How Goldman gambled on starvation

cavedave

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

t 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....

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

from here.

Does speculation on food prices cause famine? Is banning speculating on food prices a good/bad idea and why?

cavedave

Ok seeing as no one has answered it seems claim of millions of people dying due to financial betting is of no interest to economics. But just in case it is relevant I will try answer the claims

1. In Reminiscences of a Stock Operator

When this process was tightly regulated and only companies with a direct interest in the field could get involved, it worked.

this is written about the 1910-20's. He bets on food. He did not have a direct interest in the field. So claims that modernism caused non foodies betting on food are false.

2. What is the alternative? how bad could things be if farmers could not hedge their bets with futures

3. How would you stop people with a 'direct interest' betting? Could Goldman buy a small farm to give them an interest. How would you judge 'direct interest;

4. What unintended consequences could come from banning speculation?

nesf

You're probably not getting a response because there's little meat in that article. The author claims the price rise was due to speculation but offers no explanation of why that's the case.

Time Magazine

nesf wrote: »

You're probably not getting a response because there's little meat in that article.

Badum tish.

silverharp

in the short term there might be local disruptions at the peak of a bubble. Remember in 08 when rice amongst other commodities were sky high, people started hoarding and there were near riots in certain third world cities.
Then there were the idiotic ethanol subsidies in the US wich hoovered up all the cheap corn which didnt go down well south of the border
I wouldnt blame GS though, the big pension funds started piling into commodities where they had no place to be. At the same time commodities were a legitimate investment class for the last decade given US monetary policy and it will have helped to bring on production if the market was demanding the output. As the saying goes the best cure for high prices is high prices.