Bilderberg bankers Goldman Sachs gamble on starvation

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?
http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-how-goldman-gambled-on-starvation-2016088.html
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."

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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."

http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-how-goldman-gambled-on-starvation-2016088.html

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