With the death of Senator Robert Byrd, and the retreat of several Senate Republicans, the passage of financial reform now appears to be in doubt. While most of the press coverage has focused on the bill’s impact on financial services — including credit cards, mortgages, payday loans and investment bank practices — the effect of the bill on farmers and ranchers has been given less attention.
In a commentary written right before the House-Senate conference committee agreement on financial reform last week, IATP’s Steve Suppan outlines how excessive financial speculation from Wall Street banks prevented the commodity futures markets from playing their traditional role in agriculture.
Steve writes, “In 2008, futures prices had become so volatile that rural banks could not assess price risks in order to make loans. Some banks were not loaning to country elevators, and some of those elevators therefore could not pay farmers to forward contract their grain and oilseed production.”
A primary target of the financial reform bill is over-the-counter (OTC) trading: trades that are conducted in private and not over regulated exchanges but that can deeply influence commodity futures markets. OTC trading by big Wall Street led commodity index funds, combined with a regulatory loophole allowing those funds to flood the market and contributing to massive price volatility in agriculture and energy prices in 2007 and 2008. As IATP reported in 2008, this volatility not only affected U.S. farmers but had repercussions — particularly for countries battling hunger.
Reforming our financial system is a work in progress. As Steve writes, we can’t afford a watered down approach or to continue “creating unfair markets that damage farmers, ranchers and rural communities.”