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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: Basic information on derivatives for laymen:

    In plain terms, derivatives are THE cause of the Financial Crisis. They are behind EVERY failure/ default that has occurred. Almost no one is willing to address this issue or include it in the discussion of how to insure we don’t have a Second Round of the Crisis confirming the fact that no one has a clue how to resolve this situation.

    If you add up the value of every stock on the planet, the entire market capitalization would be about $36 trillion. If you do the same process for bonds, you’d get a market capitalization of roughly $72 trillion.
    The notional value of the derivative market is roughly $1.4 QUADRILLION.
    $1.4 Quadrillion is roughly:
    -40 TIMES THE WORLD’S STOCK MARKET.
    -10 TIMES the value of EVERY STOCK & EVERY BOND ON THE PLANET.
    -23 TIMES WORLD GDP.
    What’s a derivative?
    Derivatives are securities whose value is “derived” from an underlying asset (a mortgage, credit card debt, etc). A derivative is NOT an asset. It’s, in reality, nothing, just an imaginary security of no tangible value that banks/ financial institutions trade as a kind of “gentleman’s bet” on the value of future risk or securities.

    In laymen’s terms derivatives are merely bets without any real value. It amounts to a gambling bet about whether your neighbour will default on the payments for his house. AND it is absolutely UNREGULATED.

    They are not just on mortgages though, they can be on a wide range of things that financiers do not want to bother going to Las Vegas to gamble on. There is no derivative clearing house. No official report explains the risk or actual value of these things and the notional value of the derivatives market is not the same thing as the actual "at risk" money underlying these securities.
    It is entirely fictional to claim that these things have any real tangible value or perform any kind of wealth generation.
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      Oct 5 2011: Debra, derivatives are not the only cause behind the financial collapse. The deregulation of derivatives certainly played a huge factor to the collapse, but there were other issues at play. I also don't agree with Lindsay about derivatives being necessary. A good analogy for the evilness of derivatives is with the credit default swap derivative agencies like AIG - Imagine you buy a house. You need insurance on that house. In the world of derivatives, hundreds of other people could also take insurance out on your house that they purchase through a company like AIG. Now if your house burns down, the number of losses in the system becomes proportionately larger. Since CDOs (Credit default swaps) were unregulated, companies like AIG didn't have to set any money aside to cover losses. Instead they took the money from speculators and shoveled out bonuses to the top brass (over 9 billion dollars in 2007 just in AIG) as soon as the contracts were signed. But if the CDOs later went belly up (when your house burns down), the insurance company would be on the hook to pay up to the speculators. They couldn't. These people were taking massive risks with money they didn't manage properly. During the bubble , AIG's financial products division in London produced almost 1 trillion (thats 12 zeros) in credit default swaps, many that were backed by subprime mortgages. These are the kind of heinous and immoral business practices that screwed the global economy over and made a few people very very rich.
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        Oct 5 2011: Thanks TED for your perspective. I am always eager to learn. Can you tell me more? Can you tell me if you think that the financial collapse and the immoral behaviour of places like AIG and others would have been possible if it had not been for the repeal of the Glass Stegall Act in the USA? Canadians fared far better in the melt down because we still had stodgy old laws that kept our most ambitious, most creative banking imaginations in their cages to the great relief of all of our citizens.
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          Oct 5 2011: What a great question. Just a frame of reference for people not so well versed in economic policies: The Glass-Steagall Act was an act passed by Congress in 1933 that prohibited commercial banks from collaborating with full-service brokerage firms or participating in investment banking activities.

          To answer your question, no I don't think it would have been near AS possible. The repeal of Glass-Steagall though, was a finality to a chain of events set in motion in the 70s. Then, in the 80s, under the Reagan Administration, we saw implementations of policies that would ultimately lead to the repeal of the Glass-Steagall Act in 1999. This corruption in American economics is bi-partisan and spreads throughout the government on both sides of the political spectrum and is pushed by special interest groups with their hands in the pockets of virtually everyone on Capital Hill. It is the consequence of misinformation and fraud...and stupid Americans who vote against their own self interests. America is an optimistic and naive society that falls into the sack easily when one liners and pithy little maxims are whispered into its ear.

          I've always respected Canada, and thought America should be taking some cues from its northern neighbor. But when you think about it, America is usually last on board for moral social movements like say, abolishment of slavery, equal rights for women, equal rights for all races, tolerance of homosexuals, health insurance for everyone, etc etc. It doesn't surprise me that no ques are taken from Canada. Americans tend to take a condescending view of anyone other than themselves.
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        Oct 6 2011: HI Ted, I loved the depth of knowledge evident in your answer.

        Even so, I just cannot agree that the American people are stupid. I see them as optimistic and trusting, not stupid. Never was there as trusting a society as is depicted in the 1930s and 40s movies. I watched one the other day with Doris Day called "It happened to Jane." In it, direct democracy prevailed in a town on the eastern seaboard of the USA. Who knew Doris Day would play a radical who fought a railroad corporation to its knees through protest, media and the courts? Who KNEW that Doris Day would lead by example for a protest movement 70 plus years later?

        We should all be able to trust that our educational institutions will not teach us absolute falsehoods where it comes to money, that our governments will tell us the truth and that our societies will not be high jacked by organizations that combine the military and industry in ways that will ultimately make our country and other countries less secure.

        The American people did not deserve tyranny and debt slavery in exchange for trust. One of the things we are all learning is just why the revolutions against elites have taken place over the centuries. It seems that the unmitigated greed of the upper crust in almost every society gets beyond the ability of the masses or trusting people to ignore and they shake up the tail that wags the whole dog- sometimes violently but occasionally nonviolently. Let's hope this crop of elites has the good sense to bow to the realities of our situation and that those who believe in Ghandi's ways prevail.

        No, the blame for those things does not belong to the victims but to the criminals who perpetrated this fraud and this crime against the nation and the world economy. It is not too late to make it right. I hope this batch of elites makes it easy on themselves and the rest of us and not only steps aside but puts back some of their blood money so that more people do not starve or lose their homes.
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          Oct 6 2011: Well, we could argue just on the grounds of whether the majority of Americans are stupid or not, but that's a pointless and speculative argument. I want to be optimistic I really do, about education, about economics, about politics, about almost everything. Then I step outside. There;s no denying in my mind that evilness has taken control of the world. From this awful food distribution, to the rich stealing money from the poor, to religious fanaticism that hasn't been so violent in nature and theme since the Protestant Reformation...the list goes on and on. It seems with this illusion of money comes the will to bring harm to other people. Rousseu once said "The first person to stake out land was the beginning of pestilence and war." There are many great things about the human race. May of us are compassionate, caring, empathetic, and loving. But one thing has always been the most negative overall trait...greed. Right now there's so much unchecked greed happening, it's causing even more death and oppression than it ever has. John Locke believed that every human was virtuous and believed in small civil governments and a three branch system that inspired Thomas Jefferson and his buddies to adopt those very ideas in the experiment we now today call America. There were those (see Adam Smith) who realized our system of trading self interests had the potential to produce great harm and devastation to the world if the greed of that system was not properly handled. It wasn't. What we see now is an intentional dumbing down of society, not by an individual entity hellbent on domination, but by industries as a whole to make it easier to spread misinformation and suppress rebellion. It may sound far-fetched and conspiracy theory like but all one has to do is step back and take in the gravity of everything that's happening almost all at once. I see big things happening that will shape our world in ways we can't yet fathom. The question is, who will stand up and fight for it?

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