Eating Tomorrow by Timothy A. Wise

Author:Timothy A. Wise
Language: eng
Format: epub
Publisher: The New Press
Published: 2019-01-05T16:00:00+00:00

Members of the K’Quinich community in Guatemala’s Polochic Valley survey the land taken from eleven communities by the Chabil Utzaj S.A. sugar refinery. Daniele Volpe/ActionAid

Gambling on Dinner

They don’t hold any financial derivatives either, the other brave new commodity roiling food markets. It was bad enough that food was now fuel, and so was land. It was even worse that Wall Street now had them conveniently bundled together into commodity funds that speculators could buy and sell with no knowledge of nor regard for either food or biofuels. Buy and sell they did, particularly in the wake of the financial crisis in the United States. Why? Speculative capital needed a new place to go. They had blown up the subprime mortgage market, taking the housing market down with it. The stock market had plunged as a result. Billions of dollars sought safe harbors in turbulent times. Thanks to the very deregulation that had caused those disasters, the speculators now had a whole set of new financial “instruments” that neatly packaged commodities into a handy “asset class.”

Actually, there were no commodities anywhere in sight. What these commodity funds included were “futures,” the longtime markets that have allowed sellers (such as farmers) and buyers (such as pork producers) to navigate the inevitable swings in the prices for corn and other raw commodities. Futures prices used to be based on supply and demand, with meticulous market information informing participants about future supplies, demand, and prices. Most of the participants were buyers and sellers, so-called commercial hedgers with a material interest in the commodity, hedging their risks with financial bets on future prices. A farmer could lock in a future price for her corn. A feed company could do the same on the buying side. In the late 1990s, only about one-fifth of futures market participants were speculators. Many followed those markets closely, and their investments helped lubricate those markets by adding liquidity, a larger pool of cash to back all those deals and help sellers reach buyers.

What deregulation did was allow Wall Street traders to make far more risky bets on a broadened array of commodity funds. What the financial crisis did was push all of the traders into those funds at once, theater-goers all running to the same exit after the fire they themselves had set turned into an inferno.

Basically, the speculators ruined the future by distorting those markets. Where before there were four commercial hedgers (those with a commercial interest in the traded commodity) for every speculator, suddenly there were four speculators for every hedger. Some $9 trillion in trades took place in commodity derivatives, with 80 to 90 percent in over-the-counter (OTC) trading, transactions that were conveniently outside of regulators’ scrutiny. Five banks controlled 96 percent of derivatives activity, giving a few players decisive market power. And they were almost all betting on higher commodity prices. Not because they knew anything about weather forecasts and harvest projections for key corn-producing areas but because that was the way to bet. And the

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.