|February 24, 2013
Deutsche Bank, long coddled by the German government, is mired in a swamp of costly “matters,” such as the Libor rate-rigging scandal or the carbon-trading tax-fraud scandal that broke with a televised raid by 500 police officers on its headquarters. It’s writing down assets and setting up reserves to settle these allegations.
Co-CEO Jürgen Fitschen insinuated more gloom was to come. The bank, he said, would “be confronted with more developments in these and other matters” [The Putrid Smell Suddenly Emanating From European Banks]. And now, one of these other matters seeped to the surface: the bank had known for years about the impact of commodities speculation on food prices and the havoc it wreaked on people in poor countries. And it had lied to the German Parliament about it.
On June 27, 2012, David Folkerts-Landau, head of Deutsche Bank’s DB Research, educated a parliamentary commission about the dire consequences of food price inflation—and what didn’t cause it.
“In developing countries where often up to 90% of the income must be spent on food,” he said, “price increases of wheat, corn, and soybeans in the years 2007-2008 and 2010-2011 had devastating consequences.” Volatility made it worse. “Even spikes of only a few months are a serious threat to food security.”
While the volume of options and derivatives in agricultural markets had been ballooning in recent years, “primarily in search of higher yields,” he said, there was “hardly any sound empirical evidence” for the assertion that any of it “led to price increases or higher volatility.”
He cited the big players. The US Commodity and Futures Trading Commission (CFTC) had received “no reliable economic analysis” that showed that excessive speculation influenced the markets. US Department of Agriculture came to the same conclusion in 2009. And the Bank for International Settlements (BIS) pointed out as early as 2007 that there was “no convincing causal relationship” between speculation and price increases. That the BIS would say that makes sense: it groups together 58 central banks, including the most prodigious money printers. On its board: Fed Chairman Ben Bernanke, NY Fed President William Dudley, ECB President Mario Draghi, etc. etc.
Thus inspired, Folkerts-Landau concluded that “commodity prices are primarily determined by fundamental demand and supply factors,” not speculation.Read More...