Hedge Fund Managers Take On Wall Street and World Hunger
In spring of 2008, my boss, hedge fund manager Mike Masters, and I were studying the effects that investors were having on commodity prices. We were shocked to uncover a truth that had implications far beyond the world of financial insiders: a giant wall of speculative money flowing into commodities was a primary cause of the dramatic increase in the price of food and energy during 2008, that threatened 100 million people with starvation.
Pension funds, university endowments, and other large investors had poured hundreds of billions of dollars into the commodity futures markets under the misguided belief that commodities were a valid long-term investment. Just like money pouring into technology stocks or the housing market, this money created a bubble in food and energy prices.
But unlike traditional asset bubbles, the commodities bubble was inflicting pain on innocent bystanders around the globe. As it continued to expand and prices skyrocketed higher, it forced everyone on the planet to pay dramatically more to feed their families, fuel their cars, and heat their homes.
Politicians and people on Main Street know that there's something drastically wrong with the commodities markets; there's no way to explain the extreme price swings in food and energy prices simply based on supply and demand. But because they lack the Wall Street expertise, they are not able to make the case themselves.
Mike, who is a Catholic Christian, has donated generously to Partners in Health and other world relief organizations. When food prices doubled or tripled as a result of institutional investors pouring money into commodities, Mike was faced with a choice: should I double or triple the amount I'm donating, or should I personally get involved to try and solve the root problem?
Mike and I both felt a strong moral obligation to raise awareness of this issue. Mike shared our analysis with some other hedge fund managers; it eventually got passed along to Senator Lieberman, whose office asked Mike to testify before Congress. Although Mike knew it was risky to stick his neck out in public, he felt strongly that it was the right thing to do.
That testimony in May of 2008 reverberated across Wall Street and in the halls of Congress. Mike and I have testified a total of 8 times now in Washington. We estimate that many tens of thousands of people have read our reports.
This, of course, has greatly angered businesspeople on Wall Street because they make almost $10 billion per year off their commodities derivatives businesses. Mike and I have been publicly attacked and Wall Street views us as a significant threat to business.
The great 17th century theologian Francois Fenelon said, "There is only one way to love God: to take not a single step without him, and to follow with a brave heart wherever he leads." We would probably rather be doing something else, but this is where God has called us -- and so we press on with a brave heart.
Given our financial backgrounds and knowledge of the way markets work, Mike and I are uniquely positioned to be able to shine the light on this very damaging investment practice. In many ways, it feels like our careers have been preparing us "for such a time as this."
The good thing is that, in stark contrast to many causes of world hunger, there is a simple thing we can do to solve this problem. If we can succeed in convincing Congress to re-institute the rules they removed 10 years ago, which limit the amount of investor money that can flow into commodities, then our commodity markets can return to normal and food and energy prices will fall. The House of Representatives is currently working on bringing a regulation reform bill to the floor for a vote; to learn more, visit www.stopgamblingonhunger.org.
Adam White has worked in the financial services industry for 13 years, and is the founder of X31, a Christian visual arts ministry.