Welcome to the latest bubble
The wizards of Wall Street once created complex securities to bet on the housing market; now they’ve turned their magic to speculating on commodities, said Steven Pearlstein at The Washington Post.
Steven Pearlstein
The Washington Post
Silly you, said Steven Pearlstein. You probably thought prices for things like corn, cotton, and oil were set by supply and demand. But these days, they’re far more likely to be set by speculators in “futures, swaps, and other derivative instruments linked to those things.” The wizards of Wall Street once created complex securities to bet on the housing market; now they’ve turned their magic to speculating on commodities.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Speculators now account for about 70 percent of many commodities markets, far more than the 30 percent considered typical. Their dominating presence is putting “upward pressure on the actual prices” that producers and consumers alike pay for commodities like wheat, silver, copper, and natural gas. The CEO of ExxonMobil recently estimated that speculators add $30 to the price of a barrel of oil. It’s just further proof of “how little the financial services industry has really changed” since 2008.
Just as the industry created a bubble in houses, it’s creating one in commodities, and using the same arguments to circumvent regulation. Mark my words: Wall Street is once again busy creating big profits for itself and “a mess for everyone else.”

Continue reading for free
We hope you're enjoying The Week's refreshingly open-minded journalism.
Subscribed to The Week? Register your account with the same email as your subscription.