people to whom it lent money and judged their reliability as creditors. A hand-shake actually meant something and was not digitally encrypted.
Hedge-funds do none of those useful things.
Since the Harvard Business School made profit-mongers of us all, your banker no longer knows who the hell you are, your mortgage has been rolled out, sliced, coated with tomato-paste, baked in a derivative oven and packaged off to who-knows-who like pizza. We bomb other nations for profit, destroy agricultural systems for the same, patent the seeds that farmers can no longer keep for replanting and arm ourselves to the teeth because more and more, we have it all.
Well, not exactly ‘we’ in the inclusive form, but certainly ‘we’ in the exclusive sense of 3% of Americans.
For my part, I’m tired as hell of absolutely every American institution being sold off to the highest bidder. There’s a lot of controversy about Reverend Jeremiah Wright’s so-called black theology. The controverts, who divide us like chickens in a farmyard, are the same Bill O’Reilly, Rush Limbaugh, CNN, NYTimes investors–first in the profits of their divisiveness, second in the hedge-funding of those profits and third, in the wave they ride as the wealthy swell and the poor sink.
Jeremiah Wright hasn’t half said it–and the wrecked whites of America are beginning to hear his rhetoric and finally get it–that a boarded up Main Street and a Wal-Mart outside town are not the cornucopia they promised to be.