Speculating Banks Profit as World's Poorest Go Hungry

Nearly a billion people are already too poor to feed themselves, so any long-term food spike is guaranteed to trap millions more who are now just “getting by,” says Oxfam.

Πηγή: Common Dreams
Sept 3 2012

Goldman Sachs, Morgan Stanley among those accused of reaping financial harvest from growing food crisis.

Reports over the weekend saw some of the world's most powerful financial institutions accused of profiteering on the backs of the world's poorest people and those most vulnerable to the wild price fluctuations caused by over-rampant speculation on the price of food commodities like wheat, soy beans, and corn.

Nearly a billion people are already too poor to feed themselves, so any long-term food spike is guaranteed to trap millions more who are now just “getting by,” says Oxfam."Barclays is the UK bank with the greatest involvement in food commodity trading and is one of the three biggest global players, along with the US banking giants Goldman Sachs and Morgan Stanley," reported the UK's Independent, citing research from the World Development Movement.

Christine Haigh, policy and campaigns officer at the WDM and one of the analysts behind the research, said the behavior of the banks "risks fuelling a speculative bubble and contributing to hunger and poverty for millions of the world's poorest people."

As droughts have devastated grain crops in major agricultural strongholds like the US and India this year, experts warn of a food crisis taking shape across the globe. The accusations of 'profiteering' by groups like WDM and Oxfam International, however, transcend the price changes due to external conditions like drought or farmers who use commodity indexes to protect the price of their crops, and speak to the greed and recklessness of investors who create volatile trading conditions by speculating on the future prices of such commodities with no regard for the harm it does to real people.

"Fragile populations around the world, living on or near the poverty line, will be dragged under by price spikes and volatility," said Oxfam in a recent statement. "Nearly a billion people are already too poor to feed themselves, so any long-term food spike is guaranteed to trap millions more who are now just 'getting by'."

The World Development Movement report estimates that Barclays made as much as $840 million from its "food speculative activities" over the course of 2010 and 2011. Barclays made much more from food speculation in 2010, as the prices of agricultural commodities were rising, and a smaller sum in 2011 as prices fell.

As the Independent reported: "The extent of just one bank's involvement in agricultural markets will add to concerns that food speculation could help push basic prices so high that they trigger a wave of riots in the world's poorest countries, as staples drift out of their populations' reach."

Oxfam's private sector adviser, Rob Nash, said: "The food market is becoming a playground for investors rather than a market place for farmers. The trend of big investors betting on food prices is transforming food into a financial asset while exacerbating the risk of price spikes that hit the poor hardest."

And the Independent adds:

The revenues that Barclays and other banks make from trading in everything from wheat and corn to coffee and cocoa, are expected to increase this year, with prices once again on the rise. Corn prices have risen by 45 per cent since the start of June, with wheat jumping by 30 per cent.

Barclays makes most of its "food-speculation" revenues by setting up and managing commodity funds that invest money from pension funds, insurance companies and wealthy individuals in a variety of agricultural products in return for fees and commissions. The bank claims not to invest its own money in such commodities.

Since deregulation allowed the creation of such funds in 2000, institutions such as Barclays have collectively channelled an astonishing $200bn (£126bn) of investment cash into agricultural commodities, according to the US Commodity Futures Trading Commission.

Morgan Stanley Unit Fined Over Trader’s $1.3 Billion Bet

Morgan Stanley Smith Barney “detected the trading activity by a former employee that occurred three years ago, stopped it promptly, reported it to regulators, and has since added new controls designed to prevent a reoccurrence,” Christine Jockle, a spokeswoman for the unit, said in an e-mailed statement.

Πηγή: Bloomberg
By Laura Marcinek and Donal Griffin
August 16 2012

Morgan Stanley (MS) Smith Barney, the brokerage venture of Morgan Stanley and Citigroup Inc. (C), was fined $450,000 after a trader amassed a $1.3 billion bet in 2009, Financial Industry Regulatory Authority records show.

The brokerage didn’t have enough controls in place to detect that Jared Weinryt, 31, had breached his $116 million trading limit as he made overnight bets on futures, Finra said this month. The trades led to losses for Morgan Stanley Smith Barney of about $14.9 million, according to Finra.

Morgan Stanley Smith Barney “detected the trading activity by a former employee that occurred three years ago, stopped it promptly, reported it to regulators, and has since added new controls designed to prevent a reoccurrence,” Christine Jockle, a spokeswoman for the unit, said in an e-mailed statement. Photographer: Chip East/Bloomberg

Regulators are pressing Wall Street to heighten risk controls after multibillion-dollar trading losses at UBS AG and JPMorgan Chase & Co. (JPM), the collapse of MF Global Holdings Ltd. (MFGLQ) after a $6.3 billion bet on European debt, and Knight Capital Group Inc. (KCG)’s $270 million loss caused by faulty software.

Morgan Stanley Smith Barney “detected the trading activity by a former employee that occurred three years ago, stopped it promptly, reported it to regulators, and has since added new controls designed to prevent a reoccurrence,” Christine Jockle, a spokeswoman for the unit, said in an e-mailed statement.

The brokerage employed Weinryt from 2006 to 2009, Finra records show. He bought and sold futures, agreements to trade assets at set prices and dates. Investors sometimes buy futures as a bet on price fluctuations and sell them before the delivery date. Weinryt traded in futures tied to U.S. sovereign debt and Eurodollars, according to Finra.

Market Turned

Weinryt’s futures bets totaled about $744 million at the end of the trading day on July 14, 2009, exceeding his $116 million limit, according to a document posted on Finra’s website. His bets swelled to about $1.33 billion as he continued trading overnight, the document shows.

The market turned against Weinryt the next morning and he tried to reduce the bets, incurring losses, according to Finra. The brokerage cut off Weinryt’s access to the trading system in late morning on July 15 and liquidated the contracts by the next day. Total losses were $14.9 million, Finra said.

The industry regulator suspended Weinryt from trading for two months and fined him $7,500 earlier this year, records show. He consented to the sanctions without admitting or denying the findings, according to Finra. Weinryt declined to comment.

He now works in the institutional fixed-income sales division of Palm Beach Gardens, Florida-based Kiley Partners Inc., which trades securities including municipal bonds, U.S. government bonds and corporate debt.

“We were delighted to have an opportunity to employ a smart and talented employee like Jared Weinryt,” Chief Executive Officer Michael Kiley said yesterday in a phone interview. He “does a great job for us and his clients.”

Morgan Stanley owns 51 percent of the Smith Barney brokerage, which has more than 17,000 advisers and $1.74 trillion in client assets. Citigroup, the third-largest U.S. lender, owns the rest and is in the process of selling an additional 14 percent stake to Morgan Stanley. Both banks are based in New York.

First Federal Reserve Audit Reveals Trillions in Secret Bailouts

Πηγή: The World News
By Matthew Cardinale

Monday, 29 August 2011

ATLANTA, Aug 28 (IPS) - The first-ever audit of the U.S. Federal Reserve has revealed 16 trillion dollars in secret bank bailouts and has raised more questions about the quasi-private agency's opaque operations.

"This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for
everyone else," U.S. Senator Bernie Sanders, an Independent from Vermont, said in a statement.

The majority of loans were issues by the Federal Reserve Bank of New York (FRBNY).

"From late 2007 through mid-2010, Reserve Banks provided more than a trillion dollars. in emergency
loans to the financial sector to address strains in credit markets and to avert failures of individual
institutions believed to be a threat to the stability of the financial system," the audit report states.

"The scale and nature of this assistance amounted to an unprecedented expansion of the Federal
Reserve System's traditional role as lender-of-last-resort to depository institutions," according to the
report.

The report notes that all the short-term, emergency loans were repaid, or are expected to be repaid.

The emergency loans included eight broad-based programmes, and also provided assistance for certain
individual financial institutions. The Fed provided loans to JP Morgan Chase bank to acquire Bear Stears,
a failed investment firm; provided loans to keep American International Group (AIG), a multinational
insurance corporation, afloat; extended lending commitments to Bank of America and Citigroup; and
purchased risky mortgage-backed securities to get them off private banks' books.

Overall, the greatest borrowing was done by a small number of institutions. Over the three years,
Citigroup borrowed a total of 2.5 trillion dollars, Morgan Stanley borrowed two trillion; Merryll Lynch,
which was acquired by Bank of America, borrowed 1.9 trillion; and Bank of America borrowed 1.3
trillion.

Banks based in counties other than the U.S. also received money from the Fed, including Barclays of the
United Kingdom, the Royal Bank of Scotland Group (UK), Deutsche Bank (Germany), UBS (Switzerland),
Credit Suisse Group (Switzerland), Bank of Scotland (UK), BNP Paribas (France), Dexia (Belgium),
Dresdner Bank (Germany), and Societe General (France).

"No agency of the United States government should be allowed to bailout a foreign bank or corporation
without the direct approval of Congress and the President," Sanders wrote.

In recent days, 'Bloomberg News' obtained 29,346 pages of documentation from the Federal Reserve
about some of these secret loans, after months of fighting in court for access to the records under the
Freedom of Information Act.

Some of the financial institutions secretly receiving loans were meanwhile claiming in their public
reports to have ample cash reserves, Bloomberg noted.

The Federal Reserve has neither explained how they legally justified several of the emergency loans, nor
how they decided to provide assistance to certain firms but not others.

"The main problem is the lack of Congressional oversight, and the way the Fed seemed to pick winners
who would be protected at any cost," Randall Wray, professor of economics at University of Missouri-
Kansas City, told IPS.

"If such lending is not illegal, it should be. Our nation really did go through a liquidity crisis - a run on
the short-term liabilities of financial institutions. There is only one way to stop a run: lend reserves
without limit to all qualifying institutions. The Fed bumbled around before it finally sort of did that,"
Wray said.

"But then it turned to phase two, which was to try to resolve problems of insolvency by increasing Uncle
Sam's stake in the banksters' fiasco. That never should have been done. You close down fraudsters,
period. The Fed and FDIC (Federal Deposit Insurance Commission) should have gone into the biggest
banks immediately, replaced all top management, and should have started to resolve them," Wray said.

Renewed questions about the Federal Reserve have inspired some young activists to organise grassroots
protests across the U.S.

"Since its creation by the U.S. Government in 1913, the Federal Reserve has created so much new
money out of thin air that it has destroyed 95 percent of the dollar's value," Joseph Brown, a college
student and one of the organisers of a recent protest of the Federal Reserve Bank of Atlanta, said.

"This hidden inflation tax benefits Wall Street and the government, but hurts the poor and those living
on fixed incomes, such as senior citizens, the most," Brown said.

The U.S. Government Accountability Office (GAO) audit itself was the result of at least two years of
grassroots lobbying. IPS reported in June 2009 a wide bi-partisan coalition of Members of Congress had
co-sponsored legislation to audit the Federal Reserve.

The audit was ordered as an amendment by Sanders as part of the Dodd-Frank Wall Street Reform and
Consumer Protection Act - a major banking overhaul passed by President Barack Obama and the U.S.
Congress in 2010.

"I think this (the first ever GAO audit) was a good start to uncovering what the Fed did so that we can
begin to determine whether similar actions should ever be permitted again," Wray wrote, adding, "my
preliminary answer is a resounding no."

The GAO also found existing Federal Reserve policies do not prevent significant conflicts of interest. For
example, "the FRBNY's existing restrictions on its employees' financial interests did not specifically
prohibit investments in certain non-bank institutions that received emergency assistance," the report
stated.

The GAO report noted on Sep. 19, 2008, William Dudley, who is now the President of the FRBNY, was
granted a waiver to let him keep investments in AIG and General Electric, while at the same time the
Federal Reserve granted bailout funds to the same two companies.

"No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit
on the Fed's board of directors or be employed by the Fed," Sanders said.

The GAO is currently working on a more detailed report regarding Federal Reserve conflicts of interest,
which is due on Oct. 18, 2011.