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It’s bad enough that our government is  in the process of further watering-down Dodd-Frank regulations in the derivatives marketplace, to the point where our economy may be more at risk now than it was in the lead-up to the market crash in 2008. Now we’re hearing word from The New Republic, via Naked Capitalism, that the Securities and Exchange Commission (SEC) is giving “big banks license to manipulate commodities.”


SEC Gives JP Morgan and Other Big Banks License to Manipulate Commodities
Yves Smith
Naked Capitalism
Monday, January 7th, 2013   2:25AM

An SEC action that appears likely to do considerable harm to companies and individuals in the US and abroad appears to have gone completely unnoticed, save for an important piece in The New Republic by Linda Khan…

…The SEC has paved the way for investors to take a direct stake in commodities, rather than through commodities futures. The agency gave the green light to JP Morgan to launch a fund whose shares would be backed by warehoused copper. The implications are not pretty. Per Khan:

In practical terms, the SEC handed traders at J.P. Morgan control over 20 to 30 percent of the copper available for immediate delivery from the London Metals Exchange — the commercial market where companies that use copper go to procure last-minute supplies.

The investors purchasing shares in J.P. Morgan’s fund won’t be buying copper to use, but to store. The intricacies of the fund are complex, but its underlying rationale is straightforward: the more shares investors buy, the more copper is taken off the market. And the more copper that is taken off the market, theoretically the more valuable the copper and the shares become.

Yves continues…
Moreover, it’s a no-brainer that this JP Morgan “innovation” will lead to the creation of copycat fund in other markets, most troublingly those for agricultural products.
But, the TNR story is actually more alarming than Yves’ retelling of it.
JP Morgan Gets a Big Holiday Gift From the SEC
Lina Khan
The New Republic
December 31, 2012 | 12:00 am

… The SEC's ruling all but invites bankers to increase speculation in other, even more essential goods, like grain and oil…

…Allowing financial interests to interfere with industrial activity is disruptive enough. More troubling is that the SEC's decision collapses the distinction between precious metals traditionally used for investment, like gold and silver, and metals and other goods that we consume in large quantities, like copper and corn. It signals to bankers that all goods are fair game for financial play, no matter how vital to our economy or our well-being.

"There's no reason why banks won't try this with grain and oil next," said Michael Masters, a hedge-fund manager based in New York. "As long as they can, why not? Right now, there's free rein. It will only stop when regulators decide that allowing essential things to be hoarded for investment is misguided investment--and dangerous for the public…"

Interestingly, President Obama just appointed SEC Board member Elisse Walter as interim Chair (of the Board), just over three weeks ago. And, upon a closer read of the two blockquoted stories, above, you’ll learn that the Commodities Futures Trading Commission (CFTC) passed regulations, awhile ago, to prohibit investors from speculating in massive, market-manipulating/-speculating trades of goods critical to the well-being of the public. But, not to worry since, for all intents and purposes, the entire effort by the SEC now circumvents these “issues.” And, that’s not surprising due to the fact that, among other titles, newly-appointed SEC Chair Walter was also the former Chief Legal Counsel of the CFTC (see link, earlier in this paragraph). So, Ms. Walter certainly knows her away around circumventing CFTC regulations.

Further exacerbating this story’s implications, as it relates to the well being of the public, at-large, is this stark reality

Drought lights fire under food prices, USDA says
By Russ Blinch
Wed Jul 25, 2012 5:42pm EDT

(Reuters) - Food prices will race ahead faster than prices of other goods in the United States this year and next, due to the worst drought in more than a half a century, the government forecast on Wednesday...

...The U.S. Department of Agriculture forecast that food prices would jump between 2.5 percent and 3.5 percent in 2012 and then rise 3-4 percent in 2013.

"The drought is really going to hit food prices next year," said Richard Volpe, a USDA economist...

…Food prices will rise far more rapidly than the overall U.S. inflation rate, according to USDA, a turnabout from the usual pattern. The U.S. inflation rate is estimated for 2 percent this year and 1.9 percent in 2013. Food inflation was 3.7 percent last year but only 0.8 percent in 2010.

Historically, since the onset of the Great Recession, our country has had an abysmal record when it comes to controlling speculation in the commodities markets. What happened in the oil marketplace in 2008 serves as a glaring example of this ongoing travesty. I am very apprehensive about what awaits us in the coming year as far as the cost of food—and other basic necessities for our society--is concerned.

Please give your elected representatives hell about this! Here are the links to the House Financial Services Committee and the Senate Banking, Housing and Urban Affairs Committee.

Originally posted to on Mon Jan 07, 2013 at 03:56 AM PST.

Also republished by Occupy Wall Street.

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