Food, Speculation and Parasitical Trading

Food, Speculation and Parasitical Trading


PAUL JAY: Welcome to The Real News Network.
I’m Paul Jay in Washington. The average retail price of gasoline at the pump in the US, excluding
taxes, in May was $3.96. In January 2009, the average retail price was a $1.96. In other
words, consumers are now paying twice as much to fill their cars as they did two and a half
years ago. Meanwhile, the FAO global food price index for June was 39 percent higher
than June 2010. The upsurge in global food prices has created food emergencies and spread
malnutrition throughout the developing world. To what extent is all of this the result of
speculation? Now joining us to unpack all of this is Bart Chilton. Bart is a commissioner
at the Commodity Futures Trading Commission in Washington. Thanks for joining us again. BART CHILTON: Sure, Paul. JAY: So how much is speculation driving up
the price of food? CHILTON: Well, I think it’s having an impact.
A lot of people use this worddrivingthe price of food and/or energy, and I’m not
so sure that they are driving the price. I think they may be hurting and pushing the
price higher when they’re in the markets, and sometimes lower, actually, when they’re
getting out of the market, and that it pushes prices beyond what they would normally be,
and it stays there for longer than it would normally be. And I think that’s the case in
some ag commodities that impact food prices, and I think it’s the case with regard to energy.
If you look at where we were back in 2008, where a crude oil touched $147.27, there’s
no supply-and-demand reason why that price should have been so high. What we do know
is that there was a large increase in speculation in these markets. And if you think it was
bad then, or it might have been bad then, since that time, June 2008, we’ve seen speculation
increase by 64 percent in the energy markets to an all-time high this year; in the agriculture
markets, roughly 20 percent increase in speculation since 2008; in the metals markets, roughly
a 20 percent increase in speculation since 2008. So speculators are in the market. Don’t
get me wrong: you need speculators. You don’t have a market without them. The question is:
is there an appropriate role, and is there some sort of limit that we should have? I
think there should be. Congress thinks there should be. They’ve told us to put limits in
place. And we are going to get at it. JAY: You’ve given some examples of–when we
were talking before, of how some of the flash speculation works and some of the crazy shifts,
’cause you’ve got a body of what’s–academic research that’s claiming speculation doesn’t
affect spot markets, that spot markets are what they are, and the people win or lose
their bets, but there’s not a real interaction there. CHILTON: Well, two things, Paul. One, we’ve
seen some anomalies in markets just this year that I think are a little bit inexplicable.
And I like to look at a certain group of traders that I call cheetahs. These are high-frequency
traders that try to make quick decisions to gain microdollars in milliseconds. So if you
look at May 1 of this year, 6:15 in the evening, on electronic trading, the silver market went
down 12 percent in 13 minutes–12 percent in 13 minutes. You’ve got to think, well,
who’s trading so fast that could move a market and make it so volatile? But I’ll give you
even another one. On June 7, the natural gas market on the New York Mercantile Exchange,
7:40 p.m. in the evening, electronic trading, in 14 seconds–seconds, 14 seconds–the market
dropped by 7 percent. So I’ve got to think that these high-frequency cheetahs, these
fast folks that are just getting in and out of the market, may have had something to do
with it. Now, I’m not making any–pre-judging, making any determination that they did, but
just common sense tells you to look at those folks. So all of these new class of traders–the
cheetahs, along with the massive passives that we’ve talked about, these long-term investment
folks who get in the market different than they had in the past–they’re all traders
that we need to look at anew and realize the impact that they are having on markets. JAY: To have enough of the kind of capital
it takes to affect markets at the level you’re talking, it’s enormous amounts of money. You’re
talking the big banks. At least some of this has to be big banks. CHILTON: Well, there’s different dynamics,
Paul. So if you look at these massive passives, they’re massive for a reason: they are large,
they are–lots of money, and they have a fairly price-insensitive trading strategy. They get
in the markets and stay in markets just like some of our parents would get in and buy IBM
stock and stay there for 20 years. That’s a different trading strategy. The cheetahs,
these high-frequency traders, they are in and out lightning fast. JAY: But to make it worth it, you’ve got to
be in and out with a lot of money, or you’re not making enough to be worth it. CHILTON: Yes, but you only have to be in for
a short period of time. The high-frequency traders, these cheetahs, are primarily proprietary
trading. They’re individual companies that are trying to make miniscule amounts of money
on just small market moves. And my question: is this helping markets? Is it helping discover
a true price for consumers, a fair price, if you will, for consumers? Or are these guys
really just sort of parasites on the market? And I’m not willing to make that argument
100 percent, but I’m leaning that way, because what I see so far tells me that I’m not sure
the value they’re creating in the market. There’s one large bank that has 35,000 employees,
and 1,000 of them are working on high-frequency trading type issues with regard to their programs.
And these are mathematicians and PhDs and some physicists. So, look, there’s clearly
a trend towards understanding that this is a profitable trading venue. These are a new
breed of cat, these cheetahs, and it’s something that we’re going to have to address. And I
hope we do so soon. JAY: And you’ve got the regulatory authority
to do it? CHILTON: We do. We’ve got to have the sort
of wherewithal to monitor it, and we’ve got to have the political support on the commission.
There are five commissioners. I’m just one. So we’ve got to have at least three of the
five commissioners to do anything. But I think it’s an area of regulation that we need to
move forward on in a thoughtful way, in a careful way. I don’t want to make any predetermined
decisions about how everything should be, but I think we should test these programs
to make sure that they work. I think that we need to have some sort of accreditation
process to make sure that these cheetahs who come into these markets aren’t interested
in financial terrorism. I think we have to have kill switches, so that when these programs
potentially go feral and start operating like we saw in the flash crash, May 2010, May 6,
2010, that they somehow can shut these programs off. There’s a lot that we can do that I think
we do know, but I think there’s even more that we need to look at. JAY: You called some of this excessive speculation
is parasitical. You used the termfinancial terrorism. Those are strong words. Why? CHILTON: Well, Paul, a lot of these folks,
you know, we don’t know who they are. For example, if you look at the high-frequency
traders, these guys I call cheetahs, the number-three trader by volume on the Chicago Mercantile
Exchange is based in Prague. Now, I’m sure that that trader is fine. But who’s to say
there’s not Osama bin Laden’s relative who is involved in these markets and trying to
create an economic calamity for us? So it seems to me we’ve got to do some basic due
diligence. JAY: You don’t need an Osama bin Laden. You
just need somebody big that’s betting short. CHILTON: Absolutely. But you get–the point
is is that we need some basic due diligence to know who’s trading in these markets. They’re
so important to our economy, they’re so important to consumers, there’s got to be some basic
safeguards. JAY: So it goes back to the same issue as
in part one: is there the political will? Are you going to have resources? Are you going
to actually be able to write these regulations in time before you, as you said in the first
interview, run out the clock? I mean, what is the real politics of doing this? CHILTON: Yeah, you’re right. It’s the same
old song and dance. We’ve got resource issues for people and technology. We’ve got the political
will to do some of these things that, like the HFT’s, the cheetahs, there’s no requirement
that we address them. That’s us taking it upon ourselves to say that something needs
to be done. And I think in general that’s a problem with how government operates. All
too often we’re like the fire department: we come in after a catastrophe and hose down
the charred remains. We need to be more like the police department, looking around the
corner, thinking about what might be happening in these markets. And the cheetahs are one
area where I think we need to be nimble and quick and think how they’re–what they’re
doing and make sure that consumers aren’t being impacted in a negative fashion. JAY: So in the next segment of our interview,
let’s talk about your commission and whether, given the politics and the resources, you
can actually fulfill your legal obligation under Dodd-Frank. And please join us for the
next segment of our interview with Bart Chilton on The Real News Network.

46 thoughts on “Food, Speculation and Parasitical Trading

  1. High crimes in high places…where is law enforcement? Oh yeah..I forgot…theyre in the pockets of these NWO mafia cartels….silly me!!

  2. I'm curious what someone who knows about the topic would think about a country using a super computer like the one North Korea is working to analyze stock trends at an amazingly fast rate?

  3. I know I sound skeptical, but I think Paul brought another Don Quixote figure with him.
    The reason I'm skeptical, is because ever since I follow the markets in about 30 years, I heard at regular intervals, in fact at innumerable times various regulators making the right noises, countless promises of tougher, more efficient regulation and so forth. Yet -given some time- the results appear to be the exact opposite to what these officials proclaim to aim at..

  4. Consumers ARE being impacted. Case in point – as mention in intro – gasoline now at $3.96 , before taxes. Pure insanity!
    Wall Street is offically One Big Casino!

  5. Technology is now leading the market, wherebys before all this, the free market led the world.

    The winners in this new technology led market will be the techies…i.e. those who are "switched on" to this new form of trading.

    That is why the nouveau riche will be those high tech bankers and such like.
    The saddest thing is that these "techies", have just got off scot free with screwing up the market and have been bailed out by Governments because they were "too big to fail".
    Cheetahs?

  6. With the inevitable 3rd. Q.E. on its way, there will be a huge shift of wealth to these new techie bankers and suchlike (cheetahs…good name)….No way of stopping this.
    The losers in all this will be Joe Average and especially the old and young.
    There will be a massive divide between the nouveau riche and everyone else.
    The trickle down of this new wealth will be zilch as these nouveau riche were bred in the 80's where the "me me" and greed became the norm.
    Cheetahs are difficult to catch.

  7. Since a trade is simply an open and unforced agreement between two people to exchange a thing for a price they both agree on, it can never have any aspect that can be called "parasitical."

    As long as it's not "cheating" (by people who buy AND sell to THEMSELVES, just to raise the price at no cost), then for everything someone GAINS, someone else must LOSE. You don't think some people are losing money just to help someone else be a "parasite," do you?

  8. @GetMeThere1 Parasitic comes from the fact – that these people make money on goods, they never own for more than a few milliseconds at the cost of people who need these goods to actually survive.

  9. @GetMeThere1 No I think fewer and fewer people are winning, but they are winning more and more.
    Because the bigger u are the easier it is to "win". Like the last 20 minutes of a monopoly game.
    Thats where we are now, Goldman Sachs and Morgan Stanley and a few others are the "big boys" they cant lose and they can control any market to suit their needs.

  10. changes should be made to commodity trading… i realize you need some speculation to create liquidity but not this type of trading… regulation is NOT a bad thing…

    Kensho

  11. Thanks Bart. And great interview Paul. Good luck Bart. Let me see, you have 600 people. The traders have 10s of thousands. And playing with possibly 600 trillion dollars. Then there is the U.S. congress that side with these traders every time. Like I said Good Luck!

  12. “When you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those, who deal not in goods, but in favors; when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them, but protect them against you. . . you may know that your society is doomed.”

  13. @BroBroDude Gangsta Please, free markets? I'll let you in on a little secret: the richest most powerful people, the ones that would grind your children into paste right in front of you, masterbate with the gory pulp, then fry it up, eat it and then demand that you pay them for entertaining you… they want free markets soooo bad. They even fund massive propaganda campaigns to dupe us poor folk into believing their horse shit. Yer right, voting is the other thing these types of people hope we do.

  14. @tristbjorn : But they don't make it "at the cost of people who need….to survive." They make it at the cost of the person who sold or bought when they bought or sold.

  15. Where did they have $2 gasoline in 2009?
    dont you mean 1999?
    its been at least $3.50 for a long time, went down a little just before the election, then back up

  16. @BroBroDude THERE IS NO HOPE!!!!!! NEVER IN HISTORY HAS LIFE EVER GOTTEN BETTER, YOU CANT MAKE A DIFFERENCE.

    this is fantastic advice.

  17. @aSheeple Let me chime in please for a little explanation. No, there's hope naturally, but it's outside of the existing system.

  18. @BroBroDude Who's going to take their with in an anarchists market? You? With all your bright ideas on how to compete? Do you think us peons will be able to compete with pre existing global giants that are already organized and connected. No sir. Rich people want to peel the state away just like a rapist want to peel off his trousers before they plunge their bare cocks into our quivering asses. You drank the corporate koolaid my friend and now they got you begging for a raping.

  19. Must watch: Banksters & Speculation Behind High Food-Oil Prices
    watch?v=io6FpVvG5x0

    In 1991, CFTC of which Mr. Bart Chilto represents today waivered the position limits on future trading after lobbied by Goldman Sachs ……

    I like to believe that Mr. Chilton is genuine. But one can't help but to feel skeptical about what the CFTC can achieve.

    Mr. Chilton reminded me of the slick taking Dr. Chilton in "Silemce of The Lamb", Brothers may be!? Same mother different fathers that is. LOL

  20. @BroBroDude I don't vote, what do you think I am crazy? I don't have time to play pretend. I, like you, believe in decentralized energy… but I don't believe that the only thing holding back decentralized energy is a lack of free market. Capitalism itself hates decentralized energy. Raising the anarchy quota in the market will make it so energy barons can prevent the little guys from producing decentralized energy by any means the see fit.

  21. @BroBroDude looking at history, there have been times when the government worked for the common man, if there is enough public involvement to force a revolution, there is enough public involvement to sway elections. and in a few years, new politicians will be there changing the way things work. the truth is that the problem lies with calling the public to action at all, not calling them to revolution.

  22. @GetMeThere1 Look at any forum that deals in stockstrading, look up the phraze "Stop loss raid".
    I guarantee u 9 times out of 10 its MSI or GSI behind it.

  23. Regulation is a tool of the corporatist state to consolidate their power. Those who think market regulation will help the "little guy" think that the same institution which is maintaining 5 wars, a drug war and a prison industrial complex is somehow motivated to sincerely help the little guy. Also unhindered speculation is nonviolent, and necessary for markets to function optimally. Speculation is not the problem, our monetary system is.

  24. @BroBroDude I say anarchy because that is what is ment by free markets. Most free market koolaid drinkers would never describe themselves as anarchists… but they sure believe in anarchy when it comes to the market place. I find it quite bizarre. You see the power mongers that be will be able to finalize their stranglehold and build monopolies in your anarchal markets. Why do you think it will be such a paradice for the little guy, that's the cyonide in the koolaid.

  25. @elbowbiter1 All those I've seen advocate for "free markets" also advocate for strong policing of fraud and theft. Just not preemptive policing. The crime has to be done first, and then you go after them viciously. And anyone can do so.

    In fact the same people are asking why the heck aren't any fraud or theft laws being used on the banks, or big corporations, or even the government when it commits fraud or theft.

    Free market people advocate simple rule of law against fraud and theft.

  26. This is idiotic. Prices are going up from inflation. Period. People don't even know how speculation even works if they think every single commodity and energy product can go up at the same time for around the same amount and it's simply just "speculation coincidence"

    The Fed is printing more money and the G20 meetings have had most governments accept with one another to inflate their currencies at roughly the same rate.

    What historical speculation was remotely close to this?

  27. @aplacefaraway

    How about don't say and just shut the fuck up instead. Oil Prices go up because of government regulation.

  28. @aplacefaraway
    Dude, You're just another obama voter… There are many like you. What do you think happens when the government prints too much money, do things cost less? Or when they regulate the oil industry too much and make it harder for them to do their job? What do you think happens when the Gov charged 20% Tax at the pump? You see thats why youre an idiot.

  29. @Budguy68 you cannot explain the near doubling of the price of gas in the last year. what regulation was put in place to cause dramatic change in the last year?? of course there's inflation, but the gas price rose too fast for this to be merely inflation. a steady gov tax wouldn't cause this kind of spike either…explain exactly what law or tax was put in place to cause such a dramatic rise last year and i might believe you…

  30. Oh God. Tens of thousands mathematicians, that could like, instead of destroying the food market and such, figure out the theory of everything, or solve the string theory, or come up with better trajectories for space shuttles to make Mars colonization or something I dunno, I am not a mathematician.

    Anyway, my point is that it is a great intellectual waste, and that is the real tragedy here, even more tragic than the socioeconomic damage that is caused.

  31. @aplacefaraway
    could have something to do with the wars in the middle east which happened too. You leftist are just giving more and more power to the government. Regulation simply Equals more control for them.

  32. This kind of capitalism is really very parasitical,because it doesnt create jobs,it doesnt benefit the common people.On the contrary,it increases prices of oil and food so that low income people are hurt.It is the result of greed and arrogance.It reveals a society whose mindset is:ITS ONLY ME ON THIS PLANET AND NOBODY ELSE.So according to the speculators'mentality,let others die of hunger who cares as long as we make money.

  33. Water- and Food-speculations as well as other speculations, Are Crimes Against Humanity, based on lies, like the lie that oil is a fossil fuel, indicating that it is a limited supply, when in fact oil is a-biotic, made in the depths of the earth in an unlimited supply! The criminal money system – Wal Street & bankers especially owners of Central Banks, the Rothschilds etc.- is an enemy against the people, the very worst criminal organisation next to the governments who have betrayed the sheeple!

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