02.02.11

MSNBC’s Ed Show entertains idea that US business threatens national security

Posted in Imminent Catastrophe, Satan's Bank, Stumble and Fail at 10:03 am by George Smith

Last night’s Ed Show on MSNBC featured an extended riff on Wall Street speculators and the price of food worldwide. It linked this — using financial giants Goldman Sachs and Merrill Lynch — repeatedly. (Follow the link, click on the tab for “Speculation wreaks global havoc” — if interested.)

Host Ed Schultz linked it all to riots, which start out as protests over food pricing, in the Middle East, specifically in Tunisia and Egypt.

The upshot, which was posed as a question for viewers to answer at the bottom of the screen was this: Does US business represent a threat to national or world security?

For the thrust of the segment, the implicit answer was yes.

Schultz brought in Dylan Ratigan to discuss this and the latter wasn’t ready to go along with the supposition. Ratigan averred, however, that it was a complicated story, one in which Wall Street speculation played a part.

DD isn’t going to embrace the idea but it does again bring up the question I’ve discussed over the past year. (See here, in my last posting for 2010.) And Paul Krugman has devoted a bit of time lately to discussing commodity prices and worldwide fluctuation in the same without mentioning speculators.

But that this idea has now shown itself at a mainstream media outlet, albeit one that’s increasingly hitched its fortunes to viewers from the center left, is still quite startling.

In any case, I’ve made posts over the past couple of years where, demonstrably, US businesses have threatened US security. Most notably, from large agribusiness, via the examples of mass food poisonings written off as an acceptable cost to the industry. For example, it’s just a fact now that US agribusinessmen have proven to be better at distributing disease than bioterrorists.

And in a much broader sense, the worldwide economic collapse brought on by Wall Street has had grave implications, causing instability and suffering, and consequent problems for security, worldwide.

Schultz’s segment, reprinted and cleaned up a little from here, approaches the same conspiratorial tone the mainstrean usually likes to laughingly dismiss as the property of cranks and crackpots:

Yemen and Tunisia have also had mass protests. They’re all autocratic, majority Muslim nations, but they’re not all oil states. Tunisia is mostly secular.

So what else do these countries have in common?

One thing is high food prices, a factor in how all the riots really started and how all of it started. And it’s not a coincidence that all of them have high food prices right now.

Food prices have skyrocketed around the world and a big reason for that is Wall Street.

It started in 1991 with surprise, surprise Goldman Sachs.

Before then, wall street speculators played only a minor role in food prices. The way it worked food companies and their suppliers, america’s farmers, wanted to keep their business stable. Even if prices spiked for wheat, corn, or other agricultural commodities.

So they’d hedge their bets, signing contracts, futures, to lock in prices for some point in the future.

Speculators helped, putting enough money in the system to keep things liquid.

After the depression, FDR saw that speculators could drive up the price of wheat, corn, whatever, by betting on commodity futures the way Wall Street later bet on dot coms.

Distorting food prices like that could destroy the very stability future contracts were created to provide so FDR signed into law what are called position limits — limits on how much of the total betting could be done by wall street.
And what do you know it worked.

For decades the price of wheat was driven by fundamentals like the weather and Wall Street couldn’t stand it.

In 1991, Goldman Sachs asked the commodity futures trading commission, the CFTC, to give them a waiver on those position limits, so they could bet as much as they wanted.

A CFTC appointee for the first president bush said sure.

More than a dozen other firms followed suit.

Goldman Sachs even created commodities indexes. To simplify the betting and goose casual investors into the casino. Again, Wall Street followed suit.

Remember the real estate bubble?

Wall Street wanted to hedge all of those bets it made on mortgages.
So they ramped up their bets on commodities.

And when Wall Street started losing money on sub primes, they bet it on commodities instead.

By 2008, Wall Street had five times more futures contracts in commodities than it did in 2002.

Commodity indexes held about $13 billion in 2003.

By 2008 it was over a quarter trillion.

That’s how we got the oil bubble.

And record high gas prices added to the cost of shipping food plus speculators looking for another bubble, and you get a food bubble.

Estimates speculators held 65% of corn futures’ contracts, 68% Of soybean, 80% of wheat. By mid 2008, the IMF food price index jumped more than 80% in just a year and a half before.

It was the first time in history the proportion of people going hungry worldwide went up.

The number of chronically malnourished people rose by 75 million in 2007.

40 Million in 2008.

That’s why Egypt had riots back in 2008.

Along with 30 other countries, Italian moms marched against the price of pasta. Wall street speculators admitted they were doing it.

In 2006 Merrill Lynch said speculation accounted for 50% of the price of commodities. Half the price.

In 2008 a Goldman Sachs research paper said, quote, without question, increased fund flow into commodities has boosted prices.

2009 — even Republican senator Tom Coburn admits the speculation, quote, helped to inflate futures prices and there by disconnect futures from cash prices impairing farmers’ and grain elevators’ ability to hedge price risk.

Even Coburn said there was so much Wall Street money distorting prices that farmers and other guys who actually need commodity futures couldn’t use them to keep their companies stable anymore.

We don’t notice price hikes so much because most of our food prices come from marketing and packaging.

But in the developing world, the price of food is everything.

And what country imports more wheat than any other?
Egypt.

Where the price of wheat rose 70% last year.

Last summer Goldman called a report on the role of speculation in food prices, quote, misleading and blamed other factors.

A lot of reports mentioned that Russia cut off its wheat supply last year. What they don’t tell you is why. Because futures traders asked them to.

And, of course, there’s always a reason to promote Let’s Lynch Lloyd Blankfein.

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