Tuesday, June 07, 2011

soaring prices and starving children

One in seven of the world's population go to bed hungry every night. The cost of wheat and maize up around 70% in the past year. The surging cost of bread or beef around the world is unlikely to have just one cause but one of the answers to that question lies not in the farms of Queensland or the corn-belt of North America, but on Wall Street.

In 1991, investment bankers at Goldman Sachs in New York launched a new instrument: the Goldman Sachs Commodity Index. By bundling up 18 different staples – from coffee, cocoa, pork, wheat to oil and copper – the financiers offered investors a chance to take a punt on what were then relatively special-interest markets. Other banks such as Barclays got in on the act, but commodity funds remained a pretty small business – until the turn of the millennium, when two things happened. First, the US Congress rushed through a piece of legislation that permitted pension funds and others to invest in these new commodity indices. With the collapse of the dotcom bubble all of a sudden, badly-burnt fund managers were hunting for safe places to stow their cash. And what could be safer than investing in food? A sleepy, small market woke up with a start: back in 2003 fund managers had $13bn in commodities investing; by the middle of 2008 that sum was closer to $317bn.

The past decade has seen something remarkable happen: bankers and politicians in America and Britain have turned basic foodstuffs into something to bet on.

"Food markets have been turned into a casino," Joerg Mayer of Unctad said last week. "And for no other reason than to make Wall Street money."

Taken from here Link

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