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The Goldman Wheat Deal of 2008

Goldman Sachs complained to the Editor of Harper's Magazine on July 8, "Your unfounded conspiracy theories only serve to delay this vital debate."  The vital debate relates to "plight of these millions" who suffered during food shortages in 2008.

Harper's conspiracy story on Goldman is available only to subscribers.  However, the author, Frederick Kaufman, gave an interview which is available in both video and text.  In the interview, Kaufman describes how Goldman allegedly manipulates US red wheat pricing, by using fractional reserves on client investments in wheat (take $100 from client, use $5 for wheat, buy T-Bills with the rest), then leverage the T-Bills into $billions for Goldman investments in wheat futures.  By a process I do not understand completely, the story goes, Goldman drove the price of wheat from about $5 a bushel to $25, pocketing $ billions in profit and leaving millions starving and rioting during the 2008 food shortage.  Goldman denies their activities manipulated the market, since manipulating the market is illegal.

Legal or not, the basic ecomomics are easy to understand:  Goldman figured people would pay more for wheat, so they hyper-capitalized the wheat market using leverage and derivatives, keeping ahead of others forced into a game chosen by Goldman, thus squeezing a profit out of the leveraged and derived financial structures tied to people's need to eat.  It is like making concentrates of any kind, only Goldman was concentrating money out of wheat, and squeezing the life out of 250 million people who could not pay the fully capitalized price of wheat.  Sometimes, this type of deal makes me think capitalism should not be seen as the highest level of human cooperation or goodness.

My brother is a securities lawyer.  When I described the Goldman wheat deal to him, he looked cross and wanted to know, "Who did the research on this?  If Goldman manipulated the market like that, it would be 'unlawful!'" as if to mean:  It cannot be true because it would be unlawful.

So, I explained how Frederick Kaufman says part of the scam is that normal people get put in jail for defrauding people, but the banking giants get to call it normal business, paying fines that are a small part of the profits from their illegal activities, as explained in the Kaufman interview.

At that point, my brother really wanted to know who was saying all this, but he may have lost interest when he could not surf immediately to an easily readable page on a Blackberry. 

So, I have no real answers, just this background information and a theory.  My theory is that Goldman crosses legal boundaries all the time, into the unlawful zone, then pays staff who have no souls, such as this guy Steve Strongin, Head of Global Investment Research, to spew obvious lies to keep people off balance long enough to grab money wherever they can pool it, and create enough resistance to common sense to stay out of jail. 

Disclosure: Employer-funded pension in a broad range of securities

Disclosure: Employer-funded pension in a broad range of securities. Might include interests in Goldman Sachs or Harpers Magazine.