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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Thursday, January 24, 2013

Goldman Sachs: Speculators and Hedgers

One of the results of not having completed all the rules and regulations regarding speculation and hedging is that there is a level of uncertainty about whether or not adverse speculation is actually taking place when, for example, food prices increase so that poorer countries cannot afford to feed their people.  
Right now, the CFTC has been given the mandate to make rules regarding such speculation but it has met with resistance from speculators (like Goldman Sachs).  Even a judge has ruled that some of the CFTC position limits were ambiguous and thus could not be implemented in the way they were presented.
By delaying the implementation of regulations, speculators have a greater chance to speculate indiscriminately.  The lobbyists against speculation are pleased not to have rules that bind them in ways they so not like.  The chart from FAO here certainly shows that the price of food has gone up drastically since 2007.

Some definitions:
"Hedging involves taking an offsetting position in a derivative in order to balance any gains and losses to the underlying asset. Hedging attempts to eliminate the volatility associated with the price of an asset by taking offsetting positions contrary to what the investor currently has. The main purpose of speculation, on the other hand, is to profit from betting on the direction in which an asset will be moving." (Investopedia)

"Overall, hedgers are seen as risk averse and speculators are typically seen as risk lovers. Hedgers try to reduce the risks associated with uncertainty, while speculators bet against the movements of the market to try to profit from fluctuations in the price of securities." (Investopedia)

Thus we have headlines such as the one below and then denial from others that any speculation has taken place when food prices rapidly rise.
Goldman Sachs Made $400 Million Betting On Food While People Starved, Says Anti-Poverty Group
By Lisa Mahapatra - Business Insider
 . . . .
One of the biggest food speculators in the market is Goldman Sachs, which made an estimated $400 million from speculating on food, according to a report by WDM.

"Goldman Sachs is the global leader in a trade that is driving food prices up while nearly a billion people are hungry,"said WDM's Christine Haigh.

From the report:

"The US has passed legislation to limit speculation, but the controls have not been implemented due to a legal challenge from Wall Street spearheaded by the International Swaps and Derivatives Association, of which Goldman Sachs is a leading member. Similar legislation is on the table at the EU, but the UK government has so far opposed effective controls. Goldman Sachs has lobbied against controls in both the US and the EU."
Read the whole article here


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