[throwaway32]

There is a common mantra here of "don't hate the player, hate the game", but people have to understand that large institutions like investment banks don't play by the same rules as everyone else. When the player rewrites the rules to his favor, the game is flawed deeply, however a great deal of blame still lies with the people that decide to manipulate the rules.

[Tichy]

To be honest, I still don't understand how speculation is supposed to drive the food prizes up. At the very least, food seems very ill suited for that kind of speculation, because it deteriorates. So if your gamble doesn't play out within a year or so, you make a loss of 100%.

Seriously, how does it work? So you buy a certificate for 100$, giving you the right to pay a ton of wheat for 1000$. Then you buy a ton of wheat for 1000$. Then what? If nobody buys wheat for you for 2000$, you lose. Rather than throwing the wheat away, you might end up selling it for 500$. Simply by buying a future that entitles you to buy wheat for 1000$/ton doesn't change the price of wheat. In the same sense it doesn't change the price of Google stock if I decide to buy a future that entitles me to buy Google stock for 10000$/unit.

It might be a problem for the baker who wants to plan ahead and would rather like to have a guarantee that he'll get the wheat for 500$. But if the real price is actually headed for 2000$, he would not have gotten that 500$ certificate anyway. Also if he had gotten it, he would effectively have ripped off the peasants.

Also, somebody has to buy the food at those high prizes. And if prizes stay high, it would be good for peasants and they should increase production. For example it might become more profitable to plant real food instead of raw materials for ethanol.

[yummyfajitas]

Minor nit - futures are not options. If you buy a futures contract, you have the right and responsibility to buy wheat for $1000 in the future.

If you hold the futures contract at it's expiration date, you must take delivery, so pretty much all speculators have a pressing need to offload their contracts to somebody before the due date.

[Tichy]

Thanks

[throwaway32]

My post was not arguing against the specific relevance investors had on food prices, but rather the attitude that just because something is legal/allowed that any parties partaking in the action bear no responsibility.

[Tichy]

I see what you mean. I am just not sure the banks are fairly blamed here. It is still possible that they are simply conducting their business of helping to establish correct prices for goods.

Attempts to fix prices for food usually backfire - then producers have no incentive to produce food anymore if production costs are higher than the allowed maximum price.

Also, isn't bankers buying food futures at too high prices equivalent to abandoning food futures? It means the bakery can not afford to buy a food future anymore (because banks drove the prices for futures up too much). So they'll have to do without the futures and simply buy at market rate once they need the wheat.

The allegation is that banks would never actually buy the food they have the futures for (they don't have silos for storing the food).

So the most damage they can do is destroy the utility of food futures. I don't see how introducing laws against food futures would help against that...