If you like cramming Lucky Charms and Wonder Bread into your piehole, you’re probably white. But you’re also probably somebody who should go to this Action Center to End World Hunger deal tonight at 6. Harper’s contributing editor and Vice contributing contributor Fred Kaufman will be there to outline how those dastardly diablos on Wall Street are responsible for starving millions of people and why you may not be able to afford to be such a fat piece of shit for much longer.

Fred’s cover story for Harper’s June issue, “The Food Bubble: How Wall Street Starved Millions and Got Away With It,” picks apart the relationship between Goldman Sachs and the 2008 food crisis that increased the number of hungry people in the world by a good 250 million. It can be a tough read if you’re not familiar with hedging, selling short, demand shock, perpetually selling long on wheat futures, or any of the weird, made-up bullshit that constitutes finance, but the story should be a wakeup call for those of us who take cheap food for granted, aka probably 99.999999% of us.

Kaufman’s piece was one of the first steps in cracking the complexities of the food crisis that’s still causing bread riots and malnutrition in countries most of us haven’t thought of since 7th grade geography. Simply put, Fred posits that Goldman Sachs has been using a specialty commodity index that they themselves started in the early 90s to turn food into a abstractly manipulatable economic concept. Real trouble arose when investors focused their sights on hard red spring, which is America’s most widely exported variety of wheat. Basically, Sachs created an artificial environment where they perpetually hedged against the future price of wheat while simultaneously controlling the price. It’s fucked up in ways that most people will never understand, but we got Fred on the phone in an attempt to distill things a bit. But if you’re really interested in this sort of stuff (i.e., being able to afford to eat) you need to go see him speak at the thing we linked earlier. It starts at 6 and there is a $10 suggestion donation, but you get free beer!

Vice: So your story was published during the summer and people are still talking about it. That’s some serious legs when you compare it the typical news cycle, and it’s even more surprising when you consider the issue’s complexity. Are you surprised by its longevity?
Frederick Kaufman: It has unbelievable legs, more legs than any magazine piece I’ve done. In fact, a producer in Chicago just optioned it for television. Actually there are two guys who are interested. One guy in Cambridge and one guy in Chicago. This guy in Chicago is pitching it to Frontline, BBC, and all of these different places. He perceives it as a one-hour, in your face, evil-Wall-Street-bankers-starving-the world’s-children type of thing.

That sounds about right.
It’s gotten endless shit, and it keeps on living on the internet. People keep on commenting on it and dealing with it. It even ended up in the UN’s food report by Olivier De Schutter, the UN Special Rapporteur on the Right to Food, which of course renewed people’s interest. Now people are saying, “Aha! Speculation did play a part in the food bubble!” And then of course you have the current drought in Russia and the wheat supply going to hell there. They went from the world’s third largest exporter of wheat to “We can’t export any wheat. We can hardly feed ourselves.” So the price of world wheat has shot up once again. People are freaking out, but it isn’t just isolated to wheat. Hamburger meat that costs $30 a pound is becoming a real possibility.

And the more droughts and floods and other natural disasters happen, the more money commodity index investors stand to gain, right?
Yeah. What’s really fucked is that the area where people are growing a lot of wheat right now is the Baltic area, which is renowned for weather anomalies. Climate change and the droughts and floods and all of this kind of stuff that we seem to be seeing more and more of all adds to the general speculative tenet: We can make a lot of money in this if we play it right. One of the key things about this is that it looks to me—and I want to make clear that this is just my “Fred speculative point”—is that Goldman was able to take these huge positions in commodity markets using only about five percent of the money that came their way. They were able to do this through a process called replication. They were able to hold and do whatever they liked with the other 95 percent of the money.

OK, it’s probably too late but I don’t want to lose the skateboarders who might still be reading this so let’s clarify: Goldman was basically simultaneously predicting and manipulating a speculative market—they were creating the future in a way and investing in it. They were buying commodities that weren’t even physical objects—futures that they were supposed to sell, but really they just kept selling and buying them back over and over again. That about right?
The fact is that they had to sell and then rebuy their positions five times a year in order to hold their positions, and in the process they lost their investors money hand over fist. After a while, everybody who was following the grain market came to understand and know Goldman’s role. They understood how the price of grain would artificially go up and then go back down. Depending on the timing, they could go long or they could go short and make, in a way, idiot’s money. It was the simplest thing in the world, because people following Goldman closely knew what was going to happen in the market at a particular time, and of course if you know what’s going to happen in the market the next day you can make a lot of money. It doesn’t matter which way it goes. It also occurs to me that Goldman—who aren’t fools—became aware of this phenomenon that they were creating and probably made money off their own role. They were probably shorting as they went long, etc. and so you have the same situation as you had with mortgage-backed securities, which is that while it seemed they were going long, they were actually shorting it. I think the same thing happened with wheat. Now, again, this is pure conjecture on my part, and the only way we’ll get to that point is if we take the next step. For instance, if this TV show they want to do makes a big splash, then the next step would be heading to the FCC to actually see what the fuck they were doing with that money at particular times. That’s very, very hard to uncover.

Let’s move on to Gary Gorton and Geet Rouwenhorst, the two guys who wrote “Facts and Fantasies about Commodity Futures,” a research essay that you cite in your Harper’s article as the impetus for Goldman to really sell the commodity index to bankers. Were Goldman reps walking around with this essay like it was a golden ticket?
The base of the essay, which started this flood of hundreds of billions of dollars into long-only index funds, was that there is a natural return to commodities. What the hell does “a natural return” mean? It means that you don’t have to do anything and you’ll make money. Just stick your money there and it will grow. Of course, this was an essay done by a professor at Yale and a professor at the University of Pennsylvania. It was exactly the ammunition that bankers and hedge fund managers needed to go out to the pension funds and talk to the boards in California like the California Teachers Fund with all these huge, deep pockets and say, “We’ve got this great no-miss investment.” Of course, this is after the stock market tanked and real estate tanked and mortgage-backed securities tanked. Then it’s like, “I’ve got something that cannot miss.” What are these guys going to do? Are they going to say, “No, you guys are wrong?”

Have you heard any blowback from people that did invest in it and felt that they were misled?
This made the cover of Bloomberg BusinessWeek. Disgruntled investors finally came to the realization that if you keep on buying into strengths, you’ll lose money. So there was tremendous blowback. People are pissed. In fact, this is part of the whole reason why the long-only index funds are now being transformed into more highfalutin products like double inverse funds and this, that, and the other. They’re trying to fix it so that they can make money—so that they can speculate in the market, and their investors won’t lose their shirts.

So basically they can keep saying this is a derivative of a derivative of a derivative and it’s something different from the original commodity?
The word “derivative” is so funny. People talk about derivatives as though they’re meaningful. It’s kind of like saying, “What are the baseball players doing? They’re playing baseball.” Well, is it little league? Is it college? There are thousands upon thousands of derivative financial products out there—derivatives upon the backs of derivatives, endless derivatives.

Do you foresee another spike in wheat prices or other foodstuffs happening anytime soon?
The trading on the Chicago Mercantile Exchange had to be stopped a few days ago because corn shot up. Corn has gone up more than 12 percent in the past couple of weeks. This stuff is going crazy again. There are special meetings in Rome, UN meetings about speculation and commodity markets. The Financial Times is all over this story. It’s a huge story and it’s not going away, sadly.

Do you see any type of solution for this or anyway to regulate this type of trading? Or is all just a big mess that can’t be untangled?
The whole idea of regulation is kind of a sham. This whole notion of the Commodity Futures Trading Commission regulating this kind of stuff or the Obama administration regulating this stuff. All the bankers I talk to, all the hedge fund managers I talk to, all of my unnamed sources, the people in the background, they scoff at the attempts to be regulated. The moment something like this is outlawed in the United States, they make one quick phone call and they do all their trades off the commodities desk in London. That’s the easiest thing. Let’s say that there’s then a law made that no bankers can take positions in these markets. That’s also taken care of in about ten seconds with a swap with a so-called “bona fide hedger.”
You’ve got to realize also that this is very bad for the General Mills and the Tyson Foods of this world because if the price of their raw materials goes up, their bottom line goes up with it and they make less money. A few days ago Tyson Foods ago lost something like 7.6 percent on their stock. It’s a huge problem for them. That’s actually part of the push towards regulation. It’s too bad that these regulatory efforts aren’t going to work. The only effort that I think has any potential is an actual international or national grain reserve—a reserve of real grain, not these speculative imaginary grain that doesn’t exist but can still be invested in. We had this under the Clinton Administration before the mania of deregulation gave us this mass hallucination of the market as a savior. There was actually a farmer-owned grain reserve. These grain reserves can really help stabilize markets when there are bad actors, when there are bad people who are trying to destabilize it for their own gain. The idea is very simple: You actually hold back bushels of grain and when the market starts shooting up.
There are some real issues with supply now, particularly with corn ethanol. Ethanol production federally mandated positions take up 35 percent of the US corn crop. There are supply issues, I’m not saying there aren’t, but if there is a grain reserve they can be brought there and they can bring those markets into reasonable price bands.

I’m not prefacing this question by saying all these things are related, but it seems to me…
They are, they are.

So this is the food bubble, and 10 years ago it was the dot-com bubble. Then it was the housing bubble. Does this fucking bubble keep moving? Is it all the same thing? Is it just a group of people saying, “Well this one’s over. We need to find a new market to exploit”?
The big business of banking and economics is this whole notion of value. What is valuable? Where is value? Are dollars valuable? Are yen valuable? We then put everything we have into what has value. It seems to me that going forward into the 21st century, with the vagaries of climate change, with drought and flood upon us, people are perceiving food and basic commodities like water, land, and grain as a place where value is going to reside. The sad thing is that the more volatile the environment is, the more volatile the markets are going to become. Of course, volatile markets spell profits for bankers.