Did Wall Street get rich while starving poor people?

Here and Now

This story was originally covered by PRI’s Here and Now. For more, listen to the audio above.

The real price of wheat has steadily declined over the past 100 years or so. In 2005, however, the price of wheat started going up. Way up. The price doubled for kind of wheat called hard red spring, which is used to make much of the world’s bread. Then it doubled again. Eventually, the price of food got so high that food riots broke out in 30 countries. Some 49 million Americans weren’t getting enough to eat and 1 in 5 children were going to soup kitchens for meals.

The reason why people couldn’t get enough to eat can be traced back to decisions made by banks like Goldman Sachs, reporter Frederick Kaufman told PRI’s Here and Now. In a “bizarre, strange and subversive” financial move, which Kaufman detailed in Harper’s magazine, Goldman Sachs did their best to divorce wheat from the actual product and turn it into a virtual investment.

In 1991, the bank created the Goldman Sachs Commodity Index for trading commodities like wheat, corn, oil, metals and livestock. According to Kaufman, this index allowed them to treat “these commodities, not like what they were – in other words, real things which real people uses for in order to feed people – but just looking at it as pure, mathematical formulation of money.”

As money started pouring into the Goldman Sachs Commodity Index, other banks like JP Morgan started creating their own equivalent indexes. Speculators, who once played a key roll in keeping the price of wheat stable, started to artificially raise the price of the commodity. Kaufman reports, “They completely forgot that what they were messing with was real.”

The irony was that the wheat crop in 2008 was “the greatest the world has ever seen,” according to Kaufman, and the prices should have been low. But the speculators were busy driving up the price on the market.

“Real wheat had been completely divorced from virtual wheat,” Kaufman reports. “And Goldman and the bankers were making unbelievable sums of money on virtual wheat, while actual people could not afford the real wheat.”

Goldman Sachs has responded directly to Kaufman, denying all charges and writing, “the author spun a tale that had scant regard for reality.” The bank also accuses the magazine of exploiting the plight of millions of people “as a pretext to launch unsubstantiated attacks against the financial industry.”

Rather than cracking down on speculators, Kaufman suggests that the United States should set up a grain reserve that could regulate prices more effectively. That way, the government could release more grain when prices get too high. Unfortunately, according to Kaufman, there has been tremendous resistance to this idea, mostly in the name of free market fundamentalism.

Without some control over the market, Kaufman believes we may continue to see huge spikes in the price of food. People may soon find themselves paying $20 for a pound of hamburger meat, while bankers continue to get rich.

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