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From: wolda002@umn.edu
Date: Sun Feb 06 2011 - 20:11:53 EST
Published on Friday, February 4, 2011 by CommonDreams.org
Food, Egypt and Wall Street
by Robert Alvarez
The dramatic rise in food prices is fueling a great deal of discontent in
Tunisia, Egypt and elsewhere. It is a deep under current propelling many of
the poor, facing prospects of starvation to resort to the streets and to
violence. According to the United Nation's Food Agency (Food and
Agriculture Organization -- FAO) world food prices are up for the 7th month
in a row and are likely to remain close to the record high reached in
December 2010. There's no end in sight to this destabilizing battle with
food price inflation in places like Egypt, where more than half of an
average income goes for food. According to the U.S. State Department, more
than 60 food riots occurred worldwide over the past two years.
In March 2008, a dramatic spike in food prices led thousands of people on
the brink of starvation in Egypt to violently riot -- sending a seismic
shock wave through the Mubarak regime. After the Egyptian military was able
to distribute enough wheat to dispel the rioting, efforts to stockpile wheat
by the Mubarak government have failed, as food prices continue to hover at
record highs.
Many reasons are given in the media for this problem ranging from soaring
demand, cuts in food subsidies, droughts, and government mandates to use
more grain-based bio-fuel. But, another significant factor is at play:
unfettered speculation by investment banks. As noted in USA today, in 2008,
"the bulls may not be running on Wall Street, but they're charging in the
commodities pits."
http://www.usatoday.com/money/industries/food/2008-02-11-food-prices_N.htm
[1]
At issue are the still deregulated commodity markets ushered in by the
Clinton Administration and the U.S. Congress with the passage of the
Commodity Futures Modernization Act of 2000. Before this law, the Commodity
Futures Trading Commission (CFTC) served as a cop on the beat, enforcing
rules that prevent distortion of manipulation of prices beyond normal supply
and demand. But Wall Street Banks and companies such as ENRON, and British
Petroleum were determined to make a lot more money from speculation by
exempting energy-derivative contracts and related swaps from government
oversight. And so, the 2000 law allows entities that have no stake in
whether adequate amounts of food and fuel are available for ordinary people
and commodity-dependent businesses, to make huge sums of money by gambling
with other people's money.
Soon after passage of the 2000 law "dark" unregulated futures trading
markets emerged, most notably the Intercontinental Exchange (ICE) in London
-- created by Wall Street and European investment banks and several oil
companies. A key practice involves "over the counter index trading" in which
hundreds of billions of dollars of pension, sovereign wealth other
institutional funds are used to flood "dark" commodity markets to buy and
hold futures contracts without an expiration date or oversight. When it's
time to make money on a losing bet, these funds are withdrawn causing
commodity price crashes and economic instability. These transactions do not
involve customary "bona fide" commodity traders, such as an airline company
hedging on the price of jet fuel by purchasing futures contracts. As noted
by Michael McMasters, a prominent hedge trader before a U.S. Senate panel in
2008, this amounts to "a form of electronic hoarding and greatly increases
the inflationary effect of the market. It literally means starvation for
millions of the world's poor."
http://hsgac.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=3fe95f08-0b7d-45d0-94ea-4c4346c353de
[2]
Some world leaders are willing to speak out against the pernicious role of
"dark" commodity markets. Recently, French President Sarkozy warned of
further unrest and even war at the Davos forum, unless commodity speculation
is reined in -- something that is being fought bitterly by Wall Street and
Congressional Republicans. The Dodd/Frank Financial Reform Law places some
restrictions on this practice by the Commodity Futures Trading Commission
(CFTC). In particular, the CFTC is beginning the process of weeding out "non
bona fide" investment bank speculators. True to form, House Republicans
are demanding that the CFTC slam on the brakes and are planning hearings and
legislation to hamstring these efforts.
The spontaneous mass uprising of ordinary people in the Middle East against
their authoritarian regimes has many root causes. One that should receive
much greater attention is the unfettered speculation over food supplies by
powerful private financial institutions that could care less about
world-wide starvation and its impacts.
Robert Alvarez is a Senior Scholar at the Institute for Policy Studies and
served as a senior policy advisor to the U.S. Secretary of Energy from 1993
to 1999.
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