Stop Gambling On Hunger

(please scroll down for updated posts about commodity speculation)

Remember $4 gasoline and global food riots in 2008? Deregulation of U.S. commodity markets in the 1990s and 2000 was a significant cause of those high food and energy prices. Even with the reforms in the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act, we are still at risk of repeat food and energy price bubbles.

This site is designed to provide information and action opportunities as part of an international campaign to bring back common sense rules to commodity markets.

Keep returning to the site for occasional updates on the problem of excessive speculation in food and energy and the international campaign to restore sanity to those markets:

U.S. policy: We work to ensure good implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and look for other strategic ways to reinstate common sense rules in U.S. commodity markets.

For example, see letters we have written to Congress and the Administration.

International policy: We work with international partners to help bring about global agreements on commodity market regulation. We work especially with the G20 and EU Commission.

For example, see what’s going on internationally here.

Divestment campaign: While legal reform is important, it has not stopped all excessive speculation. We are talking with pension funds and university endowments, showing them how most commodity investments have been losing money despite rising commodity prices and how their investments can influence world food prices and contribute to world hunger.

For example, see our exchange of letters with CalSTRS, the second biggest pension fund in the U.S, and our success there.

Scroll down for (somewhat) regularly updated posts.

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Three judges on a U.S. Court of Appeals panel have dismissed a suit filed by The International Swaps and Derivatives Association Inc. (SIFMA) and Securities Industry and Financial Markets Association against new Commodity Futures Trading Commission (CFTC)  position limit rules, on the grounds that the legislation does not indicate the rules can be directly challenged to the appeals court.

With the dismissal, SIFMA will have to return it’s focus to the district court case, which had been put on hold while the appeals court considered the case.

Ira Hammerman, general counsel for the Securities Industry and Financial Markets Association, said the association “will move forward quickly in the district court.”

“The court’s ruling is entirely procedural, and was not a decision about the merits of our challenge or of our request for a stay,” Hammerman said.

A new report released by the Institute for Agriculture and Trade Policy (IATP) and the Global Development and Environmental Institute (GDAE) at Tufts University evaluates the response of the U.N., the G-20, the World Bank, and international donors to the 2008 food crisis and the extreme price volatility that has followed.

The report highlights a renewed interest in and “attention to agricultural development and to the contributions of small-scale farmers and women,” but warns that policy and development attitudes have not shifted enough to meet the world’s current and future food needs in a sustainable way.

The report calls for urgent attention in three areas:

Reducing financial speculation on commodities markets: Reforms have been limited, leaving commodities markets prone to wide price swings. Proposals to increase the use of food reserves to limit volatility have been largely rejected.

Halting “land grabs”: As food-producing resources become more valuable, resource-constrained countries and speculative investors have bought or leased millions of acres of agricultural land in Africa and in other developing regions. This unregulated new market compromises the long-term food-producing capacity of developing countries while dispossessing those who have traditionally worked the land.

Limiting the further expansion of crops and land dedicated to biofuels: Government incentives are spurring biofuel expansion in industrialized countries, contributing to the underlying demand-growth that is driving agricultural prices steadily upward.

In a post on Taibblog, Matt Taibbi sheds light on the most recent example of the much too common “revolving door” phenomenon, in which influential government employees find plush lobbying jobs in the very sectors they champion while in public service. The most recent case involves Walter Lukken, former head of the Commodity Futures Trading Commission–charged with making sure commodity futures markets function properly. Rather than performing this essential job, Lukken repeatedly “played dumb” about excessive speculation’s influence in commodity futures markets and helped to avoid reforms that might have prevented the abuses during the 2008 food and energy bubble.

Now the Futures Industry Association, the chief lobbying arm for futures investors, has tapped Lukken to take the reigns to reward him for all his hard work on behalf of Wall Street.

“Mike Masters, [a hedge fund manager and chairman of the financial watchdog non-profit Better Markets], remembers Lukken because the two men both testified before the Senate in that summer of 2008; he recalls watching the CFTC chief, aghast, when the latter continued to insist that there was nothing abnormal going on in the commodities world, despite a historic series of disruptions.”

“It’s not the revolving door. It’s the express elevator,” [said Masters].

Read the full story here.

Three judges are now set to hear arguments by The Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association–two leading financial industry groups–that the Commodity Futures Trading Commission (CFTC) overstepped its authority when it passed position limit rules in October.  The two groups filed suit in December claiming that the CFTC failed to show that the rules did more harm than good for commodity futures markets.

The three randomly selected judges include Republican appointed Janice Rogers Brown, who also sat on the panel that struck down an SEC rule last summer, and Judith Rogers and Merrick Garland, both appointed by Bill Clinton.

“Some legal experts said the presence of Democratic-appointed judges may not offer much hope to the CFTC, which passed the rules in a narrow 3-2 partisan vote in October. It is the first legal challenge of a CFTC action in its 36-year history.”

“‘I’d be really shocked if this case came out any other way than the [SEC] proxy access case,’ [said Hal Scott, a Harvard Law School professor], noting that the support offered by the CFTC was thin. Any decision by the appeals court could be challenged to the U.S. Supreme Court.”

A new report released by Friends of the Earth Europe describes how European banks, pension funds and insurance companies are fueling global hunger and poverty through speculating on food prices and financing land grabs in poorer countries, bringing increased prices and volatility to food markets as well as threatening the food and land sovereignty of local peoples.

Specifically, the report examines the major roles and activities of “29 European financial institutions, including Deutsche Bank, Barclays, RBS, Allianz, BNP Paribas, AXA, HSBC, Generali, Allianz, Unicredit and Credit Agricole.”

“Food speculation, with billions of Euros flooding in and out of financial products based on foodstuffs, causes price volatility. These rapid and unpredictable price swings hit the most vulnerable hardest, threatening their right to food, and making it more difficult for farmers to maintain an income – creating instability, hunger and poverty. Land-grabs, following direct and indirect investments in land by large European financial institutions, mean European companies are snatching up land, increasingly in Africa, at the expense of local livelihoods and food sovereignty, in addition to causing knock on environmental devastation through land-use change.”

Read the full report here.

The Financial Times reported today that the “crisis engulfing the commodities trading finance sector…is worsening by the minute.” According to FT Crédit Agricole, the second largest lender to trading houses, privately told trading house executives of their need to cut down financing by €15bn to €18bn. The decision by Crédit Agricole comes only a month after BNP Paribas, the largest lender to trading houses, announced it would reduce its finance activities in commodities.

The two banks, together, account for nearly half of the lending to the world’s commodities trading houses, and whose cuts could result in a “25-30 per cent reduction in credit facilities into the new year.”

Large trading houses, like Cargill, Glencore, Vitol, and Mercuria, only counted on the bank duo for roughly a fifth of their financing, and will not be drastically affected by the reduction. But smaller houses, some of which depended on BNP Paribas for all of their credit, will be devastated by the banks’ reductions.

Julien Garran, a UBS commodities analyst in London, “warns that the ‘credit restrictions will force small and medium-sized commodities traders and small and medium-sized commodity consumers to run their businesses for cash,’ forcing them to run down their inventories. The destocking could resemble a similar episode experienced in late 2008 and early 2009, when apparent demand of commodities from oil to copper plunged and prices collapsed.”

There’s been much talk about the recent MF Global collapse and the $1.2 billion of client money disappeared–used to finance the firm’s $6.2 billion bet on European sovereign debt. But who were these customers?

The Minneapolis based StarTribune reports that over 100 Minnesota farmers had assets frozen in the wake of MF Global’s bankruptcy. These famers were trading commodity futures simply trying to bring some stability to prices that affect their livelihoods. They were not speculators or gamblers, but, instead of their money being placed safely in “segregated” accounts, as their statements showed, it ended up financing the whimsical bets of the firms proprietary trading arm. What could be more outrageous than hardworking farmers financing the risky bets of speculators?

As cockamamie as this sounds, it epitomizes the pervasive systemic risk that deregulation brings to our financial markets. Not only do the risky bets of speculators pose a threat to speculators themselves, it also threatens all of those legitimate hedgers in the market–not to mention everyone (which is literally everyone) affected by the volatility and increase in prices that financial speculation brings to commodity markets.

Only time will tell how much money customers actually recoup. ”It’s important to put customers ahead of creditors,” said Dean Tofteland, who raises pigs and grows corn and soybeans in Luverne, Minnesota.  ’Told that speakers at the Senate hearing said he might get back only 66 cents on each dollar he had deposited at MF Global, he uttered two words: ‘Not acceptable.’”

The MF Global snafu should be cause for everyone to take a close look at the enormous risk that deregulation and financialization pose to commodity markets.

Al Jazeera’s latest episode of Fault Lines explores the Horn of Africa’s drought and hunger crisis. The report follows a pastoralist tribe struggling to survive the arid lands and deadly competition for increasingly scarce resources that have characterized the regions worst drought in 60 years.

The report also investigates the causes of the crisis and the US response. UN Special Rapporteur on the Right to Food, Olivier De Schutter, told Fault Lines that the issues of climate change and financial speculation in commodity markets—both carried out or caused by the developed world—have had drastic and dire consequences for the Global South, particularly the Horn of Africa.

Interviews with an USAID Feed the Future agricultural contractor and a local agro-ecologist illustrate radically different approaches to the crisis. While Feed the Future focuses on technological advancement, drought resistant seed, and commercial fertilizers—all predominantly manufactured by multinational corporations—the other, more local, approach focuses on food (seed) sovereignty and efficient organic farming techniques, which don’t force farmers to depend on multinational corporations for their livelihood.

Reuters has reported that two major financial trade groups, The Securities Industry and Financial Markets Association, and the International Swaps and Derivatives Association filed suit against the Commodity Futures Trading Commission (CFTC) in the DC federal court today. The suit—the first ever against the CFTC—will challenge the recently passed Position Limits Rule.

The Associations believe that the Position Limits Rule may adversely impact commodities markets and market participants, including end-users, by reducing liquidity and increasing price volatility.

The statement (above) released by the groups contains the same feigned concern for commodity markets and disingenuous arguments about the Position Limits Rule reducing liquidity and increasing price volatility that we heard from the financial lobby during the rule writing process.

The groups real concern and motivation for the suit can be found clearly stated in the complaint filed on Friday. According to the New York Times, “The complaint argues the C.F.T.C. erred when finalizing the rule, saying the agency failed to evaluate the rule’s economic impact on Wall Street,” and did “not allow[ ] the industry to adequately comment on the rule proposal.”

These claims make one wonder if Wall Street has already forgotten about the massive amount of money spent on lobbying efforts over the first half of the year during the rule-writing process. In an August interview with Real News, C.F.T.C. commissioner Bart Chilton estimated that for every one meeting with a consumer advocacy group there were 100 with the banking lobby.

The C.F.T.C may indeed be vulnerable after a federal court set a precedent by striking down a S.E.C rule in July on the basis that the cost-benefit analysis was inadequate. What has become clear is that Wall Street along with Republicans are the only ones fighting increased oversight and regulation in commodity markets. Their feigned concern for markets and end-users should not fool anyone.