Bilderberg bankers Goldman Sachs gamble on starvation
tony at cultureshop.org.uk
Sat Jul 3 23:46:13 BST 2010
Johann Hari: How Goldman gambled on starvation
Speculators set up a casino where the chips were
the stomachs of millions. What does it say about
our system that we can so casually inflict so much pain?
Friday, 2 July 2010
By now, you probably think your opinion of
Goldman Sachs and its swarm of Wall Street allies
has rock-bottomed at raw loathing. You're wrong.
There's more. It turns out that the most
destructive of all their recent acts has barely
been discussed at all. Here's the rest. This is
the story of how some of the richest people in
the world Goldman, Deutsche Bank, the traders
at Merrill Lynch, and more have caused the
starvation of some of the poorest people in the world.
It starts with an apparent mystery. At the end of
2006, food prices across the world started to
rise, suddenly and stratospherically. Within a
year, the price of wheat had shot up by 80 per
cent, maize by 90 per cent, rice by 320 per cent.
In a global jolt of hunger, 200 million people
mostly children couldn't afford to get food any
more, and sank into malnutrition or starvation.
There were riots in more than 30 countries, and
at least one government was violently overthrown.
Then, in spring 2008, prices just as mysteriously
fell back to their previous level. Jean Ziegler,
the UN Special Rapporteur on the Right to Food,
calls it "a silent mass murder", entirely due to "man-made actions."
Goldman denies its collateral demands led to collapse of insurance giant AIG
Earlier this year I was in Ethiopia, one of the
worst-hit countries, and people there remember
the food crisis as if they had been struck by a
tsunami. "My children stopped growing," a woman
my age called Abiba Getaneh, told me. "I felt
like battery acid had been poured into my stomach
as I starved. I took my two daughters out of
school and got into debt. If it had gone on much
longer, I think my baby would have died."
Most of the explanations we were given at the
time have turned out to be false. It didn't
happen because supply fell: the International
Grain Council says global production of wheat
actually increased during that period, for
example. It isn't because demand grew either: as
Professor Jayati Ghosh of the Centre for Economic
Studies in New Delhi has shown, demand actually
fell by 3 per cent. Other factors like the rise
of biofuels, and the spike in the oil price
made a contribution, but they aren't enough on
their own to explain such a violent shift.
To understand the biggest cause, you have to
plough through some concepts that will make your
head ache but not half as much as they made the poor world's stomachs ache.
For over a century, farmers in wealthy countries
have been able to engage in a process where they
protect themselves against risk. Farmer Giles can
agree in January to sell his crop to a trader in
August at a fixed price. If he has a great
summer, he'll lose some cash, but if there's a
lousy summer or the global price collapses, he'll
do well from the deal. When this process was
tightly regulated and only companies with a
direct interest in the field could get involved, it worked.
Then, through the 1990s, Goldman Sachs and others
lobbied hard and the regulations were abolished.
Suddenly, these contracts were turned into
"derivatives" that could be bought and sold among
traders who had nothing to do with agriculture. A
market in "food speculation" was born.
So Farmer Giles still agrees to sell his crop in
advance to a trader for £10,000. But now, that
contract can be sold on to speculators, who treat
the contract itself as an object of potential
wealth. Goldman Sachs can buy it and sell it on
for £20,000 to Deutsche Bank, who sell it on for
£30,000 to Merrill Lynch and on and on until it
seems to bear almost no relationship to Farmer Giles's crop at all.
If this seems mystifying, it is. John Lanchester,
in his superb guide to the world of finance,
Whoops! Why Everybody Owes Everyone and No One
Can Pay, explains: "Finance, like other forms of
human behaviour, underwent a change in the 20th
century, a shift equivalent to the emergence of
modernism in the arts a break with common
sense, a turn towards self-referentiality and
abstraction and notions that couldn't be
explained in workaday English." Poetry found its
break with realism when T S Eliot wrote "The
Wasteland". Finance found its Wasteland moment in
the 1970s, when it began to be dominated by
complex financial instruments that even the
people selling them didn't fully understand.
So what has this got to do with the bread on
Abiba's plate? Until deregulation, the price for
food was set by the forces of supply and demand
for food itself. (This was already deeply
imperfect: it left a billion people hungry.) But
after deregulation, it was no longer just a
market in food. It became, at the same time, a
market in food contracts based on theoretical
future crops and the speculators drove the price through the roof.
Here's how it happened. In 2006, financial
speculators like Goldmans pulled out of the
collapsing US real estate market. They reckoned
food prices would stay steady or rise while the
rest of the economy tanked, so they switched
their funds there. Suddenly, the world's
frightened investors stampeded on to this ground.
So while the supply and demand of food stayed
pretty much the same, the supply and demand for
derivatives based on food massively rose which
meant the all-rolled-into-one price shot up, and
the starvation began. The bubble only burst in
March 2008 when the situation got so bad in the
US that the speculators had to slash their
spending to cover their losses back home.
When I asked Merrill Lynch's spokesman to comment
on the charge of causing mass hunger, he said:
"Huh. I didn't know about that." He later emailed
to say: "I am going to decline comment." Deutsche
Bank also refused to comment. Goldman Sachs were
more detailed, saying they sold their index in
early 2007 and pointing out that "serious
analyses ... have concluded index funds did not
cause a bubble in commodity futures prices",
offering as evidence a statement by the OECD.
How do we know this is wrong? As Professor Ghosh
points out, some vital crops are not traded on
the futures markets, including millet, cassava,
and potatoes. Their price rose a little during
this period but only a fraction as much as the
ones affected by speculation. Her research shows
that speculation was "the main cause" of the rise.
So it has come to this. The world's wealthiest
speculators set up a casino where the chips were
the stomachs of hundreds of millions of innocent
people. They gambled on increasing starvation,
and won. Their Wasteland moment created a real
wasteland. What does it say about our political
and economic system that we can so casually inflict so much pain?
If we don't re-regulate, it is only a matter of
time before this all happens again. How many
people would it kill next time? The moves to
restore the pre-1990s rules on commodities
trading have been stunningly sluggish. In the US,
the House has passed some regulation, but there
are fears that the Senate drenched in
speculator-donations may dilute it into
meaninglessness. The EU is lagging far behind
even this, while in Britain, where most of this
"trade" takes place, advocacy groups are worried
that David Cameron's government will block reform
entirely to please his own friends and donors in the City.
Only one force can stop another
speculation-starvation-bubble. The decent people
in developed countries need to shout louder than
the lobbyists from Goldman Sachs. The World
Development Movement is launching a week of
pressure this summer as crucial decisions on this
are taken: text WDM to 82055 to find out what you can do.
The last time I spoke to her, Abiba said: "We
can't go through that another time. Please make
sure they never, never do that to us again."
+44 (0)7786 952037
"Capitalism is institutionalised bribery."
"The maintenance of secrets acts like a psychic
poison which alienates the possessor from the community" Carl Jung
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