How Goldman Sachs Created the Food Crisis

**Big Smoothy** · 04-30-2011, 11:45 PM

I've read about American Quantitative Easing causing inflation and affecting world inflation and rising food prices around the globe.

But a derivative based on the food commodities? Originating in Wall Street.

If merit to this, the cancer of Wall Street greed, must be gotten rid of.
---How Goldman Sachs Created the Food Crisis

Don't blame American appetites, rising oil prices, or genetically modified crops for rising food prices. Wall Street's at fault for the spiraling cost of food.

BY FREDERICK KAUFMAN | APRIL 27, 2011

Demand and supply certainly matter. But there's another reason why food across the world has become so expensive: Wall Street greed.

It took the brilliant minds of Goldman Sachs to realize the simple truth that nothing is more valuable than our daily bread. And where there's value, there's money to be made. In 1991, Goldman bankers, led by their prescient president Gary Cohn, came up with a new kind of investment product, a derivative that tracked 24 raw materials, from precious metals and energy to coffee, cocoa, cattle, corn, hogs, soy, and wheat. They weighted the investment value of each element, blended and commingled the parts into sums, then reduced what had been a complicated collection of real things into a mathematical formula that could be expressed as a single manifestation, to be known henceforth as the Goldman Sachs Commodity Index (GSCI).

For just under a decade, the GSCI remained a relatively static investment vehicle, as bankers remained more interested in risk and collateralized debt than in anything that could be literally sowed or reaped. Then, in 1999, the Commodities Futures Trading Commission deregulated futures markets. All of a sudden, bankers could take as large a position in grains as they liked, an opportunity that had, since the Great Depression, only been available to those who actually had something to do with the production of our food.

Change was coming to the great grain exchanges of Chicago, Minneapolis, and Kansas City --which for 150 years had helped to moderate the peaks and valleys of global food prices. Farming may seem bucolic, but it is an inherently volatile industry, subject to the vicissitudes of weather, disease, and disaster. The grain futures trading system pioneered after the American Civil War by the founders of Archer Daniels Midland, General Mills, and Pillsbury helped to establish America as a financial juggernaut to rival and eventually surpass Europe. The grain markets also insulated American farmers and millers from the inherent risks of their profession.

The basic idea was the "forward contract," an agreement between sellers and buyers of wheat for a reasonable bushel price -- even before that bushel had been grown. Not only did a grain "future" help to keep the price of a loaf of bread at the bakery --or later, the supermarket -- stable, but the market allowed farmers to hedge against lean times, and to invest in their farms and businesses. The result: Over the course of the 20th century, the real price of wheat decreased (despite a hiccup or two, particularly during the 1970s inflationary spiral), spurring the development of American agribusiness. After World War II, the United States was routinely producing a grain surplus, which became an essential element of its Cold War political, economic, and humanitarian strategies -- not to mention the fact that American grain fed millions of hungry people across the world.

Futures markets traditionally included two kinds of players. On one side were the farmers, the millers, and the warehousemen, market players who have a real, physical stake in wheat. This group not only includes corn growers in Iowa or wheat farmers in Nebraska, but major multinational corporations like Pizza Hut, Kraft, Nestlé, Sara Lee, Tyson Foods, and McDonald's-- whose New York Stock Exchange shares rise and fall on their ability to bring food to peoples' car windows, doorsteps, and supermarket shelves at competitive prices. These market participants are called "bona fide" hedgers, because they actually need to buy and sell cereals.

On the other side is the speculator. The speculator neither produces nor consumes corn or soy or wheat, and wouldn't have a place to put the 20 tons of cereal he might buy at any given moment if ever it were delivered. Speculators make money through traditional market behavior, the arbitrage of buying low and selling high. And the physical stakeholders in grain futures have as a general rule welcomed traditional speculators to their market, for their endless stream of buy and sell orders gives the market its liquidity and provides bona fide hedgers a way to manage risk by allowing them to sell and buy just as they pleased.

Entire: How Goldman Sachs Created the Food Crisis - By Frederick Kaufman | Foreign Policy

**LAM** · 05-01-2011, 12:32 AM

wall street strikes again cutting into the pockets of the working class while they rake in profits.

Paul Ryan the new GOP wonder boy wants to defund the new Dodd-Frank financial-regulatory legislation, cutting all funding to the CFTC and SEC. basically there would no over-site at all of the deravites markets.

Wall Street can do whatever they want, tank the markets and recover from borrowing monies at low rates from the FRB.

Wall Street can do whatever they want, tank the markets with the repeal of Glass-Steagal Act WS banks have once again been allowed through legislation to become to big to fail their losses will again be socialized into the working class the next time the market crashes.

**withoutrulers** · 05-01-2011, 01:09 AM

Matt Taibbi: Griftopia

**ROID** · 05-01-2011, 06:02 AM

I read somewhere that high level bankers and traders have the same tendencies as sociopaths.

**withoutrulers** · 05-01-2011, 06:14 AM

Originally Posted by ROID

I read somewhere that high level bankers and traders have the same tendencies as sociopaths.

This is true of all ruling class elites. The only way to rise to the top is to disregard the interests of those around you.

**millertime** · 05-01-2011, 09:14 AM

we are using food for fuel whats nexts using poor people for fuel

**Big Pimpin** · 05-02-2011, 10:08 AM

Greedy Jewish investment bankers, hedge fund managers and traders. Imagine that.

**Irishman012** · 05-02-2011, 10:28 AM

At least now, since the recent crash in the economy, people are paying attention. This partnership between the SEC and Wall Street is what allows and fosters our current system of greed and even criminal trading practices. The laws have changed in the last decade to allow those in the know, and those who are sworn to watch them and protect the little guy, to work together to make fortunes overnight. Energy of all kinds, futures that are make believe, real estate that is inflated, food that is artificially over-priced, all bundled to your 401k. Your fund manager buys it, it does well for a while, then it's repackaged and resold, with more worthless and inflated crap added. When it tanks, the fund managers magically sold off all there holdings the week before. Want to change this system, change the politicans who allow it to happen.

**quadluver** · 05-05-2011, 09:35 PM

For most all U.S. crisis, man-made, you will find that the Sachs is somehow involved. This is true fact.

**LAM** · 05-05-2011, 09:59 PM

Originally Posted by quadluver

For most all U.S. crisis, man-made, you will find that the Sachs is somehow involved. This is true fact.

Goldman Sachs caused the stock market crash in the 1920s and is the reason why the idea of the FRB was sold to the American public. since they and the rest of wallstreet can always fall back on the FRM they will continue to cause economic crisis in their quest for greed and ever increasing dividends on shares.

the last crash depleted the net worth of middle america by about 50%, that money will never be recovered. the net worth lost on wallstreet was recovered in months.

just like in criminal justice when they say "a paper trail will land you in jail" in terms of economics all you have to do is follow the money trail or high stocks in the exchange.

I have to find the quote and I'm not going to say who said it but it was recent. A member of the House basically stated that they are there to serve the banks.

**Dale Mabry** · 05-06-2011, 04:53 AM

Originally Posted by withoutrulers

This is true of all ruling class elites. The only way to rise to the top is to disregard the interests of those around you.

"It's called taking advantage, it's how you get ahead in life."

-Gob Bluth

**Big Smoothy** · 05-06-2011, 06:55 AM

Originally Posted by LAM

Goldman Sachs caused the stock market crash in the 1920s and is the reason why the idea of the FRB was sold to the American public. since they and the rest of wallstreet can always fall back on the FRM they will continue to cause economic crisis in their quest for greed and ever increasing dividends on shares.

the last crash depleted the net worth of middle america by about 50%, that money will never be recovered. the net worth lost on wallstreet was recovered in months.

just like in criminal justice when they say "a paper trail will land you in jail" in terms of economics all you have to do is follow the money trail or high stocks in the exchange.

I have to find the quote and I'm not going to say who said it but it was recent. A member of the House basically stated that they are there to serve the banks.

Brilliant post, LAM.

The part in bold is quite disturbing. I don't doubt your stats, as your sincere and knowledgeable.

I forgot what FRB is. What is, FRB?

Thanks.

**LAM** · 05-06-2011, 06:59 AM

federal reserve bank

what sucks is that wall street and other markets, etc. use various physiological techniques to basically exploit humanity. wall street "offers" delusions of wealth to the masses but when you do the math the average person whose only source of income comes from wages does not have that opportunity. there simply isn't enough disposable income left after living expenses, etc. and not enough years in the lifetime.

the folks on wallstreet that came up with the idea of gambling with the majority of the net worth of the middle class via residential mortgage backed securities (RMBS) should be lined up and shot, IMO...

**myCATpowerlifts** · 05-06-2011, 07:40 AM

So i'm new to this game, let me lay it out as I understood to make sure I'm not fubar'ing the whole read.

Basically what this article is saying is, the food prices are high because
guys on wallstreet are buying low from producers and selling high to markets, who then sale it to consumers.
Or in other words there's an extra middle man.

Does that sound correct lam, bigS?

**LAM** · 05-06-2011, 08:07 AM

Originally Posted by myCATpowerlifts

So i'm new to this game, let me lay it out as I understood to make sure I'm not fubar'ing the whole read.

Basically what this article is saying is, the food prices are high because
guys on wallstreet are buying low from producers and selling high to markets, who then sale it to consumers.
Or in other words there's an extra middle man.

Does that sound correct lam, bigS?

you got it....basically they buy the stuff, hold onto it (w/o actually taking possession) then sell it off before they get stuck with it.

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