It is therefore particularly striking to me when a perceived evil action by some human agency is aimed directly at lowering the availability of food for profit. Or, in terms less stark, action by some human agency with the perceptible and likely consequence of lowering the availability of food while turning a handsome profit. The journal Foreign Policy recently devoted a full issue to food, and includes an article blaming Goldman Sachs for the current spike (or bubble, if you prefer, though the two sound incompatible) in wheat prices globally. These have added about 25 cents to the price of a loaf of bread in America, but have doubled that price in places like Indonesia, where the average percentage of household income spent on food is far higher than in America.
I am not an expert on financial derivatives, although as a worker in an industry that actually makes and exports things, I have a certain moral horror of (not to mention supercilious disdain for) business enterprises that make money from money, without serving any real purpose in capital formation. I am assuredly not against capital markets; but to me, derivatives are as parasites on the body of an industrial economy; nonetheless, I will defer that soap-box rant for another day.
So as I understand the substance of the FP article, two factors have been operative. First, in 1991, GS creates a commodities index product (GSCI), in which different commodities (hogs, soy , wheat, metals etc.) sliced and diced and re-assembled into a composite index. This didn't lead to much, until de-regulation entered the picture. From FP:
For just under a decade, the GSCI remained a relatively static investment vehicle, as bankers remained more interested in risk and collateralized debt than in anything that could be literally sowed or reaped. Then, in 1999, the Commodities Futures Trading Commission deregulated futures markets. All of a sudden, bankers could take as large a position in grains as they liked, an opportunity that had, since the Great Depression, only been available to those who actually had something to do with the production of our food.
Goldman's system was designed so that one can only buy; when time comes to roll over a futures contract it can't be sold short in a falling market. This creates an inevitable upward pressure on commodities prices, including food.
As other speculative bubbles (Tech, Real Estate) have burst, more and more money has flowed into commodities derivatives, hence we now find ourselves with a global food bubble -- not overly noticeable in the G7 perhaps, but disastrous in poorer countries.
So, am I being to hard on GS? pulling out the moral and rhetorical stops on them, and unleashing the impotent fire and brimstone of an obscure commentators, even whose friends are careful not to ask for the URL when this blog is mentioned conversationally?
Certainly there are countervailing opinions, by those who think that grain prices are responding rationally to the simple mechanics of supply and demand. On the evidence I disagree. Goldman has the global economic bit in its teeth, and is running wild. They are altogether unchastened by their recent escapes from annihilation in 2008; and God help us all if they are not brought under control.