5 ms·

Banks cause hunger

26 points by djinn 15y ago

Tichy 15y ago
Uh, I don't really buy it. Banks can not just fix arbitrary prices for food. They speculate on high food prices because they have reasons to believe that prices will rise. Those reasons are the real culprits. And sorry, how bad is the infographic, if the chart just says "rising food prices driven by speculation" - that is not proof, that is just a claim. Unfortunately many people will just fall for it :-(
- bluekeybox 15y ago
  Don't we know? It's all caused by evil Jew traders on Wall Street. Sometimes I wonder if blaming Wall Street for everything with little proof offered is a modern-day version of anti-semitism. It's funny how one of the headlines in the infographic is, "Banks are profiting from speculation on food." Well, of course banks would profit from what they do -- they are not charities.
  - Andrew_Quentin 15y ago
    What nonsense. What have jews to do with it? Maybe banks shouldn't be able to profit from such a basic necessity as food when they have plenty of other things they can bet on. Plus, when it comes to speculations, real world effects do have an influence but a new market of supply and demand of the speculation itself is created based on hopes, rational or otherwise, of falls or rises of prices, which is most often detached from "real reasons based on the facts on the ground".
    - bluekeybox 15y ago
      Well, not long ago I remember reading an article claiming that Western capitalist globalization of trade and mass-production caused food prices to drop to such a degree that poor third-world farmers who don't have access to economies of scale cannot compete and make a profit. Now someone is blaming Western speculative traders for raising food prices. My point is, no matter what happens, someone is going to blame the West. Rich people are such easy targets to put blame on. > which is most often detached from "real reasons based on the facts on the ground". If that was the case, then why doesn't someone with more access to "facts on the ground" make a huge profit by betting more accurately given this knowledge? Perhaps the speculative market you are talking about actually does reflect facts on the ground.
- throwaway32 15y ago
  There is a common mantra here of "don't hate the player, hate the game", but people have to understand that large institutions like investment banks don't play by the same rules as everyone else. When the player rewrites the rules to his favor, the game is flawed deeply, however a great deal of blame still lies with the people that decide to manipulate the rules.
  - Tichy 15y ago
    To be honest, I still don't understand how speculation is supposed to drive the food prizes up. At the very least, food seems very ill suited for that kind of speculation, because it deteriorates. So if your gamble doesn't play out within a year or so, you make a loss of 100%. Seriously, how does it work? So you buy a certificate for 100$, giving you the right to pay a ton of wheat for 1000$. Then you buy a ton of wheat for 1000$. Then what? If nobody buys wheat for you for 2000$, you lose. Rather than throwing the wheat away, you might end up selling it for 500$. Simply by buying a future that entitles you to buy wheat for 1000$/ton doesn't change the price of wheat. In the same sense it doesn't change the price of Google stock if I decide to buy a future that entitles me to buy Google stock for 10000$/unit. It might be a problem for the baker who wants to plan ahead and would rather like to have a guarantee that he'll get the wheat for 500$. But if the real price is actually headed for 2000$, he would not have gotten that 500$ certificate anyway. Also if he had gotten it, he would effectively have ripped off the peasants. Also, somebody has to buy the food at those high prizes. And if prizes stay high, it would be good for peasants and they should increase production. For example it might become more profitable to plant real food instead of raw materials for ethanol.
    - throwaway32 15y ago
      My post was not arguing against the specific relevance investors had on food prices, but rather the attitude that just because something is legal/allowed that any parties partaking in the action bear no responsibility.
      - Tichy 15y ago
        I see what you mean. I am just not sure the banks are fairly blamed here. It is still possible that they are simply conducting their business of helping to establish correct prices for goods. Attempts to fix prices for food usually backfire - then producers have no incentive to produce food anymore if production costs are higher than the allowed maximum price. Also, isn't bankers buying food futures at too high prices equivalent to abandoning food futures? It means the bakery can not afford to buy a food future anymore (because banks drove the prices for futures up too much). So they'll have to do without the futures and simply buy at market rate once they need the wheat. The allegation is that banks would never actually buy the food they have the futures for (they don't have silos for storing the food). So the most damage they can do is destroy the utility of food futures. I don't see how introducing laws against food futures would help against that...
- crdoconnor 15y ago
  >Uh, I don't really buy it. Banks can not just fix arbitrary prices for food. They speculate on high food prices because they have reasons to believe that prices will rise. Those reasons are the real culprits. It's like any other bubble - it started basically because of a lack of anywhere else to invest, and at some point it just grew because it was growing. Remember 1999? >And sorry, how bad is the infographic, if the chart just says "rising food prices driven by speculation" - that is not proof, that is just a claim. I thought it was common knowledge. Certainly none of the fundamentals of the market for food have changed enough to warrant price rises to that extreme, and most of the demand is being driven by the futures market, not by, say, the entire world eating 70% more food.
  - Tichy 15y ago
    If it is common knowledge, then why make an infographic about it? I don't see that "certainly" you mention. Rather, there are lots of factors that seem to threaten food supply in the future (isn't the latest scare the depletion of phosphor?). Also other than a failed startup, a ton of wheat still sticks around if you buy it. You can either sell it off or let it deteriorate (for a 100% loss). Sure, you can try to artificially shorten supply and drive prices up that way. It is an age old economic strategy, but as far as I know it has never really worked before (from what I remember from economics textbooks). It would only work for a very short time. Say you hoard rice this year and sell only a little rice at exorbitant prices. Peasants the world over would increase their rice production, so next year there would be a lot more rice, plus your warehouses are already stocked to the ceiling with rice from last year. The prices will now be low - either you sell your rice for cheap, or you throw it into the river. In both cases, the attempt was not really worth it.
    - crdoconnor 15y ago
      >If it is common knowledge, then why make an infographic about it? Because I can't be bothered? >Sure, you can try to artificially shorten supply and drive prices up that way. It is an age old economic strategy, but as far as I know it has never really worked before (from what I remember from economics textbooks). It would only work for a very short time. Say you hoard rice this year and sell only a little rice at exorbitant prices. Peasants the world over would increase their rice production, so next year there would be a lot more rice, plus your warehouses are already stocked to the ceiling with rice from last year. The prices will now be low - either you sell your rice for cheap, or you throw it into the river. In both cases, the attempt was not really worth it. If I'm understanding you correctly, a similar argument was made in 2007 - it's actually really expensive to hoard millions of barrels of oil (which is what was assumed if people were speculating), it wouldn't be easy to hide and nobody had really found any evidence of it. I think Paul Krugman made this argument. Then the bubble went POP pretty spectacularly. I think Krugman eventually admitted he was wrong there. Hoarding wasn't necessary as the price increases from the futures market were transmitted to the actual market for oil (since most oil is bought on futures anyway, very little is bought at spot price) and the speculators weren't actually taking delivery of the oil they were just rolling the contracts forward. I assume a similar dynamic is in play for wheat right now.
yummyfajitas 15y ago
Strangely, the article doesn't actually explain the mechanism by which banks cause hunger. They point out (correctly) that short term price spikes are caused by speculation, without explaining the long term price increases.
- timthorn 15y ago
  Although one of the side effects of speculation is that price volatility should be reduced.
  - yummyfajitas 15y ago
    Although that is usually a side effect of speculation [1], it does not preclude speculation causing the occasional sudden price move. For instance, if speculators believe there will be scarcity in 3 months (which starts gradually), the futures price will spike now. This will incentivize people to reduce consumption now, rather than when the scarcity actually manifests itself. Of course, reduced consumption now leads to greater availability later. If we had no speculators, we'd continue overconsuming until it was too late, but there would be no sudden jump in prices. [1] The best test case is onions vs other goods, since futures contracts for onions are illegal. http://resolutedetermination.wordpress.com/2011/05/07/oil-price-speculators-onions/ http://resolutedetermination.wordpress.com/2011/05/07/oil-pr...
colinhowe 15y ago
This doesn't address any other possible causes: * population growth * biofuels * climate change * increased demand for 'expensive' food such as meat * corruption * the effect of 'fair trade' on food prices (fair trade wants them to go up so farmers get more) Banks may be speculating that the prices are going to go up - but they will have reasons for this speculation. Once the price gets too high then banks will likely also start speculating that the price will go down.
- yummyfajitas 15y ago
  Once the price gets too high then banks will likely also start speculating that the price will go down. When this occurs, we'll get poorly researched articles talking about how banks are hurting poor rural farmers.
jsmcgd 15y ago
Some related links worth reading: How Goldman Sachs Created the Food Crisis http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_sachs_created_the_food_crisis?page=full http://www.foreignpolicy.com/articles/2011/04/27/how_goldman... The food bubble: How Wall Street starved millions and got away with it http://www.harpers.org/archive/2010/07/0083022 http://www.harpers.org/archive/2010/07/0083022
- patrickk 15y ago
  There seems to be a lot more detail in those articles. The 1999 deregulation of the futures markets by the Commodities Futures Trading Commission for example, is missing from the World Development Movement infographic. This appears to be a critical detail that's missing. For your second link, I hit a paywall, so here's a link to get around that: http://theglobalrealm.com/2011/02/04/the-food-bubble-how-wall-street-starved-millions-and-got-away-with-it/ http://theglobalrealm.com/2011/02/04/the-food-bubble-how-wal...
  - jsmcgd 15y ago
    Thanks.
chrisbennet 15y ago
For all those who "don't get it", read jsmcgd's link. For convenience I'll repeat it here "How Goldman Sachs Created the Food Crisis" http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_sachs_created_the_food_crisis?page=full http://www.foreignpolicy.com/articles/2011/04/27/how_goldman... The very briefest answer is that G.S. created a "long only" investment vehicle based on food staples with no mechanism for shorting it.
- Tichy 15y ago
  I've read it, but I don't really understand it. Could you explain it, please?
- anamax 15y ago
  > The very briefest answer is that G.S. created a "long only" investment vehicle based on food staples with no mechanism for shorting it. In other words, GS didn't create a mechanism for speculation.... Note that the financial industry is often trashed for shorts, as in "those folks are betting on/profiting from failure". So, now we find that they're also wrong for not creating an opportunity for shorting.
- yummyfajitas 15y ago
  While the GSCI is a "long only" investment vehicle, it is utterly nonsensical to say there is no way to short it. All you need to do is buy a set of short positions which are mirrors of the GSCI's long positions.
muraiki 15y ago
Another significant element in the rise of global food prices is the devaluation of the USD. The US exports considerable amounts of wheat, and as more money is printed this inflation increases the cost of US wheat for importing nations. Furthermore, USD inflation and monetary policy affects food economics in ways far beyond that of buying wheat from the US: consider that low interest rates make borrowing money for speculation quite easy and with less risk. In addition, there are a number of factors causing shortages in the production of wheat, such as droughts, bad weather, and diseases that were once though gone but are now resurgent due to the lack of genetic diversity in wheat strains. From June 2010 to January 2011 the cost of wheat increased by 73%, according to the World Bank. The true price of this is not only in the suffering of individual humans and their families, but in the destabilizing of governments and the revolutions seen in the Arab Spring.
- anamax 15y ago
  There's also ethanol. It has the trifecta of govt support, a subsidy, an import restriction, and a mandated use. This has significantly reduced the amount of US corn available for food and it also decreased the amount of other food grown as farmers switched to corn when possible.
pontusw 15y ago
The World Development Movement has published a report today which explains exactly how speculation impacts on real food prices, and outlines why climate change, population growth, biofuels etc are not to blame for the short-term price rises we've seen recently. Well worth a read! http://www.wdm.org.uk/stop-bankers-betting-food/broken-markets-how-financial-regulation-can-prevent-food-crisis http://www.wdm.org.uk/stop-bankers-betting-food/broken-marke...

26 points by djinn 15y ago

Tichy 15y ago

Uh, I don't really buy it. Banks can not just fix arbitrary prices for food. They speculate on high food prices because they have reasons to believe that prices will rise. Those reasons are the real culprits. And sorry, how bad is the infographic, if the chart just says "rising food prices driven by speculation" - that is not proof, that is just a claim. Unfortunately many people will just fall for it :-(

bluekeybox 15y ago
Don't we know? It's all caused by evil Jew traders on Wall Street. Sometimes I wonder if blaming Wall Street for everything with little proof offered is a modern-day version of anti-semitism. It's funny how one of the headlines in the infographic is, "Banks are profiting from speculation on food." Well, of course banks would profit from what they do -- they are not charities.
- Andrew_Quentin 15y ago
  What nonsense. What have jews to do with it? Maybe banks shouldn't be able to profit from such a basic necessity as food when they have plenty of other things they can bet on. Plus, when it comes to speculations, real world effects do have an influence but a new market of supply and demand of the speculation itself is created based on hopes, rational or otherwise, of falls or rises of prices, which is most often detached from "real reasons based on the facts on the ground".
  - bluekeybox 15y ago
    Well, not long ago I remember reading an article claiming that Western capitalist globalization of trade and mass-production caused food prices to drop to such a degree that poor third-world farmers who don't have access to economies of scale cannot compete and make a profit. Now someone is blaming Western speculative traders for raising food prices. My point is, no matter what happens, someone is going to blame the West. Rich people are such easy targets to put blame on. > which is most often detached from "real reasons based on the facts on the ground". If that was the case, then why doesn't someone with more access to "facts on the ground" make a huge profit by betting more accurately given this knowledge? Perhaps the speculative market you are talking about actually does reflect facts on the ground.
throwaway32 15y ago
There is a common mantra here of "don't hate the player, hate the game", but people have to understand that large institutions like investment banks don't play by the same rules as everyone else. When the player rewrites the rules to his favor, the game is flawed deeply, however a great deal of blame still lies with the people that decide to manipulate the rules.
- Tichy 15y ago
  To be honest, I still don't understand how speculation is supposed to drive the food prizes up. At the very least, food seems very ill suited for that kind of speculation, because it deteriorates. So if your gamble doesn't play out within a year or so, you make a loss of 100%. Seriously, how does it work? So you buy a certificate for 100$, giving you the right to pay a ton of wheat for 1000$. Then you buy a ton of wheat for 1000$. Then what? If nobody buys wheat for you for 2000$, you lose. Rather than throwing the wheat away, you might end up selling it for 500$. Simply by buying a future that entitles you to buy wheat for 1000$/ton doesn't change the price of wheat. In the same sense it doesn't change the price of Google stock if I decide to buy a future that entitles me to buy Google stock for 10000$/unit. It might be a problem for the baker who wants to plan ahead and would rather like to have a guarantee that he'll get the wheat for 500$. But if the real price is actually headed for 2000$, he would not have gotten that 500$ certificate anyway. Also if he had gotten it, he would effectively have ripped off the peasants. Also, somebody has to buy the food at those high prizes. And if prizes stay high, it would be good for peasants and they should increase production. For example it might become more profitable to plant real food instead of raw materials for ethanol.
  - throwaway32 15y ago
    My post was not arguing against the specific relevance investors had on food prices, but rather the attitude that just because something is legal/allowed that any parties partaking in the action bear no responsibility.
    - Tichy 15y ago
      I see what you mean. I am just not sure the banks are fairly blamed here. It is still possible that they are simply conducting their business of helping to establish correct prices for goods. Attempts to fix prices for food usually backfire - then producers have no incentive to produce food anymore if production costs are higher than the allowed maximum price. Also, isn't bankers buying food futures at too high prices equivalent to abandoning food futures? It means the bakery can not afford to buy a food future anymore (because banks drove the prices for futures up too much). So they'll have to do without the futures and simply buy at market rate once they need the wheat. The allegation is that banks would never actually buy the food they have the futures for (they don't have silos for storing the food). So the most damage they can do is destroy the utility of food futures. I don't see how introducing laws against food futures would help against that...
crdoconnor 15y ago
>Uh, I don't really buy it. Banks can not just fix arbitrary prices for food. They speculate on high food prices because they have reasons to believe that prices will rise. Those reasons are the real culprits. It's like any other bubble - it started basically because of a lack of anywhere else to invest, and at some point it just grew because it was growing. Remember 1999? >And sorry, how bad is the infographic, if the chart just says "rising food prices driven by speculation" - that is not proof, that is just a claim. I thought it was common knowledge. Certainly none of the fundamentals of the market for food have changed enough to warrant price rises to that extreme, and most of the demand is being driven by the futures market, not by, say, the entire world eating 70% more food.
- Tichy 15y ago
  If it is common knowledge, then why make an infographic about it? I don't see that "certainly" you mention. Rather, there are lots of factors that seem to threaten food supply in the future (isn't the latest scare the depletion of phosphor?). Also other than a failed startup, a ton of wheat still sticks around if you buy it. You can either sell it off or let it deteriorate (for a 100% loss). Sure, you can try to artificially shorten supply and drive prices up that way. It is an age old economic strategy, but as far as I know it has never really worked before (from what I remember from economics textbooks). It would only work for a very short time. Say you hoard rice this year and sell only a little rice at exorbitant prices. Peasants the world over would increase their rice production, so next year there would be a lot more rice, plus your warehouses are already stocked to the ceiling with rice from last year. The prices will now be low - either you sell your rice for cheap, or you throw it into the river. In both cases, the attempt was not really worth it.
  - crdoconnor 15y ago
    >If it is common knowledge, then why make an infographic about it? Because I can't be bothered? >Sure, you can try to artificially shorten supply and drive prices up that way. It is an age old economic strategy, but as far as I know it has never really worked before (from what I remember from economics textbooks). It would only work for a very short time. Say you hoard rice this year and sell only a little rice at exorbitant prices. Peasants the world over would increase their rice production, so next year there would be a lot more rice, plus your warehouses are already stocked to the ceiling with rice from last year. The prices will now be low - either you sell your rice for cheap, or you throw it into the river. In both cases, the attempt was not really worth it. If I'm understanding you correctly, a similar argument was made in 2007 - it's actually really expensive to hoard millions of barrels of oil (which is what was assumed if people were speculating), it wouldn't be easy to hide and nobody had really found any evidence of it. I think Paul Krugman made this argument. Then the bubble went POP pretty spectacularly. I think Krugman eventually admitted he was wrong there. Hoarding wasn't necessary as the price increases from the futures market were transmitted to the actual market for oil (since most oil is bought on futures anyway, very little is bought at spot price) and the speculators weren't actually taking delivery of the oil they were just rolling the contracts forward. I assume a similar dynamic is in play for wheat right now.

yummyfajitas 15y ago

Strangely, the article doesn't actually explain the mechanism by which banks cause hunger. They point out (correctly) that short term price spikes are caused by speculation, without explaining the long term price increases.

timthorn 15y ago
Although one of the side effects of speculation is that price volatility should be reduced.
- yummyfajitas 15y ago
  Although that is usually a side effect of speculation [1], it does not preclude speculation causing the occasional sudden price move. For instance, if speculators believe there will be scarcity in 3 months (which starts gradually), the futures price will spike now. This will incentivize people to reduce consumption now, rather than when the scarcity actually manifests itself. Of course, reduced consumption now leads to greater availability later. If we had no speculators, we'd continue overconsuming until it was too late, but there would be no sudden jump in prices. [1] The best test case is onions vs other goods, since futures contracts for onions are illegal. http://resolutedetermination.wordpress.com/2011/05/07/oil-price-speculators-onions/ http://resolutedetermination.wordpress.com/2011/05/07/oil-pr...

colinhowe 15y ago

This doesn't address any other possible causes: * population growth * biofuels * climate change * increased demand for 'expensive' food such as meat * corruption * the effect of 'fair trade' on food prices (fair trade wants them to go up so farmers get more) Banks may be speculating that the prices are going to go up - but they will have reasons for this speculation. Once the price gets too high then banks will likely also start speculating that the price will go down.

yummyfajitas 15y ago
Once the price gets too high then banks will likely also start speculating that the price will go down. When this occurs, we'll get poorly researched articles talking about how banks are hurting poor rural farmers.

jsmcgd 15y ago

Some related links worth reading: How Goldman Sachs Created the Food Crisis http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_sachs_created_the_food_crisis?page=full http://www.foreignpolicy.com/articles/2011/04/27/how_goldman... The food bubble: How Wall Street starved millions and got away with it http://www.harpers.org/archive/2010/07/0083022 http://www.harpers.org/archive/2010/07/0083022

patrickk 15y ago
There seems to be a lot more detail in those articles. The 1999 deregulation of the futures markets by the Commodities Futures Trading Commission for example, is missing from the World Development Movement infographic. This appears to be a critical detail that's missing. For your second link, I hit a paywall, so here's a link to get around that: http://theglobalrealm.com/2011/02/04/the-food-bubble-how-wall-street-starved-millions-and-got-away-with-it/ http://theglobalrealm.com/2011/02/04/the-food-bubble-how-wal...
- jsmcgd 15y ago
  Thanks.

chrisbennet 15y ago

For all those who "don't get it", read jsmcgd's link. For convenience I'll repeat it here "How Goldman Sachs Created the Food Crisis" http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_sachs_created_the_food_crisis?page=full http://www.foreignpolicy.com/articles/2011/04/27/how_goldman... The very briefest answer is that G.S. created a "long only" investment vehicle based on food staples with no mechanism for shorting it.

Tichy 15y ago
I've read it, but I don't really understand it. Could you explain it, please?
anamax 15y ago
> The very briefest answer is that G.S. created a "long only" investment vehicle based on food staples with no mechanism for shorting it. In other words, GS didn't create a mechanism for speculation.... Note that the financial industry is often trashed for shorts, as in "those folks are betting on/profiting from failure". So, now we find that they're also wrong for not creating an opportunity for shorting.
yummyfajitas 15y ago
While the GSCI is a "long only" investment vehicle, it is utterly nonsensical to say there is no way to short it. All you need to do is buy a set of short positions which are mirrors of the GSCI's long positions.

muraiki 15y ago

Another significant element in the rise of global food prices is the devaluation of the USD. The US exports considerable amounts of wheat, and as more money is printed this inflation increases the cost of US wheat for importing nations. Furthermore, USD inflation and monetary policy affects food economics in ways far beyond that of buying wheat from the US: consider that low interest rates make borrowing money for speculation quite easy and with less risk. In addition, there are a number of factors causing shortages in the production of wheat, such as droughts, bad weather, and diseases that were once though gone but are now resurgent due to the lack of genetic diversity in wheat strains. From June 2010 to January 2011 the cost of wheat increased by 73%, according to the World Bank. The true price of this is not only in the suffering of individual humans and their families, but in the destabilizing of governments and the revolutions seen in the Arab Spring.

anamax 15y ago
There's also ethanol. It has the trifecta of govt support, a subsidy, an import restriction, and a mandated use. This has significantly reduced the amount of US corn available for food and it also decreased the amount of other food grown as farmers switched to corn when possible.

pontusw 15y ago

The World Development Movement has published a report today which explains exactly how speculation impacts on real food prices, and outlines why climate change, population growth, biofuels etc are not to blame for the short-term price rises we've seen recently. Well worth a read! http://www.wdm.org.uk/stop-bankers-betting-food/broken-markets-how-financial-regulation-can-prevent-food-crisis http://www.wdm.org.uk/stop-bankers-betting-food/broken-marke...