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Commentary :: Economy
Bank Tribunal: In the Claws of Speculators
The enormous rise in prices of oil and food in the summer of 2008 was largely caused by speculation. Thousands upon thousands of people died of starvation at that time. Politics was a compliant accessory of the financial branch.
BANK TRIBUNAL: IN THE CLAWS OF SPECULATORS
By Peter Wahl
[This article published in: Frankfurter Rundschau 3/21/2010 is translated from the German on the Internet www.fr-online.de/in_und_ausland/wirtschaft/aktuell/.
Attac, a global justice network, is organizing a Bank Tribunal in Berlin from April 9-11, 2010 in which culprits for the financial crisis and steps preventing future crises will be named.]
Many raw materials are becoming increasingly scarce, above all crude oil. The supply of copper and new materials like tantalum and coltan necessary in micro-electronics is also scarce. The raw material hunger of China and the other threshold countries and the global population growth enormously accelerate the exhaustion of reserves. Opposite factors like innovation, substitution, opening new reserves and recycling will mitigate the trend somewhat but can not reverse it.
The epoch of cheap raw materials is undeniably over. This is also apparent on the financial markets. Since 2003 more and more investment banks, hedge funds and other institutional investors have pounced on the raw material markets. Thus the number of futures for oil traded on the stock exchanges increased more than 150 percent between 2004 and 2008. The volume of transactions on the markets for oil futures, options and swaps was 35-times as great as that of the physical oil market (spot market). Over the counter transactions (outside the exchanges) are not included. The tendency is similar for other resources like agricultural raw materials.
The emergence of speculators on the raw material markets went along with a massive rise in prices. These prices are not only determined now by the fundamentals of the raw material markets (demand, quantity of reserves, investments in advanced technology etc). Rather the “fundamentals” of the financial markets come into play: exchange rate fluctuations, interest differences, risky derivatives, portfolio- and risk-management and herd instinct. Thus the enormous rise in prices of oil and food in the summer of 2008 was largely caused by speculation. Thousands upon thousands of people died of starvation at that time.
Two markets with completely different logics and time horizons are joined together: on one side the physical raw material trade with buyers and sellers whose expectations are oriented in the balance of supply and demand and who act in the rhythm of tanker deliveries. On the other side are financial market actors who have no interest in the physical side of the raw material business but speculate on short-term price fluctuations in the shortest time periods, often in seconds.
The rampant growth of the financial branch in the raw material sector – described in a neutral way by its protagonists as “financialization” – means chaining raw material prices to the logic and dynamic of financial market capitalism. High-risk speculation, bubbles, crashes and intensified short-term volatility now spill over to the raw material markets. A February 2010 study of the French government concludes that the “financial logic of the actors is hard to control and contains a system risk.”
Politics was a compliant accessory of the financial branch. In the US the raw material markets were deregulated with the 2000 Commodity Futures Modernization Act signed by President Bill Clinton. In Germany the Index Fund adopted a few years ago plays an important role in raw material speculation.
One thing should be clear after the century crash: most raw materials are much too import ant for the world economy to be made into chips on the gambling table of the financial casino.
[Peter Wahl is one of the founders of Attac-Germany and a member of the Attac advisory council. He is a co-worker of the developmental non-governmental organization WEED (World Economy, Ecology and Development) in Berlin. He will be assigned counsel for Chancellor Angela Merkel at the Attac Bank Tribunal.]
RELATED LINKS:
www.baselinescenario.com
www.onthecommons.org
sites.google.com/site/demandside/marc-s-translations-on-war-and-peace
By Peter Wahl
[This article published in: Frankfurter Rundschau 3/21/2010 is translated from the German on the Internet www.fr-online.de/in_und_ausland/wirtschaft/aktuell/.
Attac, a global justice network, is organizing a Bank Tribunal in Berlin from April 9-11, 2010 in which culprits for the financial crisis and steps preventing future crises will be named.]
Many raw materials are becoming increasingly scarce, above all crude oil. The supply of copper and new materials like tantalum and coltan necessary in micro-electronics is also scarce. The raw material hunger of China and the other threshold countries and the global population growth enormously accelerate the exhaustion of reserves. Opposite factors like innovation, substitution, opening new reserves and recycling will mitigate the trend somewhat but can not reverse it.
The epoch of cheap raw materials is undeniably over. This is also apparent on the financial markets. Since 2003 more and more investment banks, hedge funds and other institutional investors have pounced on the raw material markets. Thus the number of futures for oil traded on the stock exchanges increased more than 150 percent between 2004 and 2008. The volume of transactions on the markets for oil futures, options and swaps was 35-times as great as that of the physical oil market (spot market). Over the counter transactions (outside the exchanges) are not included. The tendency is similar for other resources like agricultural raw materials.
The emergence of speculators on the raw material markets went along with a massive rise in prices. These prices are not only determined now by the fundamentals of the raw material markets (demand, quantity of reserves, investments in advanced technology etc). Rather the “fundamentals” of the financial markets come into play: exchange rate fluctuations, interest differences, risky derivatives, portfolio- and risk-management and herd instinct. Thus the enormous rise in prices of oil and food in the summer of 2008 was largely caused by speculation. Thousands upon thousands of people died of starvation at that time.
Two markets with completely different logics and time horizons are joined together: on one side the physical raw material trade with buyers and sellers whose expectations are oriented in the balance of supply and demand and who act in the rhythm of tanker deliveries. On the other side are financial market actors who have no interest in the physical side of the raw material business but speculate on short-term price fluctuations in the shortest time periods, often in seconds.
The rampant growth of the financial branch in the raw material sector – described in a neutral way by its protagonists as “financialization” – means chaining raw material prices to the logic and dynamic of financial market capitalism. High-risk speculation, bubbles, crashes and intensified short-term volatility now spill over to the raw material markets. A February 2010 study of the French government concludes that the “financial logic of the actors is hard to control and contains a system risk.”
Politics was a compliant accessory of the financial branch. In the US the raw material markets were deregulated with the 2000 Commodity Futures Modernization Act signed by President Bill Clinton. In Germany the Index Fund adopted a few years ago plays an important role in raw material speculation.
One thing should be clear after the century crash: most raw materials are much too import ant for the world economy to be made into chips on the gambling table of the financial casino.
[Peter Wahl is one of the founders of Attac-Germany and a member of the Attac advisory council. He is a co-worker of the developmental non-governmental organization WEED (World Economy, Ecology and Development) in Berlin. He will be assigned counsel for Chancellor Angela Merkel at the Attac Bank Tribunal.]
RELATED LINKS:
www.baselinescenario.com
www.onthecommons.org
sites.google.com/site/demandside/marc-s-translations-on-war-and-peace
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