paul jay: welcome to the real news network.i'm paul jay in baltimore. and welcome to this week's edition of the peri report withgerry epstein, who now joins us from amherst, massachusetts. gerry is the codirector of the political economyresearch institute and a professor of economics. thanks for joining us again, gerry.
adm stock price, gerald epstein: thanks, paul. jay: so what caught your attention this week? epstein: what caught my attention is a fabulousexpose by the financial times (it was published online over the weekend) into the super-secretworld of commodity-trading companies, huge
commodity-trading companies like cargill anddreyfus, adm. but most of them are privately owned. there's very little information aboutthem. and so they've been looking at all kinds of reports and secret memos and so forth andhave discovered the massive scale of profits and trading that these companies have beenamassing in the last ten years, and it's really astonishing. jay: yeah. let me read you--i'll read a quotefrom the financial times piece. it was published on april 14. the world's top commodity tradershave pocketed nearly $250 billion over the last decade, making the individuals and familiesthat control the largely privately owned sector big beneficiaries of the rise of china andother emerging countries. the net income of
the largest trading houses since 2003 surpassesthat of the combination of mighty wall street banks goldman sachs, jpmorgan chase, and morganstanley, or that of industrial giants like general electric. they made more money thantoyota, volkswagen, ford motor, bmw, and renault combined. so the scale is off the map, but it's amazinghow it's off the radar and you really only see this in the financial press. epstein: that's right. and this area, thesefirms are virtually completely unregulated. they have virtually no reporting requirements.and that's why the scale of this is so little known. and there's been this massive increasein profits and power of these firms in the
last ten years. the financial times reportsthat in 2000, the annual profits was about $2.1 billion, and by 2008, at the peak, $36billion. and now they've come down just a little bit, to $33 billion. and there's littleunderstanding of exactly how they make all of this money. jay: there's one window opened up into thisworld, and that's glencore did an ipo a couple of years ago in london. and the other commoditytraders were very angry at glencore, because to do the ipo in london, where i think theyraised about $1 billion plus in two days in selling this ipo--but it also meant they hadto do a certain amount of transparency into how glencore operated, including, for example,things like manipulating the price of wheat.
glencore, apparently, it turned out, owned7 percent of the russian wheat crop and knew that there was going to be a drought in 2010and got putin to ban exports of russian wheat. well, of course, glencore had bet in the hedgefunds and made a killing on that. so part of the problem here is not just theamount of profits they're making but the integration, because these are physical traders and theyspeculate and they have a tremendous influence over the markets. epstein: that's right. there's this big debatenow, as you know, about how much influence this kind of speculation has on food pricesand oil prices and so forth. and there are lots of studies that have been done, somehere at peri by james heintz and bob pollin,
and lots of others. and a lot of the studiesshow that up to 70 percent of the movements in prices in some of these commodities isreally caused by speculation. but what this financial times article suggestsis that even if you put speculation aside, these firms are getting massive margins. imean, how can they make $250 billion unless they're charging massive margins? and that'slargely because of the collusion in these firms, and also the fact that it's so heavilyconcentrated. jay: yeah. i don't know why in the financialtimes articles the koch brothers are not on that list, because they're also one of thebig trading companies involved in all this. and apparently during the 2000s, at some pointsome of these companies were making 50 to
60 percent return on equity during the 2000s. epstein: still a pretty penny. jay: now the poor babies are down to only15 or 20 percent return on capital, and financial times is talking about how they're hittinghead winds. i think a lot of businesses would like to hit those kinds of headwinds. epstein: yeah. a lot of businesses would alsolike to pay the kinds of taxes that they're paying. the financial times article talkedabout how these trading firms are able to get tax rates of anywhere from 5 percent to15 percent, whereas many corporations pay 30 to 40 percent. even the banks that havefabulous tax rates only pay something like
20 percent. part of this is because of a tax competitionand these tax havens, some of them set up in cyprus, which is now in a bit of trouble.a lot of them are in switzerland. and singapore, competing to have these headquartered in singapore,have been offering 5 percent or even zero percent tax rates. so not only are they making massive before-taxprofits, but the tax rates are so low they're making massive after-tax profits. jay: but i think there's a point that thefinancial times misses in this whole process is that a lot of other commodity traders,and particularly mining owners and companies
that own agricultural enterprises and land,they're also hitting these somewhat lower commodity prices right now, but they didn'tmake these kind of profits in the 2000s. so it's affecting them a lot, creating much morechallenge for them, which means they're far cheaper acquisitions. so what's happeningnow, even though the big commodity traders may only be making 20 percent, they're ona buying spree. and so when--assuming there ever is an end to this recession, these commoditytraders are going to end up in an even stronger monopoly position and a position to even increasetheir prices and profits even more than it was in the 2000s. epstein: right. and i think the financialtimes does miss that, because they're suggesting
there's going to be increased competition.but as you suggest, there might be increased consolidation. one thing that's going on that the report's--indicatesand we've talked a bit about here before is the fact that big banks, like jpmorgan, morganstanley, are moving beyond their typical operations in these markets, derivatives and so forth,but they're actually starting to buy up physical properties--the oil, gas, mining--and we expectthe financial sector to get more involved in that, as well. so one question that the financial times raisesis: are we creating or has there been created these new too-big-to-fail firms in the commoditymarkets? they're engaging in speculative financial
transactions, perhaps highly leveraged transactions.and if there is a decline, rapid decline in some commodity prices, could there be somefinancial instability created by these firms that are totally unregulated? and the regulatorsare starting to look at this. but given their likely political power with having amassedall that wealth, don't hold your breath for more regulation. jay: yeah. they're mostly based in switzerland,and even those that aren't are really not regulated. and they're also starting to do things likebanks. one of the things the financial times talks about is a major acquisition of an oilcompany that wanted a $55 billion loan. and
instead of going to the traditional banks,they went to a couple of the commodity traders, including glencore. but as you mention, there's also on the otherside jpmorgan. i understand the commodities desk at jpmorgan, it vies with size with someof these big commodity traders, and they're very much into this, both speculating derivativesand physical ownership. epstein: right. and the bottom line is it'simportant to remember that we're talking about the commodities that really are at the coreof the whole world economy--people's livelihoods in terms of food, oil that fuels the economy.and so we're talking about these companies that control what's really at the core ofthe global economy with almost no transparency
at all. jay: yeah. i mean, some people call it thereal hunger games because a lot of this is about food and the price of food and starvationand malnutrition around the world to a large extent because of some of the artificial raisingof food prices. epstein: so two cheers for the financial times.and we need to get some economics graduate students to do some dissertations on thistopic. jay: yeah, please do. thanks for joining us,gerry. epstein: thank you. jay: and thank you for joining us on the realnews network.
