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The Onion Futures Act
- wcfields 8y agoPlanet Money podcast a covered this topic a few months ago: https://www.npr.org/sections/money/2015/10/14/448718171/episode-657-the-tale-of-the-onion-king https://www.npr.org/sections/money/2015/10/14/448718171/epis...
- Ixio 8y agoThanks for this. I was curious about the details and the podcast (I read the transcript) explains all of it. I was wondering how they made so much money and why it doesn't happen anymore. Turns out the initial cornering of the market was done in secret at a standard price. Nowadays buying at such scale secretly is impossible, so the price goes up and makes cornering the market prohibitively expensive.
- anitil 8y agoSuch a good episode! Planet Money is so good that I've worked my way through 10 years of back-episodes over the last year or so, it's one of few podcasts which is worth doing that.
- jedberg 8y agoTry Freakonomics if you haven't already. I did the full back catalog on both.
- toastermoster 8y agoI've been listening to How I Built That with Guy Raz lately too. Also a good podcast. I spend a lot of time in my car so good podcasts help keep my sanity.
- taylorfinley 8y agoAt the risk of derailing things and spiraling into off-topic chatter... is anyone else really bothered by the background music on the Freakonomics podcast? They seem to use the same tracks every episode. Ten years ago that wasn't particularly grating, but as production values in podcasting have gone up listening now I feel like I'm hearing a marketing video thrown together on fiverr.
- kwhitefoot 8y agoI'm bothered by the fact that they have background music at all. I listen to a lot of BBC podcasts and none of them have background music. Only a few use music at all, mostly as a kind of punctuation and emphasis for dramatic parts. I find most podcasts that I have tried that originate in the US unlistenable because of the background music.
- gnud 8y agoI stopped reading Freakonomics after their horrible climate change chapter in the 2nd book. I don't know much about climate science, but even I could recognize a lot of the basic errors in that chapter. That made it hard for me to trust their writing on other issues. To conclude, the reasons why Levitt and Dubner like geo-engineering so much are based on a misreading of the science, a misrepresentation of proposed solutions, and truly bizarre interpretations of how environmental problems have been dealt with in the past. These are, in the end, much worse errors than their careless misquotes and over-eagerness to shock highlighted by the other critiques. [0] [0]: www.realclimate.org/index.php/archives/2009/10/why-levitt-and-dubner-like-geo-engineering-and-why-they-are-wrong/
- toastermoster 8y agoI came here to post that same link. It was an interesting Planet Money episode.
- TH3R3LL1K 8y agoI recently just heard it. And it great story to hear.
- Matticus_Rex 8y ago"In the 2000s (decade), onion prices were significantly more volatile than corn or oil prices. This volatility led the son of a farmer who initially lobbied for the ban to advocate a return to onion futures trading." This is the important part -- ag futures are insurance for farmers. You don't have to get it, but it limits your downside when you do, which is extremely important in low-margin, capital-intensive industries like agriculture. Banning the insurance may prevent one-off manipulations and limit the upside captured by speculators, but it also makes the industry much more dangerous, particularly for smaller players.
- protomyth 8y agoYep, for a decent explanation of hedging ISU has a page https://www.extension.iastate.edu/agdm/crops/html/a2-60.html https://www.extension.iastate.edu/agdm/crops/html/a2-60.html Note the futures market requirement for hedging.
- S_A_P 8y agoWork in energy and commodity trading. This is probably one of the best explanations to what is at best a very confusing concept. Thanks for posting
- gammateam 8y agoYou can squeeze repeals like these into Budget Appropriation Acts to avoid government shutdowns If you want. Better and faster than the popular vote for different representatives, you dont even have to be registered anywhere. The US Federal Government doesnt have single item veto, and Congress wont care to revisit this even if they noticed later.
- pfletcherhill 8y agoThe other notorious carve-out is box office futures. Read more about the ban here: https://www.theringer.com/movies/2018/11/15/18091620/box-office-futures-dodd-frank-mpaa-recession https://www.theringer.com/movies/2018/11/15/18091620/box-off...
- jedberg 8y agoInteresting! I'd never heard of this. It look like their arguments against it are about the same as the arguments against variable pricing for movies -- the price would reflect overall sentiment and influence the viewership. Why would you go see a movie that is only $1. Clearly no one else wants to see it. In the same vein, why would you see a movie with a bunch of shorts on it?
- pfletcherhill 8y ago>...why would you see a movie with a bunch of shorts on it? If you were long, among other reasons.
- OscarCunningham 8y agoFor sufficiently bad movies, you might get paid to watch them by the people betting on their success.
- pg_bot 8y agoYet I don't find their arguments particularly persuasive. You can apply this logic to other products to see why it fails. Why would you buy a Tesla if there are so many people shorting them? I could think of a couple ways that you could get people to see a dollar movie. What if you treat it like the dollar menu at McDonalds. The movies are shorter, say like 5-20 minutes but you get a combo of them so you fill up the same amount of time a normal movie would. So you see like 5 short movies for the same price as a normal feature. I actually think that this might be viable with the rise of the semi-pro youtubers. The movie business already tracks dollars per minute as their metric for pricing content. Reducing length greatly reduces costs so more people could use that as a stepping stone for feature length films.
- pwaivers 8y agoAnother interesting topic in the derivatives markets: https://en.wikipedia.org/wiki/Weather_derivative https://en.wikipedia.org/wiki/Weather_derivative. Basically you buy futures or options on the temperature, rainfall, and cloud cover. Super interesting!
- Faaak 8y agoWe used this at work while hedging our electricity portfolio during last summer (we weren't covered 100%). It's a nice insurance that doesn't need a reason to pay off (if the threshold is met, it's payed). Very useful indeed for some specific applications.
- soared 8y agoSemi-related: In digital advertising you can buy ads based on the weather, at the current time, at the users location. This costs a small amount of money (advertiser pays a company for that data). So companies who know weather very precisely can sell that data. But other companies buy that same data from multiple companies, aggregate it, and claim theirs is more accurate. Other arbitrage the data. Others find average temps/etc and predict the weather. So similar market forces are back, but fueled by advertising. The same thing happens with geographical data and million other data points.
- ryan-allen 8y agoThis is an actual thing??!
- F_r_k 8y agoIf you don't understand it, why have you got an opinion of it ?
- ryan-allen 8y agoI don't have an opinion of it! I did search on the topic and found that it is indeed a thing, and the point of it is for farmers to hedge against bad weather. I don't understand it completely but it does seem to make sense in terms of stability. My ??! came across as indignant but it was honest! I watched a Khan video about how options improve stability also, it seems counter-intuitive but my grasp so far is that these instruments are good for stability and stability is important.
- lordnacho 8y agoYou have to wonder why the lawmakers didn't use the same logic on all other products. Or at least ags. Corners happened again later, famously on silver with the Hunt brothers.
- fatnoah 8y ago>This led to the emergence of new leadership who pioneered a different strategy, expanding the exchange's traded products to include futures contracts on pork bellies and frozen concentrate orange juice ...and we all know what happened to the FCOJ market in 1983.
- jpatokal 8y agoIf this didn't ring a bell: https://en.wikipedia.org/wiki/Trading_Places https://en.wikipedia.org/wiki/Trading_Places
- rat87 8y agoPlanet Money had an episode on this The Eddie Murphy rule/what happens at the end of Trading Places https://www.npr.org/templates/transcript/transcript.php?storyId=200401407 https://www.npr.org/templates/transcript/transcript.php?stor... as well as on the onion King (https://www.npr.org/templates/transcript/transcript.php?storyId=448718171 https://www.npr.org/templates/transcript/transcript.php?stor...) which I assume is where op found out about this story.
- zem 8y agoas an indian, this bit was particularly fascinating: > The bill was unpopular among traders, some of whom argued that onion shortages were not a crucial issue since they were used as a condiment rather than a staple food. in india, onions are so vital a staple that the onion price is a major economic index. see https://economictimes.indiatimes.com/markets/commodities/news/onion-index-falls-by-11/articleshow/65653094.cms https://economictimes.indiatimes.com/markets/commodities/new... for instance.
- jpatokal 8y agoOnions are pretty fundamental to Western cooking as well, but they're not a staple in the sense that people will starve if they're unavailable, the way potatoes or wheat are.
- ryan-allen 8y agoI've always thought staples were the bulk of the energy content in cultures, i.e. rice, bread from wheat/corn/etc, potatoes. I checked anyway, there's a bunch more I hadn't considered! https://en.wikipedia.org/wiki/Staple_food https://en.wikipedia.org/wiki/Staple_food
- ahazred8ta 8y agoYes, but when you get your vitamins from one main vegetable, it can be a public health problem if a moth eats the whole crop several years in a row. NIGERIA has been limping along since 2016. #TomatoEbola https://www.npr.org/sections/goatsandsoda/2016/05/26/479517680/a-moth-nicknamed-tomato-ebola-ravages-nigerias-tomatoes https://www.npr.org/sections/goatsandsoda/2016/05/26/4795176...
- pkaye 8y agoIts probably more that the traders are trying to find an argument to block the bill.
- 21 8y agoLaws should have an expiration date. Otherwise in 100 years there will be 1 million laws.
- elliekelly 8y agoAgreed. Massachusetts still has a law on the books that says a contract entered into by a woman is presumed valid even if her husband didn't know about it. Progressive at the time but kind of disgusting that no one has thought to strike it from the books in the past 50 years.
- wtfrmyinitials 8y agoWe've already lost count of the number of federal laws in the U.S. https://blogs.loc.gov/law/2013/03/frequent-reference-question-how-many-federal-laws-are-there/ https://blogs.loc.gov/law/2013/03/frequent-reference-questio...
- thomaskcr 8y agoAnd people are constantly asking for things that are already laws - we need to actually enforce our laws so that bad ones can be removed also in my opinion.
- ryan-allen 8y agoThat'd open up an interesting industry where people would be trawling expiring laws looking to exploit them for economic gain. Perhaps a 'review' date would be more practical!
- 1stcity3rdcoast 8y agoAs opposed to the current system where people agitate for new laws to exploit them for economic gain!
- quickthrower2 8y agoHow does that work with case law? For example a case is decided based on an old law, that law has now gone, is that case no longer a precedent? (IANAL)
- byron_fast 8y agoMennonite joke: "Many young Mennonites are surprised to learn how many recipes contain only onions and fat." Onions are important.
- jedberg 8y agoSo I already knew about this from before, but one thing I never understood was instead of banning it outright, why not just put in a rule that says your futures are invalid if you control X percent of the underlying asset?
- Kalium 8y agoA requirement like that incentivizes people to find a way to work around it and requires enforcers to be able to prove someone did indeed own X percent. It also makes it harder to pursue cabals that collectively corner a market without any entity involved being over the threshold. In many ways, it's easier enforcement-wise to just ban the thing, especially if you don't think it's actually important to have in the first place.
- steamer25 8y agoThat was my thought. It seems like it'd be similar to enforcing fractional reserve bank loans--audits and accountants and judges to determine if people are colluding, etc. It also seems similar to anti-trust. Another possibility might be something like a tax on hoarding large amounts of food e.g., each day it sits around without being sold or consumed past some grace period like one year. Maybe only tax profits achieved by hoarding food, similar to long term versus short term capital gains, unless you sell after a crop failure.
- glup 8y agoMan I thought that guy hawking onion futures on BART seemed sort of sketchy.
- RyanShook 8y agoCheck out Vincent Kosuga’s Wikipedia page. Very interesting dude https://en.m.wikipedia.org/wiki/Vincent_Kosuga https://en.m.wikipedia.org/wiki/Vincent_Kosuga
- deytempo 8y agoWho else initially thought this was going to be about TOR?
- time-domain0 8y agoI was thinking The Onion was being banned because it was predicting the future.
- lazycouchpotato 8y agoOn a side note, I hovered the cursor over "Onion" and was surprised to find out it's classified as a fruit. https://en.wikipedia.org/wiki/Onion https://en.wikipedia.org/wiki/Onion
- andybak 8y ago"Intelligence is knowing tomatoes are a fruit. Wisdom is knowing not to put them in your fruit salad"
- BlackFly 8y agoUnless you are talking botany, calling a tomato a fruit is falling for the fallacy of equivocation and too many people do this and have the pretension that they are being smart. The word "fruit" has multiple definitions, a tomato is a fruit by definition 1, but not a fruit by definition 2. What most people understand by the word fruit is definition 2.
- mac01021 8y agoWhat's definition 2?
- 0db532a0 8y agoYou will be interested to learn about the existence of tomato jam.
- mousebender 8y agoFYI, before a December 12 edit on Wikipedia, it was listed as a vegetable. Vandalism? https://en.wikipedia.org/w/index.php?title=Onion&type=revision&diff=873253997&oldid=872297213 https://en.wikipedia.org/w/index.php?title=Onion&type=revisi... Apparently a fruit is the ripened ovary of a flowering plant, enclosing the seed or seeds--not a bulb like an onion.
- jeffrallen 8y agoAll markets are free, but some markets are freer than others.
- rat87 8y agoSomeone listed to NPR's Planet Money Onion King episode https://www.npr.org/templates/transcript/transcript.php?storyId=448718171 https://www.npr.org/templates/transcript/transcript.php?stor...
- benj111 8y agoThere seems to have been some wider failures in the market here. The article states that prices rose elsewhere, whilst crashing in Chicago. Why did no one arbitrage. Why did the farmers feel pressured to buy the oversupply. Cornering the market like this /shouldn't/ have worked. I'm actually kind of surprised there isn't some law somewhere banning primary producers buying their own product. Think about a mine buying in raw ore and then selling it, could make the mine look more successful than I actually was. Considering investment by the elite before the 19th century would have been direct into these kinds of operations, I'm surprised enough weren't burned to push for a law change.
- golergka 8y agoHow do you differentiate between a producer and a consumer? What if a mine is bought by a vertically integrated company that both mines the ore and then processes is as well - and because of, say, some unpredicted difficulties in different parts of it business, has sometimes buy additional ore (to keep smelters running), and sometimes has to sell it because it mined too much?
- benj111 8y agoHow do you differentiate between a patent troll and a company just trying to protect its IP? You do make a good point though. I'm not suggesting the legislation would be a good idea, certainly not in the modern day. It just occurred to me that this would be an indicator of fraud, and from what I know about the history of publicly traded companies and the class of people who were investing in companies etc, I'm surprised this wasn't a law. The article states that traders thought there was a glut because the onions were shipped out and back in again, in the 1950s. It would have been even easier 50-100 years earlier.
- mises 8y agoThis feels like something Rand Paul would dig up. It's pretty much the ultimate example of stupid, meaningless regulation. Gotta protect that crucial onion market. Definitely an enumerated power.