Facebook Spying Explained

Besides being a child of In-Q-Tel, a CIA  front company, Facebook is also financed in part by Microsoft, Goldman Sachs, Hong Kong magnate Sir Ka-shing Li and venture capitalist Peter Andreas Thiel.

by Byron Acohido
USAToday
November 17, 2011

In recent weeks, Facebook has been wrangling with the Federal Trade Commission over whether the social media website is violating users’ privacy by making public too much of their personal information.

This is how Facebook spies on you. Click to enlarge. Image: USAToday

Far more quietly, another debate is brewing over a different side of online privacy: what Facebook is learning about those who visit its website.

Facebook officials are now acknowledging that the social media giant has been able to create a running log of the web pages that each of its 800 million or so members has visited during the previous 90 days. Facebook also keeps close track of where millions more non-members of the social network go on the Web, after they visit a Facebook web page for any reason.

To do this, the company relies on tracking cookie technologies similar to the controversial systems used by Google, Adobe, Microsoft, Yahoo and others in the online advertising industry, says Arturo Bejar, Facebook’s engineering director.

Facebook’s efforts to track the browsing habits of visitors to its site have made the company a player in the “Do Not Track” debate, which focuses on whether consumers should be able to prevent websites from tracking the consumers’ online activity.

If they happen to miss you the first way, they have a back up plan. Click to enlarge.

For online business and social media sites, such information can be particularly valuable in helping them tailor online ads to specific visitors. But privacy advocates worry about how else the information might be used, and whether it might be sold to third parties.

New guidelines for online privacy are being hashed out in Congress and by the World Wide Web Consortium, which sets standards for the Internet.

If privacy advocates get their way, consumers soon could be empowered to stop or limit tech companies and ad networks from tracking them wherever they go online. But the online advertising industry has dug in its heels, trying to retain the current self-regulatory system.

Online tracking involves technologies that tech companies and ad networks have used for more than a decade to help advertisers deliver more relevant ads to each viewer. Until now, Facebook, which makes most of its profits from advertising, has been ambiguous in public statements about the extent to which it collects tracking data.

And the third weapon used for spying by a social network is this one. Click to enlarge.

It contends that it does not belong in the same camp as Google, Microsoft and the rest of the online ad industry’s major players. Facebook CEO Mark Zuckerberg made this point to interviewer Charlie Rose on national TV last week.

For the past several weeks, Zuckerberg and other Facebook officials have sought to distinguish how Facebook and others use tracking data. Facebook uses such data only to boost security and improve how “Like” buttons and similar Facebook plug-ins perform, Bejar told USA TODAY. Plug-ins are the ubiquitous web applications that enable you to tap into Facebook services from millions of third-party web pages.

Facebook spokesman Andrew Noyes says the company has “no plans to change how we use this data.” He also says the company’s intentions “stand in stark contrast to the many ad networks and data brokers that deliberately and, in many cases, surreptitiously track people to create profiles of their behavior, sell that content to the highest bidder, or use that content to target ads.”

Conflicting pressures

Rather than appease its critics, Facebook’s public explanations of how it tracks and how it uses tracking data have touched off a barrage of questions from technologists, privacy advocates, regulators and lawmakers around the world.

“Facebook could be tracking users without knowledge or permission, which could be an unfair or deceptive business practice,” says Rep. Ed Markey, D-Mass., co-sponsor with Rep. Joe Barton, R-Texas, of a bill aimed at limiting online tracking of children.

The company “should be covered by strong privacy safeguards,” Markey says. “The massive trove of personal information that Facebook accumulates about its users can have a significant impact on them — now and into the future.”

Noting that “Facebook is the most popular social media website in the world,” Barton adds, “All websites should respect users’ privacy.”

After Zuckerberg appeared on the Charlie Rose TV show last week, Markey and Barton sent a letter to the 27-year-old CEO asking him to explain why Facebook recently applied for a U.S. patent for technology that includes a method to correlate tracking data with advertisements. They gave Zuckerberg a Dec. 1 deadline to reply.

“We patent lots of things, and future products should not be inferred from our patent application,” Facebook corporate spokesman Barry Schnitt says.

Facebook is under intense, conflicting pressures.

It must prove to its global financial backers that it is worthy of the hundreds of millions of dollars they’ve poured into the company, financial and tech industry analysts say. Those investors include Microsoft, Goldman Sachs, the Russian investment firm Digital Sky Technologies, Hong Kong financier Sir Ka-shing Li and venture capitalist Peter Andreas Thiel.

You may also want to read:

Invasive Cyber Technologies and Internet Privacy

Facebook & Social Media: A Convenient Cover For Spying

Read Full Article…

Speculation Drives Up Food Prices Worldwide

The practice of betting on food prices as if it was gold or silver along with the use of some food staples for the production of fuels have helped plunge millions into hunger.

by Edward Miller
Global Research
October 6, 2011

The Commodity Futures Trading Commission (CFTC) has again delayed the introduction of position limits required under the Dodd-Frank Act. These limits are intended to prevent speculation in (among other things) agricultural commodities, speculation which, many critics argue, have driven up the price of food worldwide and plunged millions into hunger.

>In late 2006, the price of food and other commodities began rising precipitately, continuing throughout 2007 and peaking in 2008. Millions were cast below the poverty line and food riots erupted across the developing world, from Haiti to Mozambique. While analysts initially framed the crisis in terms of market fundamentals (such as rising population, increased demand for resource-intensive food, declining stockpiles, biofuel and agricultural subsidies, and crop shortfalls from natural disasters), a growing number of experts have tied the massive spikes to financial intermediation. As economist Jayati Ghosh explains:

“It is now quite widely acknowledged that financial speculation was the major factor behind the sharp price rise of many primary commodities , including agricultural items over the past year … Even recent research from the World Bank (Bafis and Haniotis 2010) recognizes the role played by the “financialisation of commodities” in the price surges and declines, and notes that price variability has overwhelmed price trends for important commodities.”

Trading Regulation for Financialisation

This kind of speculation was made possible by deregulation in the US financial sector, in particular the Commodity Futures Modernization Act 2000 (CFMA), exempting commodity futures trading from regulatory oversight. Crucially for our narrative, this removed limits on the number of contracts that could be held at any one time (called position limits) from the equation. Firms like Goldman Sachs, Morgan Stanley and Barclays began developing index funds (collective investment schemes) based on these commodities, specializing in buying futures contracts in the belief that the future price will be higher than the present price. Journalist Fred Kaufman eloquently stated this in his Harpers article ‘The Food Bubble’:

“Goldman Sachs envisioned a new form of commodities investment, a product for investors who had no taste for the complexities of corn or soy or wheat, no interest in weather and weevils, and no desire for getting into and out of shorts and longs – investors who wanted nothing more than to park a great deal of money somewhere, then sit back and watch that pile grow.”

All manner of institutional investors began dumping capital into these funds, driving prices, and profits, through the roof:

“As the global financial system became fragile with the continuing implosion of the US housing finance market, large investor, especially institutional investors such as hedge funds and pension funds and even banks, searched for other avenues of investment to find new sources for profit. Commodity speculation increasingly emerged as an important area for such financial investment.”

Traditionally, futures contracts play an important role in price discovery, reducing the price risk of the commodity itself. However without a limit to the number of commodity futures contracts that could be held, investors were able to withhold huge amounts of food from entering the market. When combined with the real supply and demand factors mentioned above, this spelt volatile price spikes; between 2005 and 2008 the price of maize nearly tripled, wheat prices increased by 127%, and rice by 170%. Throughout the crisis, at least 40 million people went driven into hunger, and the number of people driven into extreme poverty rose from 130 to 150 million.

And worse, this speculation wasn’t limited to the 2007-2008 period. While commodity prices fell again in 2009, the latter half of 2010 saw them again skyrocket, reaching an all-time high at the end of that year, and remaining high into this year. Today, over a billion people remain hungry, while wealthy investors continue to reap huge profits by gambling on the stomachs of the world’s most vulnerable.

Dodd-Frank Reform

Following the global financial crisis, Representative Barney Frank and the Chairman of the Senate Banking Committee Chris Dodd proposed legislation to boost US financial stability. The Dodd-Frank Act provided sweeping financial reforms to the US financial sector, including reforms to commodity futures regulation. Section 737 (4) requires the CFTC to ‘establish limits on the amount of positions, as appropriate, other than bona fide hedge position, that may be held by any person with respect to contracts of sale for future delivery or with respect to options on the contracts or commodities traded on or subject to the rules of a designated contract market.’ These limits should, ‘to the maximum extent practicable … diminish, eliminate, or prevent excessive speculation … [and] deter and prevent market manipulation, squeezes and corners…”.

So far so good right, problem solved? Think again. The legislation provided a 270-day window in which position limits were to be put in place, meaning that by the 17th of April this year, this problem should have been solved, or, at the very least, ameliorated. However that date came and went, and the CFTC failed to reach agreement. A new date was set for the 4th of October, however that date also came and went with no further advance. CFTC Chairman Gary Gensler responded, saying “We’re not trying to do this against a clock. We’re trying to do this in a way that gets it right. So a few more weeks is a small thing for us to be concerned with if we’re going to get it thought through in a better way.” The rules have now been delayed until October 18.

The Speculators Fight Back

The CFTC isn’t so much concerned with world hunger as its reason for regulating commodity futures, and has hardly addressed the issue in public statements. However futures trading also affects other commodities such as oil, gold and silver, all of which have risen sharply over the past few years. Robert Pollin and James Heintz of the Political Economy Research Institute at the University of Massachusetts calculate that,

“…the average US consumer paid a 83-cent-per-gallon premium in May for their gasoline purchases due to the huge rise in the speculative futures market for oil. Considering the US economy as a whole, this translates into a speculation premium of over $1 billion for May alone. Of the May price were to hold for a year, that would mean that the speculative premium would total $12 billion.”

The price of oil seems to be the CFTC’s main focus regarding position limits. And its something that is hotly contested, as speculative investors recoil in horror at the idea of their profit blade being diminished. Their effect is indeed being felt, as Reuters reported in mid-September that internal strife at the CFTC had slowed the progress of the position limits rule, and they were struggling to harmonise it with other regulations required under Dodd-Frank.

Leaked documents give us a picture of what the final regulation might look like. The CFTC has proposed a limit of 25% of the deliverable supply of the underlying commodity, a pitifully weak threshold that would allow four financial entities to dominate an entire commodity market. Indeed these limits might even encourage speculation, while other proposed rules would allow companies to avoid aggregating positions in different trading accounts, provided accounts are independently controlled and firewalls are imposed between trading desks. This would be very difficult to regulate, and provides banks with a set of loopholes big enough to drive a Wall Street bailout or bonus through. Traders who exceed futures limits would also be able to use swaps (derivatives that allows parties to exchange benefits of their respective financial instruments) to reduce their net position.

Asleep at the Wheel? Let’s see who’s driving…

Still, it should come as no real surprise that the limits being toyed with by the CFTC fail to address the problem of excessive speculation. CFTC Chairman Gary Gensler himself spent 18 years at Goldman Sachs, had made partner by the time he was 30, and eventually became the company’s co-head of finance. He subsequently worked as the undersecretary for domestic finance at the Treasury Department during the Clinton era, during which time he advocated the passage of the CFMA mentioned above. Commissioner Jill E Sommers also worked closely with congressional staff on the drafting of the CFMA, while another Comissioner, Scott D O’Malia, lobbied for the repeal of the Public Utility Holding Company Act, legislation that was directed at curbing speculation by energy and water utilities.

These viewpoints dominate the CFTC, and they represent the extent of regulatory capture that the finance industry holds over Washington. In light of this, it is little wonder that the proposed limits leaked from the CFTC do little to rein in excessive speculation. Added to this is the fact that the CFTC’s funding hangs in the balance. While the Senate Appropriations Committee recently approved a bill raising the CFTC budget (from $202 million to $240 million for 2012), it is unclear how this will be reconciled with a House bill that cuts the CFTC’s funding to $171.9 million.

Still, all is not lost. Within the CFTC, the other camp is headed by Commissioner Bart Chilton, a vocal supporter of position limits, who has spoken out strongly against speculation in commodity markets, especially the silver market (in late 2010 he revealed that a single trader controlled 40% of the market).

Anti-Excessive Speculation Act 2011

More promising is the Anti-Excessive Speculation Act of 2011, intended to “prevent excessive speculation in commodity markets and excessive speculative position limits on energy contracts…” Democratic Senator Bill Nelson of Florida and Representative Peter Welch introduced matching bills in late September 2011 to cap position limits at a level that reflects market fundamentals of supply and demand.

Section 5(7) of that Act defines an excessive speculative position as a position that affects “more than 5 percent of the estimated deliverable supply of the same commodity,” a drastic reduction on the amount of a commodity than can be gambled on than under either the present scenario or the leaked regulations from the CFTC. While a number of Democrats support the initiative, the massive support the Democratic Party has received from the finance industry would likely mitigate its passage in the Senate, or in the Republican-led House of Representatives for that matter. Indeed, it is would be unlikely that Congress would bother intervening while the CFTC, a supposedly expert, non-partisan body, is still busy delaying in this area.

And all the while as Washington and Wall Street bounce back and forth on this issue, commodity prices hover just below their all-time high and over a billion people continue to starve.

While the zombie bankers and blood-sucking speculators mightn’t realize it, food is a human right, and we need to recognize that the rights of humanity are far too important to be left to the market.

U.S. to Sue Banks over Mortgage Scam

by Nelson D. Schwartz
New York Times
September 2, 2011

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.

Private holders of mortgage securities are already trying to force the big banks to buy back tens of billions in soured mortgage-backed bonds, but this federal effort is a new chapter in a huge legal fight that has alarmed investors in bank shares. In this case, rather than demanding that the banks buy back the original loans, the finance agency is seeking reimbursement for losses on the securities held by Fannie and Freddie.

The impending litigation underscores how almost exactly three years after the collapse of Lehman Brothers and the beginning of a financial crisis caused in large part by subprime lending, the legal fallout is mounting.

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Understand History To Understand The Current Markets

Bob Chapman
International Forecaster
August 20, 2011

The Fed has been behind all the failings of the markets, Europe now a disaster waiting to happen, about leveraged speculation and counterparty risk, now we have an escalating debt crisis, the perpetual creation of money is the theft of the value of labor due to the inflation that is caused.

Every professional has their own method of analyzing markets, finance and economies, and some do well coming up with the direction of social and political issues as well. The other 97% miss one-half to two-thirds of the time. That is not very good and one asks why? The answer is simple they really haven’t studied history as well as they should have.

Some believe that the crisis in Europe is the heart of today’s problems. It certainly is a strong integral part, but not the primary causation. The 3-year old finance bubble was created by the Federal Reserve, which began the situation starting in 1993. We saw the dotcom boom, which they could have stopped in its tracks. All they had to do is raise margin requirements from 50% to 60% temporarily. After that collapse in mid-March 2000, they decided rather than purge the systems, as they as well should have done in 1990-92, they created another bubble in real estate. They have been trying to recover from that bubble and other layover problems since we’d say 2000.

Yes you can blame Europe for its part, but the blame lies with the Bank of England, the European Central Bank, and the banks and personages, who control those entities. Those in England, Europe and in the US, who control business, finance and economics from behind the scenes, have played the parts they have in order to bring about world government. If you can perceive and accept that from an historical perspective, they you can understand what is really going on.

European banks are struggling with their fundings and credit is drying up. This is what happened in 2008. As a result Europe is a disaster waiting to happen. Europe is finally realizing this is all about debt. The socialists want it go away, just disappear but it does not happen that way. Debt and credit default swaps will in the end rule the day.

Few reflect back to 12 years ago when the Maastricht Treaty was being approved. The cornerstone was public debt that was not supposed to be more than 3% of GP. That did not last long. Then Italy and Greece, with the help of Goldman Sachs and JPMorgan helped these two basket cases qualify for the euro and euro zone by Mickey Mousing their balance sheets. We saw one interest rate fits all and we knew the euro was doomed before it got started. The condition of the euro zone and Europe is certainly terrible, but so are US debt problems. Policy decisions are bad, but not any worse than they are in the US.

We see pundits trying to separate sovereign debt from bank debt. They are one in the same, because the banks control the governments, and tell them what to do. Europe particularly France, was very upset last week when SoGen was rumored to be insolvent. The answer from those accused was rubbish. SoGen has a history of one of the most criminal banks in the world, so what is new. Just more criminality. SopGen and France are under pressure because they own loads of PIIG debt and are being asked to supply more funds to bail out their neighbors, a role they cannot fulfill without going under themselves. The situation France is in is three times worse what it was in 2008. Everyone expects France and Germany to bail out the bankrupts and that cannot happen. Neither the banks nor the governments can continue to do what they have been doing and at the same time control their financial systems and economies. Now you can understand why CDS credit default swaps trade above 180, when they traded at 80 in 2008. We feel that if the six countries in trouble are not allowed to default it will take the other nations under as well. There is much at stake here. Not only the insolvency but also the breakup of the euro zone and the euro and the dream of using them as a template for a new world order.

In addition it is very significant CDS for Brazil jumped from 35 to 152 as did Mexico, which is an indirect result of what is going on in Europe, UK and the mortgage bond market and by cutting back 30% on loans to small and medium sized businesses. Although they are very leveraged in their other operations, such trading and global leveraged speculation include great counterparty risk. This time exposure is somewhat different but the exposure in the theatre could be just as bad risk wise as it was in 2008. Generally speaking they are not long gold and silver bullion and shares, they are for the most part short. The venue that could be very dangerous is derivatives. The way these major banks and countries have become interconnected the danger always persists and once a fallout begins it could bring down all major banks and countries. Don’t let that fact escape you. They dodged the bullet in 2008, but they might not the next time. The carry trade is as large as it has ever been and the cost of borrowing is close to zero, again, encouraging taking on too much risk.

This past two weeks currency markets have seen large swings, especially in second and third tier countries. No one knows the size of carry trades affecting these countries. We have seen a number of countries quickly give up almost all of their dollar gains of the past several months and the Swiss and Japanese have spent billions of dollars trying to push down the value of their currencies, but to no avail. The euro and the dollar have stayed about the same, but we see the euro weaker due to ongoing financial problems, which contrary to conventional wisdom have not been solved. Throughout Europe not only has money been lent at very low rates, but also much of it is uncollectible. This broken European bubble will deflate for some time to some. It will affect all other sovereign debt negatively as well. These are the borrowers of part of that $16.1 trillion that was lent by the Fed over the last few years, which has never been paid back. European banks are buried in debt and the politicians, whom they own, will do their best to protect them. Unfortunately, there is no painless solution. The contagion is underway and the latest meeting to solve these problems was a failure. The latest European version of the issuance of quantitative easing to buy Italian and Spanish bonds will prove to be futile, just another attempt with taxpayer funds to bail out the banks. This possible “Black hole of Calcutta” at this point puts Europe in a worse position compared to the US, which is no piece of cake, and probably won’t far any better in the future. The working out of US problems will just take longer. As each day passes and in spite of the disinformation, confidence in Europe and the US falters and rightly so. The US has no periphery to support essentially Europe does and that is in favor of the US, but ultimately US problems are far more overwhelming.

The recent commitment of the Fed for zero interest rates for the next two years showed great weakness and will in time come back to haunt them. This was another reward for Wall Street speculators and another moldy bone thrown to the nations savers and elderly. There is no question Wall Street and banking, which own the Fed are desperate, to make such a commitment. The decision for QE 3 was made 15-months ago when we predicted it. We could see it coming and we know the decisions of the last 11 years and the pressure being exerted on the Fed will ultimately bring about its demise, and its days of looting the American public will be over. What the Fed and the ECB have done in greed and for their dream of world government is over. We are closing in on payback time, as desperate measures become more noticeable and a solution remains out of their reach. They will pay for what they have done to us.

Even though we expect at least a few more years of unrestrained leveraged speculation, it will then come to an end. It has become a crucial factor for monetary policy championed by both Sir Alan Greenspan and Ben Bernanke. Wall Street and baking love it, because their positions allow them to create inside information, which allows them to make money consistently with little or no risk. We also have the SEC and the CFTC perpetually looking the other way aiding and abetting their criminal behavior. If you add in that there are no limits to what they can do you essentially have an ongoing free for all. This is unrestrained finance via a policy of zero interest rates. This gives Wall Street and banking a license to steal.

All this has caused a bubble and that bubble is in the process of bursting, a product of fiscal and monetary stimulus. That is not only in the US, UK and Europe, but worldwide As a result confidence in the global system is being lost. De-leveraging of bullish bets in markets of bonds and stocks is underway. Ironically these speculators are short gold and silver and the shares. Short covering is in process with some even switching to the long side in the gold and silver bullion and share markets. How any economist could believe that leveraged speculation reduces risk is beyond us. Fortunately the other shoe has dropped and such theory has been disproved.

The result of all this is that we have an escalating debt crisis worldwide and now the experts in and out of government do not have any solutions as to how to rectify the situation. The sovereign debt crisis has been underway since the early 1970s. This experience shows you how long bad things can last. Before this is over trillions of dollars will be defaulted upon. The days of overwhelming stimulus to gain traction in the economy or economies is in the process of being ineffective. We like to call it the law of diminishing returns. The $2.3 to $2.5 trillion we project that the Fed will have to create in the coming fiscal year will at best produce GDP growth of zero. The minute the Fed and Congress stop feeding the system we will be looking at negative growth of 5%. We are headed toward crunch time and there is no avoiding it. Uncertainty and instability are America’s and the world’s next challenge. Currencies are going to react widely. Gold and silver will fly along with the gold and silver shares as a result of debt and falling economies accompanied by inflation. The big problem will not only be de-leveraging, but also the opaque derivative markets and the Exchange Traded Funds, many of which are leveraged. Yes, it will be a very rough ride, so you had best get ready for it. We never had a recovery and the trappings of growth are quickly falling away. Extending the time line for all these problems is coming to an end, but it probably will not be abrupt. There will be all kinds of terrible events, but it looks like the elitists are going to play this out over an extended time frame before they attempt to pull the plug. That means these problems could be extended out five or even ten more years on a degenerating basis. That also means we will continue to have limited wars for financial gain and distraction. The strategy has been and will continue to be to keep creating money and credit and allow inflow to reduce the size of the debt. These comments regarding debt quoting Bernanke and throwing money from helicopters and Greenspan’s admission that the US cannot be downgraded, because it can always print money are flippant and very unprofessional. What they have both done rather than allow the US government to default is to perpetually create money and credit to paper over the economy’s failure. This process increases inflation that quietly steals the value of purchasing power like a thief in the night. Both men can be classified as thieves for having done to the American people and others by stealing the fruits of their labor. This trick used by money masters and politicians for centuries is little understood by the public and most cannot understand how it works and the ultimate ramifications. These characters and others create additional debt, which is followed by other nation’s central banks, which has created a race to the bottom and eventually all nations cannot pay their debts and default. Eventually in order to prevent a collapse in the financial system a meeting is held such as was held at the Smithsonian talks in the early 1970s, or the Plaza Accord in 1985 and the Louvre Accord in 1987. All currencies are revalued and devalued and there is multilateral debt settlement. We believe that is how all this will come about.

Evidentially a deal has been made from behind the scenes to relieve the Fed of having to produce $850 billion in stimulus and that task has been delegated to Mr. Obama. The President, while calling for budget cuts, is calling for $850 billion for stimulus 3. Observing recent actions by Congress some idiotic excuse will be made up and like magic stimulus 3 will appear. We also suggest that the President will use the London rioting as a cause for such stimulus. Remember never let a crisis go to waste. It is sure to be sold in the behalf of preservation of order. We do not believe the powers behind government will get the desired results.

Admittedly, Ben Bernanke inherited a can of worms from Sir Alan Greenspan. Ben has been able to accumulate $3 trillion worth of an assortment of Treasuries, Agencies and CDS, and MBS’s, also known as toxic waste, over the past few years. Those moves decidedly have been negative for the rating of US government debt. The rating really should have been lowered five years ago during the Greenspan years and perhaps even sooner than that. Due to massive increases since 2006 by the Fed we now already are in a bubble.

The 12 person congressional debt commission, we like to refer to as the Obama Enabling Act, patterned after Adolph Hitler’s legislation of 1933, which allowed him to become dictator of Germany, supposedly will produce moderate spending cuts. Knowing that Standard and Poor’s has warned this “Star Chamber” proceeding, which bypasses Congress, that there are not substantial cuts in Social Security and Medicare, that S&P will again lower the US debt rating. Everyone seems to overlook that fact. That means that if there is not large Social Security and Medicare cuts and an increase in taxes, S&P will strike again, and the bond market will burst, and Mr. Bernanke’s house of cards will collapse. As we explained previously the debt extension could have been passed in 15 minutes, but it wasn’t because the powers behind government the Council on Foreign Relations, wanted to chop up SS and Medicare, and to put this panel in place. All is never what it seems to be.

Playing with Food: The Scalpers of our Daily Bread

As food prices reach record highs, how much is the speculation in agricultural commodities to blame?

Felicity Lawrence
UK Guardian
June 3, 2011

With food prices reaching record highs again this year, what goes on inside a 650ft Chicago skyscraper topped by a statue of the goddess Ceres is coming under intense scrutiny.

It is here that the world’s oldest futures and options exchange, the Chicago Board of Trade (CBOT), was established in 1848 to serve the great grain belt that had opened up in the American midwest. And it is here that the international price of agricultural commodities is set to this day.

“There’s a lot of weather in the market, the northern growing season has been traumatic, with drought in Europe and China and tornadoes and floods in the US. No one is panicked yet, but any additional crop loss, say in Russia, will quickly bring new worry to the market and that could quickly turn to panic. We may be one more event away from panic,” Dan Basse, president of AgResource, one of Chicago’s most respected commodity analyst companies, warned as we watched the opening of a day’s trading last month.

G20 agriculture ministers will meet in Paris on 22 June to discuss food security and prices. Speculative activity and how to contain it is high on their agenda.

Debate has been raging since 2008, when price rises provoked riots around the world, about whether or not the new money that has flooded into the commodities markets since 2003 is the cause of the problem – and if so, how to regulate it.

In Chicago, before the financial day begins, teams of traders pump themselves up outside on chain-smoked cigarettes and outsize McDonald’s coffees. The coloured blazers they use to make themselves easily identifiable on the trading floor have been reduced to bright jackets with string-vest backs to counter the heat generated by a day’s speculation. They keep on their toes in training shoes.

Inside, when the bell announces the start, there is a frenzy of noise. Traders yell at one another and wave their arms in violent gesticulation, palms out to signal sell, palms in to signal buy. There are “scalpers” who buy and sell within seconds, “floor brokers” hedging for corporate accounts, and hundreds of runners rushing orders to the recorders.

At the end of May, the price of corn was up again – most traders and analysts expected it to continue rising along with other commodities.

Basse is one of those who thinks underlying fundamentals – a serious mismatch between supply and rapidly growing global demand – are behind this year’s price rises.

“Speculation is the easy thing to point the finger at and it’s easy to fix. Back in 2008, when prices were up and there was lots of money pouring in, that may have pushed prices up, but today we don’t see that as having a significant effect,” Basse said.

“Look at growth in world livestock demand and in biofuels demand, and you can see what’s been driving the agricultural bull market.”

He painted a troubling picture of what is likely to come. He estimates the world needs to bring around 10.3m hectares of new land a year into food production “just to keep stocks steady”, but he says that will be increasingly hard to do as the land that remains available is reduced to what is environmentally fragile.

A “weekend” farmer of GM crops himself, Basse admits the promise that biotech seeds would deliver big increases in yields has turned out to be illusory. He also fears that “superweeds are coming on so fast with GM that US farmers are going to have to go back to more traditional cultivation methods [as opposed to the practice with GM seeds of not tilling the soil and simply spraying to control pests] – but they don’t have the capacity to do that.”

Europe, Basse said, will soon have no choice but to lift its ban on imports of GM crops for animal feed. With its own crops suffering drought, it will have to turn to Brazil, the only major supplier of non-GM imports. However, the Chinese have already bought up large chunks of the Brazilian crop. The policies in the US and the EU of promoting biofuels will be unsustainable.

The company that owns CBOT, the Chicago Mercantile Exchange group (CME), also rejects the notion that the enormous rise in speculation in agricultural commodities in recent years has caused food price rises.

Farmers and processors of physical goods have long used commodities exchanges such as Chicago’s to hedge against risks such as bad harvests. Speculators willing to take the risk perform a useful role in providing liquidity. But much of the recent growth in speculation has been through new “structured” products invented by banks and sold to investors.

After intense lobbying, banks won deregulation of commodities markets in the US in 2000, allowing them to develop these new products. Goldman Sachs pioneered commodity index funds, which offer investors a chance to track changes in a spread of commodity prices including key agricultural commodities.

Between 2003 and 2008, investment in commodity index funds rose from $13bn to $317bn (£193bn). But the CME’s head of product development, Fred Seamon, said: “There is no credible evidence that suggests index funds or any group of traders are a cause for high prices or increased volatility. There may be a correlation, but that’s a completely different thing.”

CME argues that the volume of speculation is not a problem, because the overall composition of the agricultural commodities market has not changed; the increase in activity by index funds has been matched by an increase in trading by those who are commercial participants, that is those who have a direct interest in the physical goods.

“That’s an indefensible position,” Chicago–based hedge fund manager Mark Newell of Quiddity retorted. He and another hedge fund manager, Mike Masters, prepared testimony to the US Senate when it was looking into the effect of speculation on food prices in 2008.

“When billions of dollars of capital is put to work in small markets like agricultural commodities, it inevitably increases volatility and amplifies prices – and if financial flows amplify prices of food stuffs and energy, it’s not like real estate and stocks. When food prices double, people starve ,” Masters said.

The UN rapporteur on the Right to Food, Olivier de Schutter, added his weight to Masters’ side of the debate at the end of last year when he concluded a speculative bubble was responsible for a significant part of the food price rises.

An OECD study, however, did not find a link. Aid agencies such as Oxfam and Christian Aid are calling for reregulation.

In the US, the regulator – the Commodities Futures Trading Commission – has until July to produce a new framework for the commodities markets for Congress. It has been looking at imposing limits on the size of positions that traders can take, and at regulating the commodity index fund trades that are currently unregulated because they take place “over the counter”; that is, between investors and banks. But the financial industry has proved resistant to reforms. G20 ministers will have to decide their own position soon, too.

Newell, meanwhile, remains convinced that without action prices will continue to go up, partly because of underlying fundamentals, but also because, just like in 2008, “the game’s afoot again”.