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Lindsay Newland Bowker

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Commodities Speculation: A Cause of Food Crises? A Crime Against Humanity?

An important and credible new study, discussed at length in a recent Scientific American Article, seems to have penetrated all the hype and confusion about derivatives and about the causes of the food crises world wide that have caused famine, death, and revolt.:

http://necsi.edu/research/social/foodprices.html

The study concludes that ethanal has indeed been a major factor but also that the role of commodities market speculation is undeniable.

American and EU central banks and the biggest EU and American Banks are firmly commited to derivatives and resolutely opposed to any regulation, to any clearing houses or any changes that would fundamentally alter the current global free market in derivatives. Derivatives are an essential tool in global risk management, but if this studyis true are we allowing a systemic crime against humanity in not making least those corrections that would remove price distortions.?

Recently 10 ordinary game geeks with no background in scince and medicine solved a very complex problem in the study of HIV. . Can we do that here a TED conversations with this very important question?
Can we go beyond opinion, go beyond what we each already possess in expertise and knowldedge and become together here a global citizens collaborative seeking to understand and offer meaningful solutions to this truly critical global problem?

Can we become a collaborative of investigative journalists seeking the truth and bringing it here via links with commentary?

I think we can and I am proposing that we try. A monumental undertaking for anyone person but I believe the answer is out there in work that has alreday been done and published on the web. I think we as global citizens without a clue about global markets and murky mysteries of derivatives can penetrate this truly critical question. Can offer solutions the experts haven't come up with . I think its a great way to support Occupy Wall Street and use TED.

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    Oct 3 2011: In 2002 Mr.Alan Greenspan (former Federal Reserve chairman) described derivates as weapons of mass destruction for financial system.

    but derivates are also good tools for hedging the risks but it should be totally banned for speculations which is gambling.

    It is the responsibility of regulatory bodies to regulate these instruments & put limits on it. otherwise the dealers will take maximum risks to maximize their return ignoring the risks it exposes to financial system..
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      Oct 3 2011: Hi Rafi! I am glad you brought your insights to the discussion.

      I feel that It is entirely fictional to claim that derivatives have any real tangible value or perform any kind of wealth generation. Wall ST. perpetuated this fiction and it is also fictional that Wall Street is able to value these things or price them accurately. A bookie could do a better job. But thanks to Wall Street’s lobbying power, they’ve become the centerpiece of the financial markets.

      As early as 1998, soon to be chairperson of the Commodity Futures Trading Commission (CFTC), Brooksley Born, approached Alan Greenspan, Bob Rubin, and Larry Summers (the three heads of economic policy) about derivatives. She said she thought derivatives should be reined in and regulated because they were getting too out of control. The response from Greenspan and company was that if she pushed for regulation, the market would implode. The following article will tell you the whole story.

      http://www.washingtonpost.com/wp-dyn/content/article/2009/05/25/AR2009052502108.html

      Brooksley Born was not the only one trying to get Greenspan (a follower of the Ayn Rand school of philosophy) to see reason. There was another man who was trying mightily to let in the light of fact. His name is William White and you can read about that here:

      http://www.spiegel.de/international/business/0,1518,635051,00.html
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        Oct 3 2011: Hi Debra,

        Thanks for this. Over the 10 years I was on the NYS Baning Board the pressure was clearly there for banks to be able to get into the derivatives market.They were just itching to repeal Glass Stegal which had kept our banking system safe and sound and harnessed to financing economic growth for decades by separating banking from speculation..i.e. what goes on in the stock market or even the bsuiness of insurance. The business of banking was supposed to be about providing liquidity and funding for business growth through sound loans and lines of credit to smooth out cash flows and provide funds for investment in new technology, new physical plant, business expansion. That was also always the function of investment banks, howver investment banks were allowed more leeway as they are using all private capital..no consumer or business deposits.

        I totally tuned out of banking from the time I resigned the Banking board in 1997 until the crash. Catching up of late and in particlra reading lots of insider source documents like papers and advisories from EU and US central banks, I can see that derivatives are firmly and irrevcoably part of our global financial system. They are here to saty. I am also seeing that they do have many useful and essential functions that do stabilize market functions and do serve market fundamentals.

        Well put in an October 2010 study by the Wolrd Development Movement:

        "Speculation on commodity markets is sometimes referred to as ‘investment’, but it is nothing
        of the sort. Buying commodity derivatives is attempting to skim money from a notional value of
        outputs from the ‘real’ economy. It is not investing capital to increase production.
        Of money spent on commodity derivatives, not £1 is invested in increasing commodity
        production. "

        http://issuu.com/stevebutton/docs/hunger_lottery_report_6.10
        .
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          Oct 3 2011: HI Lindsay, I need to learn more about what you know regarding the useful and essential functions of derivatives that serve to stabilize market functions. Can you send me to more source readings please?
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        Oct 3 2011: Debra, a few more thoughts that are more centered on the core issue of your comment on the role of derivatives in the economy..globally and for each nation. I am learning side by side with you and others here.

        What I see in the source documents of the FED and EU central banks, in the industry insider source documents is that the original intent and urpose of derivatives is to provide a sort of global, privately financed risk management system..pooling the many different kinds of risks associated with a specific real wolrd transaction or type of transaction. That makes sense to me and as I begin to explore Central bank weddedness to derivatives I am beginning to see what derivatives are supposed to do andnow that i understand a bit about "notional value" I am not feeling as panicky as I was about the $1.5 quadrillion derivatives bubble."

        For example ( and maybe not a good one as I am just beginning to grasp all this).

        A company wants a $1million loan ina sector that his bank specializes and with which the company has had a long term credit relationship..but the bank's portfolio won't have the diversification it needs if it gets over exposed in the company' sector ( or over exposed to that one customer)..through the derivatives market which pools that amongst pivate parties.The "notional value" added on the derivatives side is $1million but the expectation is that the company won't default (like insurance); the expectation is the derivatives contract will never settle..like insurance..we pay our premiums year after year..no losses. A fee is paid to the entity taking the risk and the fees are the real income. That same bsuiness plan may generate risk demand that is many times the value of the project as each risk is separately absorbed at the full value of that risk.

        I'll try to bring some links.
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          Oct 3 2011: I guess I do understand that the first level derivatives perform the function of insurance and no one really objected to this use. It went to extreme insanity though as it got further and further from being linked to any original or tangible asset. Do you see this as the problem as well?
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        Oct 3 2011: Debra.

        We all need to learn more..me too. if we are going to take a crack at coming up with a meaningful contribution on whether speculation drives food prices.

        We need to understand what derivatives are supposed to do and why central banks are so resistent to any tinkering via clearing houses, regulation etc .My post below ( we must have been writing to each other at the same time) is a very crude effort to explain what I am beginning to understand on that side. One of the best explanations with examples that I saw is a regional Federal Reserve document. In general most of the "pro side" on which resistence to any change is based is found in these industry source documents.

        The issue with food is that the FED and EU central banks simply seem to have turned a deaf ear to what appears to be very persuasive evidence, and even insider acknowledgment ( did you see the quotes I posted this morning in reply to another commenter?) of price distortions that are not rooted in real market conditions.They have drawn such a tight circle around any attempts to oversee, regulate or limit the derivatives market in any way that they simply aren't willing to take a focsued look at the food issue and what might alleviate price distortions there

        .It is my understanding that commodities are a small part of the "notional value" of derivatives and food even tinier and I have seen references from reputable economists suggesting that the price effect of speculation on food derives from thevolume of derivatives $ in comparision to the overall size of the commidities market... that it overwhelms the underlying market funadmentals. This may not be true of other sectors and may be a reason the FED and central banks have been deaf..because they haven't looked at that aspect. Maybe that's the key ..getting the fed to see that deriivatives in the commodities sector do drive price.
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        Oct 3 2011: Debra,

        In further answer to your question I did find one of the source documents I though was very interesting by the Federal Resrve Bank of Cleveland dated July 2010:

        http://www.clevelandfed.org/research/commentary/2010/2010-6.cfm

        It's interesting because it lays out in pretty simple terms why central banks (ours and the EU)are so hot on derivatives. with some excellent and persuasive example.

        More interesting than that, in terms of trying to undertsand why central banks and market regulators are not willing to listen on the link between market speculation and food prices this memo shows where their focus really is..what they are really thinking. Their only concern about erivatives, and I think this runs through ost of the "insider" white papers on derivatives..is its vulnerability to systemic failure..caused by and sell offs. In this paper and a many others they also seem concerned about the lack of data on where these derivatives are in the markey making hard to anticipate or forecast and respond to things that might go wrong.

        So far I haven't found any "insider sources" that are even internalyl responding to the issue of the link between speculation through derivatives and the price of key commdities like food and oil. It eally seem to be a deaf ear. My sense from central bank and insider source documents is they totally dismiss, pay no attention to anything that suggests a causal relationship between food prices and speculaion.
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      Oct 3 2011: Rafi

      ,Nice to meet you and thanks for joining our collaborabitive search for truth on this issue of whether speculation in commodities markets distorts prices above market fundamentals. Your Alan Greenspan quote is correct and well documented. He was the architect of the free market global structure on which derivatives have thrived and grown. Testifying before Congress right after the 2008 mortgage crisis was made public Greenspan admitted that he was wrong about markets self regulating to a level that serves the public interest. There was continual pressure from many sectors, in particular NGO's working to eradicate hunger and poverty, to protect the world's food supplies from the prce impacts of speculation. It was princpally Greenspan's assurance that Central banks,regulators and legislative bodies relied on. He admitted he was wrong.

      Thank you for the wonderfyl link on William White..a Central Bank insider who is telling the truth. But there is still almost immutable resistance from the Federal Reserve , the financial services sector and conservative elected officials to consider any restraints or additional oversight at all in the derivatives market. I have been reading original source documents including thise of the Fed and EU central banks . It is clear they are completely committed to derivatives.In commodities the main derivatives market is in index funds.price futures and most typically in hedge funds which co mingle food commodities with others like oil, silver and gold. The original intent of the commodities market was to fund and facilitate investment in production aand distribution of essential natural resources..to stablize and eliminate volatility from food markets. The problem with derivatives is they are not actually providing any liquidity that serves production and by swinging in and out markets causing volatility. The problem is derivatives aren't hinged to real supply and demand ..
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        Oct 4 2011: Nice to meet you too Linda. Thank you for your useful information.

        Beside from what you said, today banking has gone to far from its basics. what is your idea on this ?

        I,m referring to products like CDS & etc.
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      Oct 3 2011: Rafi then we need weapons for mass construction.
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        Oct 4 2011: Yes of course we need it. but we have to be careful otherwise someone will come & invade us.
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        Oct 7 2011: In Loving Memory of you friend Luigi.

        .thank you for your courage and your light..for your love of truth, for your wisdom

        .Light Into Light.

        .Farewell

        Deepest sympathy to our TED friends who were closest to Luigi in life, for decades, and who brought him to us..Jaime, Andrianna, Conte & Baronessa. We stand with you in your grief and in your loss.
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      Oct 8 2011: Rafi the real revolutions are done with instruments and tools, not with weapons. Of course we also need intelligence, creativity and sensibility to build a mass construction...as Luigi said.

      The economy has a lot of shadows an masks, but if we defined the economy from the ethics, we found the real essence: Sharing with justice the proofit that we deserve from our actions.

      Today we are in confussion about. We think economy as money economy. And this is wrong focus
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        Oct 9 2011: Hi Jaime, thank you for the comment & I totally agree with you. The comment of Luigi above is one of his last three comments on TED.Com. I pray for his soul to be in peace.

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