Is Asymmetric Greed Driving Commodity Prices?

May 5th, 2011
in Op Ed

greed_we_trust by Dirk Ehnts

In a recent article in Foreign Policy Frederick Kaufman claims that 'Goldman Sachs Created the Food Crisis'. It seems that Goldman Sachs created a possibility to go long in primary goods without allowing to go short. This seems very similar to the US subprime mortgage market, where those that tried to bet against rising prices could only do so after finding the right people to start the market (which is the story of 'The Big Short').

Follow up:

Here is what Kaufman concludes:

The result of Wall Street's venture into grain and feed and livestock has been a shock to the global food production and delivery system. Not only does the world's food supply have to contend with constricted supply and increased demand for real grain, but investment bankers have engineered an artificial upward pull on the price of grain futures. The result: Imaginary wheat dominates the price of real wheat, as speculators (traditionally one-fifth of the market) now outnumber bona-fide hedgers four-to-one.

There seems to be no quick fix since investors could go abroad and continue their activities there. What this episode shows, though, is the breakdown of a financial system which is obviously not able to come up with enough investment opportunities. This is either a failure of the financial market and/or a problem that there are too many people who want to save and not enough people who either want to go into debt or are allowed to. By the way: Lucas van Praag, Managing Director, replies to the allegations, and Kaufman then replies to that (both here). Be your own judge.

Meanwhile, the German weekly DER SPIEGEL reports today on the silver market, where prices have been tumbling downwards over the last few days. Here is what it says:

Experten führen den jüngsten Wertverlust vor allem darauf zurück, dass wichtige Börsen ihre Sicherheitsleistungen für Terminkontrakte zuletzt mehrfach und spürbar erhöht haben. Diese Zahlungen müssen Anleger als Sicherheit hinterlegen, wenn sie Silber auf Termin kaufen wollen. So hatte die New Yorker Warenterminbörse Comex erst am Mittwoch abermals eine Anhebung der Sicherheitsleistung für Silber-Kontrakte angekündigt.

So, experts say that the silver price is coming down because of a rise in the amount of collateral one has to put up before being able to buy and sell futures. I wonder if Goldman Sachs lets you play the futures market without putting some money on the table up front. There will be blood margin calls.

Dr. Dirk Ehnts is a research assistant at the Carl-von-Ossietzky University of Oldenburg (Germany). His focus is on economic integration and economic geography, covering trade, macro and development. He is working at the chair for international economics since 2006 and has recently co-authored a book on Innovation and International Economic Relations (in German). Ehnts has written at his own blog since 2007: Econblog 101. Curriculum Vitae.


Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved