• Goldman Sachs reaps $400M “bountiful harvest” by gambling on America’s food staples
By Keith Johnson
While people around the globe struggled to put food on the table in 2012, banking giant Goldman Sachs reaped a bountiful harvest. According to a new report by the UK-based anti-poverty group, World Development Movement (WDM), Goldman Sachs made approximately $400M in profits last year by betting on the prices of food staples like wheat, corn and soy.
“Goldman Sachs is the global leader in a trade that is driving food prices up while nearly a billion people are hungry,” says WDM campaigner Christine Haigh. “The bank lobbied for the financial deregulation that made it possible to pour billions into the commodity derivative markets, created the necessary financial instruments and is now raking in the profits. Speculation is fueling volatility and food price spikes, hurting people who struggle to afford food across the world.”
The report goes on to conclude that the only thing that will stop banks from gambling on hunger is tough regulation, something that Wall Street is fiercely fighting against.
In 2011, the Goldman-Sachs-aligned International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association joined in a lawsuit against the United States Commodity Futures Trading Commission (CFTC). The purpose of the suit was to challenge a portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act that imposes limits on the number of contracts a trader can hold for 28 physical commodities, including wheat, corn, cotton and sugar.
On September 28, less than a month before the rules were set to take effect, Obama-appointed United States District Judge Robert Wilkins ruled in favor of the plaintiffs, saying that the CFTC had no “clear and unambiguous mandate” to set limits on speculative positions under the Dodd-Frank Act.
“The position limits rule is vacated and remanded to the commission for further proceedings consistent with this opinion,” ruled Wilkins. In doing so, the judge single-handedly relegated the matter to a perpetual state of limbo and gave Wall Street speculators a license to continue manipulating the price of food.
Although other major investment banks like Morgan Stanley and Barclays Capital have also made a killing off food speculation, Goldman Sachs has the distinction of being the architect of this predatory practice.
“In 1991, Goldman bankers, led by their prescient president, Gary Cohn, came up with a new kind of investment product, a derivative that tracked 24 raw materials, from precious metals and energy to coffee, cocoa, cattle, corn, hogs, soy and wheat,” wrote Frederick Kaufman in a recent article for Foreign Policy magazine. “They weighted the investment value of each element, blended and commingled the parts into sums, then reduced what had been a complicated collection of real things into a mathematical formula that could be expressed as a single manifestation, to be known henceforth as the Goldman Sachs Commodity Index (GSCI).
“For just under a decade, the GSCI remained a relatively static investment vehicle, as bankers remained more interested in risk and collateralized debt than in anything that could be literally sown or reaped. Then, in 1999, the [CFTC] deregulated futures markets. All of a sudden, bankers could take as large a position in grains as they liked, an opportunity that had, since the Great Depression, only been available to those who actually had something to do with the production of our food.”
Matt Taibbi of Rolling Stone magazine once famously described Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
That sentiment is now being echoed by many critics of food speculators, including Olivier De Schutter, the United Nations special rapporteur on the right to food, who during an April 2012 interview with The Independent stated: “What we are seeing now is that these financial markets have developed massively with the arrival of these new financial investors, who are purely interested in the short-term monetary gain and are not really interested in the physical thing—they never actually buy the ton of wheat or corn; they only buy a promise to buy or to sell. The result of this financialization of the commodities market is that the prices of the products respond increasingly to a purely speculative logic. This explains why in very short periods of time we see prices spiking or bubbles exploding, because prices are less and less determined by the real match between supply and demand.”
Food speculators like Goldman Sachs currently control 61% of the market for basic foods like wheat and corn, compared to 12% in 1996. The resulting effects of this stranglehold cannot be understated. According to the UN’s Food and Agricultural Organization (FAO) Food Price Index, which measures fluctuations in the cost of food, overall global food prices have doubled since 2003. Meanwhile, the FAO estimates that one out of every eight people in the world is chronically undernourished. And things are only bound to get worse until someone snatches the trough from the talons of these greedy Wall Street vultures.
Keith Johnson in an investigative journalist and host of the Revolt of the Plebs radio program.