Welcome to the latest bubble

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.

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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.”