Financial Reform is Anti-Hunger Policy

Remember the hunger crisis of 2008, when food-price spikes drove an additional 130 million people into hunger. At Bread for the World Institute, we talked a lot about what was at the bottom of this in our 2009 hunger report: rising gas prices, droughts, lack of investments in agriculture, better diets in some parts of the developing world, and a surge of investment in biofuels.

One thing we didn’t talk about in this report, but later proved to be a crucial factor was derivatives trading. As Robert Reich explains in his Salon column today, “derivatives are bets on whether the price of certain assets will rise or fall, bets thereby "derived" from asset prices.”

In 2008, those assets included fuel and farm commodities. Basically, the same reckless speculation in the housing markets occurred in these markets. In fact, once the housing market went bust in 2006, Wall Street investors went looking for the next best bet, and farm commodities were part of their rampaging appetite.  Food First has a good blog post from a couple of days ago on this, and the Institute for Agriculture and Trade Policy (IATP) out of University of Minnesota has also been writing about this for some time.

If you’re following the financial reform debate, you probably know that Senator Blanche Lincoln of Arkansas has proposed putting new restrictions on derivatives trading. The Lincoln provision doesn’t eliminate the possibility of 2008-like price spikes happening again, but it does force large Wall Street investment firms from being able to gamble as recklessly as before.

Currently, when Wall Street gambles on derivatives, they're doing it with tax-payer guaranteed bailouts if the bets go bust. We bailed them out after they melted down the world economy, forced millions of people into unemployment and poverty, and drove 130 million people in the developing world into hunger. Bailing them out adds insult to injury.

Lincoln’s derivatives provision currently undoes some of the deregulation of the 1990s, specifically the abolition of the Glass-Steagall Act, which separated boring old banking from the kind of casino capitalism practiced by large financial institutions like Goldman Sachs, CitiBank and Lehman Brothers. Lincoln’s provision wouldn’t restore Glass Steagall, but it would force the big Wall Street firms to give up derivatives trading if they wanted government to insure their bets. 

During the 2008 farm bill negotiations, Senator Lincoln was unbending in her support for subsidies to US farmers, something Bread for the World fought hard to reform. I don’t know where the senator’s mojo on derivatives is coming from—but who really cares? She deserves all our support on this one.