Earlier this month, I did a blog entry looking at how Goldman Sachs was making big profits from gambling on hunger, placing bets on food commodities and basically using people's stomachs as gaming chips. Goldman Sachs, other investment banks and hedge funds are sending food prices soaring.
Now we have a report from a British campaign group telling us that banks are making enormous profits by gambling on the prices of key commodity crops such as coffee, cocoa and wheat.
It cites one example in the price of coffee which soared 20% last month in just three days. What happened was that hedge funds were betting on lower prices, artificially pushing the price down. But then one hedge fund called their bluff and cornered all the futures contracts. As a result, the hedge funds had to buy back the contracts at a significantly inflated price. With the sudden extra demand, the price of coffee went through the roof.
It's not just the consumers who suffer. Companies suffer because of unpredictable oil and raw material prices and poor people suffer because they can't get affordable food. And of course it's inflationary.
According to the report, the biggest banks involved in these trades are Goldman Sachs, Bank of America, Citibank, Deutsche Bank, HSBC, Morgan Stanley and JP Morgan. Goldman Sachs on its own made a whopping $5 billion from commodities trading in 2009, gambling on people's hunger.
It calls for a range of measures to fix the problem like setting limits on how much bankers can bet on food prices. Clearly what we need is better regulation of commodity markets
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