Casino of Hunger: How Wall Street Speculators Fueled the Global Food Crisis
The global food crisis is an overlooked symptom of the broader global economic crisis. The food crisis shares many characteristics of the financial meltdown ‚ it was exacerbated by the deregulation of the commodity markets (including agriculture) that encouraged a tidal wave of Wall Street speculation‚ leading to further increases in already rising food and energy prices.
Over the past two decades, the safeguards that prevented excessive speculation from distorting the futures markets were eroded or eliminated.
- The commodity markets that provided an arena for producers of raw commodities like corn, wheat, oil and metals to find buyers were largely transformed into markets that traded new financial products.
- The New Deal-era regulations that were supposed to prevent excess speculation on food commodities were weakened to allow more Wall Street investment houses to pour money onto the commodity exchanges and new, unregulated or self-regulated electronic markets cropped up outside the authority of government oversight.
- As the housing and stock markets stalled in 2007 and 2008, more money migrated into the commodities markets.
This flood of new speculative investments from Wall Street drove up demand on paper for agricultural and energy commodities, creating a bidding war that pitted food processors and agricultural companies against investment firms that had no intention of ever taking delivery of a load of corn, beans or wheat. The result was that food prices (and gasoline prices that were caught in the same speculative trends) rose dramatically.
The 2008 food price explosion created a humanitarian crisis in the developing world. The stark escalation in food prices arose from tight agricultural supplies and steadily rising demand for food and feed. This price escalation became superheated with the addition of hundreds of billions of speculative dollars in commodity markets. This excess speculation can and should be squeezed out of the marketplace.
This issue brief discusses:
- the role of commodities markets in setting food prices
- how sensible safeguards were dismantled and eroded
- how giant new investors drove the rise in food global food prices
- the common-sense reforms needed to stop Wall Street from gambling on hunger.
