Wednesday, April 30, 2008


Now, a Commodities Conundrum
By Steven Pearlstein Wednesday, April 30, 2008; D01
The global financial system these days is beginning to look like a giant Whac-a-Mole game -- when we think we've knocked down one speculative bubble, another one just like it pops up.
The latest is the commodities bubble -- everything from oil and natural gas to gold, copper, wheat and rice. . . . . . The difference this time, however, is that even before it bursts, this bubble is causing economic discomfort for households and businesses around the world, and misery for hundreds of millions of hungry people who suddenly cannot afford a bowl of rice or scrap of meat. The Post's eye-opening series this week on the global food crisis has provided a grim reminder that the global economic ecosystem has become so interdependent that a drought in Australia, a tax credit in the United States, French farm subsidies and export controls in India can wind up forcing a desperate African farmer to eat his seed corn. . . . But what turned a bull market into a bubble was the sudden arrival of large numbers of new investors and an array of new investment vehicles, many of them involving derivative instruments traded outside the confines of regulated markets. . . Many of these were the same hedge funds and hot-money investors who had gorged on sovereign debt of developing countries, tech and telecom stocks, subprime mortgages and commercial real estate and now needed a new thing to focus on. . . To meet the needs of these investors, Wall Street and Chicago's commodities houses came up with all sorts of new vehicles, including exchange traded funds, index funds and structured investment vehicles -- the commodities equivalent of mortgage pools and asset-backed securities. . . . Indeed, the only people who don't believe speculation is driving a commodities bubble are the big commodity traders and the commodities exchanges, which are profiting handsomely from the soaring prices and trading volumes, and the regulators at the Commodities Futures Trading Commission, whose economists cannot seem to find statistical evidence that financial investors have had much of an impact on commodity prices.
--read entire article--
__________________________________________________________________ No conundrum here at all--just another ravaging of market systems by the hedge fund industry, which serves no basic need except to make the super-wealthy super-wealthier at the expense of anyone who gets in the way. Since the crash of '29, we've had lots of people 'getting in the way' of uncontrolled and unprincipled stock market activity. These include
  • The Securities Act of 1933
  • Securities Exchange Act of 1934
  • Public Utility Holding Company Act of 1935
  • Trust Indenture Act of 1939
  • Investment Company Act of 1940
  • Investment Advisers Act of 1940
  • Securities Investor Protection Act of 1970
  • Sarbanes-Oxley Act of 2002
For the 62 years since 1940 Congress has seen fit to enact only two regulatory laws, even though we are as far from 1940 investment-wise as we are computer-wise. We have child's building-block laws to control moon-landings.
Although (as is amply demonstrated by Pearlstein) the peak-wealth and peak-exposure to disaster are both concentrated in the relatively new (and entirely unregulated) hedge-fund industry, Congress has created not a single law to provide oversight.
Indeed, it's come time to say it. "I don't give a tinker's damn about investors."
I care very much about the health and welfare of the world financial system--and what these unregulated thieves have managed to do is lurch us from one financial bubble to the next, with hardly a pause for breath or prison terms. The dotcom bubble? The hurt was at a bearable level of pain. The housing bubble? The pain spread further down the food-chain to homeowners--the much heralded middle class, who found their values degraded by an anything-goes mortgage fraud.
That's twice in ten years, with devastating results.
Now--in this moment--the hedge-fund thieves, crooks and manipulators have contrived to invent another bubble before the last one has entirely burst. While Ben Bernanke and Henry Paulson muck about in the filth of a fraud that has not yet been completely understood (or prosecuted), the billionaire class has invented a new one.
The true evil of this unregulated system is evidenced by the viciousness of this new and improved greed by the haves against the have-nots.
If you find that language distasteful, try the distaste Likbir Mahmoud feels in a mouthful of bitterness;
(Washington Post) NOUAKCHOTT, Mauritania Even before he took a butcher knife to the she-goat's throat, Likbir Ould Mohamed Mahmoud knew it would only make things worse.
The goat was a living bounty in this parched city on the Sahara's edge, providing the sweet milk that filled his family's stomachs at breakfast time. But as soaring food prices worldwide have hit the poorest nations of Africa the hardest, he has been forced to join many of his neighbors in slaughtering or selling off one of their only sources of wealth -- their livestock.
By sacrificing the she-goat last month, the 39-year-old day laborer and goatherd traded the family's morning milk for dinner meat. It lasted a few days. With the family unable to afford skyrocketing prices for basic foods, he said, his two young children now cry in the morning from hunger.
Likbir doesn't make a hundred million a year, he makes a dollar and a half a day. Which would be fine, if the hundred-million dollar hedge-fund manager hadn't so screwed commodity prices that Likbir's purchasing power (if you can call a buck fifty a day power) is meaningless. As an American, I'm tired of my country devastating the world of others. I'm sick to death of Congress and the U.N. dithering around while markets fail, Mauritanians sell off their milk-goat and listen to their children cry and Wal-Mart destroys Main Street. Enough!!! Before they became entirely investor-driven, commodity exchanges smoothed out the bumps and crises of food-shortages. For hundreds of years we had an occasionally flawed (but mostly useful) investment-based stock market that built industries that built things, things America and the world needed. Since our founding, we had a banking system that (along with its own occasional shortcomings) actually knew the people to whom it lent money and judged their reliability as creditors. A hand-shake actually meant something and was not digitally encrypted. Hedge-funds do none of those useful things. Since the Harvard Business School made profit-mongers of us all, your banker no longer knows who the hell you are, your mortgage has been rolled out, sliced, coated with tomato-paste, baked in a derivative oven and packaged off to who-knows-who like pizza. We bomb other nations for profit, destroy agricultural systems for the same, patent the seeds that farmers can no longer keep for replanting and arm ourselves to the teeth because more and more, we have it all. Well, not exactly 'we' in the inclusive form, but certainly 'we' in the exclusive sense of 3% of Americans. For my part, I'm tired as hell of absolutely every American institution being sold off to the highest bidder. There's a lot of controversy about Reverend Jeremiah Wright's so-called black theology. The controverts, who divide us like chickens in a farmyard, are the same Bill O'Reilly, Rush Limbaugh, CNN, NYTimes investors--first in the profits of their divisiveness, second in the hedge-funding of those profits and third, in the wave they ride as the wealthy swell and the poor sink. Jeremiah Wright hasn't half said it--and the wrecked whites of America are beginning to hear his rhetoric and finally get it--that a boarded up Main Street and a Wal-Mart outside town are not the cornucopia they promised to be.