presenting her highly regarded lecture:
"A Century of Challenges".
Place: La Grande Bibliothèque (next to Berri-UQAM Métro)
Time: 6-9 pm
August 5 2010: Capitalists of Chaos and Catastrophe
Ilargi: US small business sentiment is down. Consumer income is down. Consumer spending is down. Pending home sales are down. Worldwide, crops are threatened by drought and floods. And while some claim that a US bumper crop will ease the problems, American corn is not exactly a perfect substitute for Russian and Ukrainian wheat, which go a long way towards feeding extensive segments of Middle East and Northern African populations.
Global financial markets, though, are up. So everything must be fine after all?! Perhaps not. Perhaps what we witness is an ongoing and deepening chasm that divides the world of finance and politics on the one hand and the world of everyday people on the other, as Rasmussen Reports indicates: 67% of Political Class Say U.S. Heading in Right Direction, 84% of Mainstream Disagrees. This chasm was greatly facilitated by governments relying on policies based on the notion that too-big-to-fail -financial- institutions needed to be bailed out at any cost. Later in the year, as a direct consequence of these policies, we will see another round of insane banker and trader bonuses, just as citizens’ sentiments and incomes fall, and unemployment and poverty keep rising.
It’s very hard, when you work at a too-big-to-fail institution, not to make a profit. When you have access to discount window money at an interest rate of 0.25%, money which you can -electronically- carry across the street to purchase US Treasuries that pay, say, 2.75%, you are set for a 1000% profit margin (even "only" 500% is not that shabby either). You try losing money that way; it ain't easy.
Of course, behind the scenes plays another government policy: the same banks that are handed all this money and profit for free don't have to fess up to their losses either. The free dough is handed to a group of financials that are nothing but the proverbial walking dead. If they were obliged to clean up their balance sheets with the inclusion of all the securities and other paper that hasn't been worth more than pennies on the dollar for several years now, they'd no longer be able to raise nearly enough capital on the open market to continue their dead man's walk, let alone heal.
There are articles appearing these days that claim the Fed wishes to force financials to buy back the worthless paper the central bank took over from them, but how would they see that work out? They would, in all likelihood, have to pass them more of the 0.25% credit, so they could buy more Treasuries, which the Fed could than buy outright from them. Other than that, it's hard to see a way to execute a scheme such as that.
Then again, in our present system, it's inevitable that speculators, creators of derivatives, and high-frequency traders will at some point in time, and sooner rather than later, end up focusing their monetary power on basic human necessities. And then, it will all get a lot uglier than it already is today. We should, as will become even more obvious soon than it is today, have bannned all speculation on food, water and shelter, but it is too late in the game already.
Paul B. Farrell at MarketWatch launches a first and stern warning:
Commodity ETFs: Toxic, deadly, evil
Commodity ETFs are rapidly becoming a malicious virus breeding chaos in the global markets pricing all commodities: food, farm lands, metals, oil, natural gas, livestock, water and other natural resources are the assets under commodity derivatives and their ETFs, pricing that's now controlled more by Wall Street speculators than the weather, adding wild swings in volatility and trillions in global derivative risks.
And once again the usual suspects, the Goldman Conspiracy of Wall Street Banksters, are in the lead. Today, Wall Street is making a killing on commodity ETFs. And yet at the same time they are rapidly accelerating global market conditions that'll eventually kill the goose that laid their golden egg, those high-profit-generating commodity ETFs. But unfortunately this new ideology, Chaos Capitalism, is rapidly moving past economic pricing wars into military conflicts, a trend the Pentagon predicted years ago, an ever-increasing cycle of global wars over increasingly scarce nonrenewable commodities.
[..] .... thanks to ETFs, Wall Street is already creating a dangerous new kind of global weapon of mass destruction -- a bomb primed to detonate like the 2000 dot-coms, the 2008 subprimes -- and detonation is dead ahead.
Vanguard founder Jack Bogle added: "It's insanity ... this is a case of Wall Street trying to capitalize on the worst instincts of investors." [..] ETF managers are competing against Wall Street's elite traders. And the playing field's not level: "Professional futures traders ... make easy profits at the little guy's expense. [..]
As one Wall Street trader put it: "I make a living off the dumb money... index funds get eaten alive by people like me." [..]"Just as they did with subprime mortgage-backed securities, Wall Street banks are transferring wealth from their clients to their trading desks." One commodity trader adds: "You walk into a casino, you expect to lose money ... same with these products." [..]
Suddenly Wall Street speculators ruled the commodity-pricing market. What used to be a hedge for farmers became just another way for Wall Street traders and their sophisticated algorithms to make easy profits off "dumb money." So profitable Goldman even "owns a global network of aluminum warehouses," says B/W, and my old firm, "Morgan Stanley chartered more tankers than Chevron last year."
Rolling Stone's McKenzie Funk [..] focuses on Phil Heilberg, a former AIG commodity trader who is one of the new "Capitalists of Chaos." Heilberg is a self-proclaimed pure Ayn Rand capitalist hustling Africa, making "land grab" deals to control millions of acres and commodity rights in unstable nations.
Heilberg "makes no apologies for dealing with warlords: 'This is Africa ... The whole place is like one big Mafia, and I'm like a Mafia head.'" [..] The "essential lesson in capitalism" is "that no one is actually in control." In this new Chaos Capitalism, there is no rule-of-law, democracy is dead, chaos and anarchy rule.
And the new players include nations as well corporate giants: China, Russia, Australia, Kazakhstan, etc. A global land grab is on. And while commodity ETFs are making bankers and traders rich today, most know that soon the ETF business will go the way of a small farmer hedging the season's crop in a grain silo. They also know that the "Food Bubble" they're collectively blowing will also explode, triggering wars across the planet, wars fought over ever-scarcer non-renewable commodities. [..]
Commodity-index ETFs are a global threat far more dangerous to the world than nuclear attacks from terrorist nations. [..] "Heilberg's bet on chaos is beginning to play out on the streets." The toxic trail of commodity ETFs is already proving to be deadly, starving thousands worldwide, while the new Capitalists of Chaos only see incredible profit opportunities, as they make huge bets that they'll get even richer in the next round of catastrophes, disasters, poverty, starvation and wars.
Susanne Amann and Alexander Jung have more on the topic in German magazine Der Spiegel
Speculators Rediscover Agricultural Commodities
[..] The turbulence in the cocoa market is the most recent sign that speculation is back, and that the international financial markets have rediscovered agricultural commodities. They are now betting big again on commodities like wheat, coffee, rice and soybeans. As a result, prices are no longer determined by supply and demand, but by investment banks and hedge funds.
Cocoa isn't the only commodity that has become significantly more expensive in recent months. The price of wheat has gone up by 17 percent since April, and soybeans by 12 percent. At the beginning of the year, sugar prices climbed to their highest level in three decades in the space of only a few months and then plunged by almost half. But now sugar prices are back up, climbing by almost 6 percent since April. The food price index of the United Nations Food and Agriculture Organization (FAO), which aggregates price movements for key agriculture products, climbed to 163 points in June. This is only 15 percent lower than the all-time high of 191 points in 2008 [..]
Last year, Goldman Sachs earned $5 billion in profits with commodities alone. Other major players include the Bank of America, Citigroup, Deutsche Bank, Morgan Stanley and J.P. Morgan. They are no longer merely offering classic funds, but are now trading in financial instruments that function similarly to the subprime mortgage loans on the now-collapsed US real estate market. With these instruments, known as collateralized commodities obligations, or CCOs, profits are based on market prices. The higher the trading prices of wheat, rice and soybeans, the bigger the profits.
[..] ... only about 2 percent of commodities futures now end with a real exchange of goods, the FAO concluded in a June study. "As a result, these deals attract investors who are not interested in the commodity itself, but merely in speculative profit," the FAO concludes morosely. The finding is all the more remarkable given the widespread political and social outrage aimed at food speculators just two years ago.
In the Financial Times, Javier Blas and Isabel Gorst paint the following picture of world harvests:
Rise in wheat prices fastest since 1973
Wheat prices have seen the biggest one-month jump in more than three decades on the back of a severe drought in Russia, prompting warnings by the food industry of rising prices for flour-related products such as bread and biscuits. Food executives are also warning about surging prices for feeding and malting barley, which could push higher the retail cost of products from poultry to beer. European wheat prices jumped 8 per cent on Monday to €211 a tonne, the highest in two years.
Wheat prices have risen nearly 50 per cent since late June. Crop failures and a price rally have revived memories of the 2007-08 global food crisis, which saw the cost of agricultural commodities from corn to rice surge to record highs and food riots in countries from Haiti to Bangladesh. "This is the fastest wheat price rally we have seen since 1972-73," said Gary Sharkey, head of wheat procurement at UK-based Premier Foods [..]"The industry will be unable to ignore a 50 per cent rise in wheat prices," Mr Sharkey added [..]
Needless to say, if you’re speculating on food commodities like wheat, whether it be through Commodity ETF's or elsewhere, and you fancy yourself to be a Capitalist of Chaos, what's not to like about failed crops and rising price uncertainties? You can corner markets, the way cocoa honcho Anthony Ward has, you can sell derivative instruments to pension- and market fund managers chasing yield without sufficient savvy, and at the end of the day, you can be filthy rich. Just don’t feel too bad about the hungry, starving and dying, or about those who see their pensions and other savings vanish. Hey, if you didn't do it, someone else would, right?
The biggest irony in all of it, of course, remains that the biggest players in these ultimate dog eat dog Darwinian capitalist schemes use US and EU taxpayer money to play the games. They wouldn't be here anymore, sitting at their crap tables, if you wouldn't have handed them the money to play their ultimate to-the-death fighting games with.
If nothing else, it seems to be a fitting end to yet another economic system doomed by a lack of morals.
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