How Goldman Sachs gambled on starving the world's poor - and won | Hacker News Reader

How Goldman Sachs gambled on starving the world's poor - and won

johannhari.com

57 pointsdkasper21 comments

This takes forever to get to the point, is based on a poor understanding of forwards and why they're necessary, it's not hacker news, the title is a troll, get rid of it.

    In 2006, financial speculators like Goldman's pulled
    out of the collapsing US real estate market, and they
    were looking for somewhere else to make their stash of
    cash swell.

The reason food was going through the roof was because at the beginning of 2007 everyone though the next big thing was going to be inflation, and wheat is a hedge against that. Go search back through covers of The Economist if you don't believe me.

Also an important point about wheat derivatives is that they're deliverable. At the end of the day you're going have someone with bales of wheat in a warehouse they have to sell at profit to the derivative price. So a high derivative price can only be supported if people are paying the higher price for the underlying product in the end.

Jean Ziegler is the Calcanis of the UN, in 2007 he blamed biofuels and now he's blaming banks. He primarily good at raising publicity.

The UN's own food reports in 2006 found the food price rises primarily driven by poor crop yields due to weather conditions and a failure to mantain stockpiles.

http://en.wikipedia.org/wiki/Jean_Ziegler

Hrm. Doesn't look like what I'd call 'hacker news' - it's political, flame bait, and not really related to startups or hacking.

It's also based on false premises. For instance, the part that says "Suddenly, these contracts were turned into 'derivatives'" is wrong, since forward contracts are already derivatives, and also exchange-traded futures contracts appeared much earlier than the 1990s. Traders cannot simply "jack up" prices at will since futures can be short-sold, etc.

It's dumber than that. People have been speculating on food derivatives for centuries. They were the first derivatives. Exchange-traded financial derivatives weren't even invented until the 70s.

For example, see http://en.wikipedia.org/wiki/Onion_Futures_Act , where speculation on onions was banned in 1953. It probably increased volatility, and more probably made pricing less efficient.

Indeed, agriculture is one of the original reasons for inventing futures - Chicago Mercantile Exchange starting out as Chicago Butter and Egg board in the 19th century etc.

Wikipedia says the first futures contracts were for rice in Japan in the 18th century.

Maybe a more complete arguement: http://en.wikipedia.org/wiki/2007%E2%80%932008_world_food_pr...

"some vital crops are not traded on the futures markets, including millet, cassava, and potatoes. Their price rose a little during this period"

Dumb question, but why didn't the poor just eat potatoes then? Also I don't think you can really force somebody to buy or sell - if a country was short on food, they shouldn't sell it. Or if the prices for wheat are high, they should sell the wheat and buy potatoes for the money. And so on... (questions over questions).

> why didn't the poor just eat potatoes then

My guess is that potatoes was either too expensive (compared to wheat/rice) and is probably something that can't grow in all climates. Your argument reminds me of the classical French quote where a woman suggested that the shortage of bread could be solved by eating cake instead.

> if a country was short on food, they shouldn't sell it

It's not the country that sells food, but individuals. And individuals (like corporations) are mostly interested in making profits.

> Or if the prices for wheat are high, they should sell the wheat and buy potatoes for the money

The people who sold the wheat would of course keep the money for themselves. You are expecting farmers to sell their crops and use the profits to feed the rest of the nation, but that doesn't happen. And it's also not easy to switch to a completely different crop (maybe even impossible depending on the climate)

" Your argument reminds me of the classical French quote where a woman suggested that the shortage of bread could be solved by eating cake instead."

The article used potatoes to prove that prices didn't rise because of a food shortage. Thereby he implies that there were enough potatoes to go round. That is completely different from the french revolution when people had no bread and the king said they should eat cake instead.

I have little hopes of a logical discussion here, though :-(

My apologies in advance, but my inner pedantic is getting the better of me: It was reportedly Marie-Antoinette, Queen of France just before the French Revolution that allegedly said "Let them eat cake!" - this claim is actually disputed, which is a bit of a shame actually, because it's just about the only thing anyone actually "knows" about Marie-Antoinette.

As for the quote itself, I've always disliked that translation - the French version of the quote is "qu'ils mangent de la brioche!" - and I really don't know why we don't use "brioche" in the English version of the quote - it's a recognised word in English: http://en.wikipedia.org/wiki/Brioche

Maybe it's just that when the quote was first translated at the end of the 18th Century, "brioche" wasn't used in English, and as a result "cake"was used, and it hasn't been changed since due to inertia...

/pendantic

My point was that potatoes were probably too expensive for them in the first place. If millions of people are starving but can't afford potatoes, they have little impact on the price. They could only have an impact on the price if they could actually afford to buy it. Those who could afford potatoes could probably also adjust to the increased wheat prices.

Potatoes and rice are probably in two different markets, similar to bread and cake.

But then potatoes can not be used to prove that there was no real food shortage, hence the argument made in the article is refuted (not proving that there was indeed a shortage, but he would have to provide other data to support his theory). That was my point.

It could be that potatoes were still more expensive than rice although their prices rose a little. The starting price could have been higher. And every country may not be an exporter of rice to be able to sell wheat then buy the potatoes (assuming they were cheaper).

Arich countries pressure poorer countries to abolish farming subsidies in the name of trade liberization, but the rich countries continue subsidies of their products (farming and otherwise).

Still, if the farming is subsidized (no matter what country), wouldn't it lower the prices?

Also, the trading they try to blame was in options, I think, not in actual wheat.

Most 'countries' don't buy or sell food. It's businesses within those countries who do produce and sell food. And if they get a far better price by exporting than by selling to their starving neighbours, we can't assume they'll be any more moral than the speculators (only on a smaller scale).

Wasn't this Invisible Hand thing going to take care of optimally distributing wealth in the face of perfectly selfish actors?

First look closer into the countries that actually had a problem with starvation and food shortage. I don't think they were mostly the capitalist ones where actors were able to act selfish on their own.

Wow, a really twisted way to look at reality and thus prove with a little sophistry that price-fixing and communism is the only way to prevent poor people from starving.

The only problem is that with communism, eventually everybody starves. I'll stick with free markets, thank you.

"The world's wealthiest speculators set up a casino where the chips were the stomachs of hundreds of millions of innocent people..."

Yup, it's exactly like a gambling den. It's Bet365, where anything can be speculated upon. But nicely packaged with higher stakes...and you stand to lose whether you play or not.

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