Recommended Viewing: American Casino and Flow
I was recently reading Bloomberg Businessweek’s excellent examination of commodity ETFs. Here’s a taste of the findings of Peter Robison, Asjylyn Loder and Alan Bjerga (which are well worth reading in full):
Lured by the idea of profiting from raw materials, investors put $277 billion into commodity ETFs and related securities by the end of 2009. Then they noticed a problem: When commodities go up, the commodity ETFs often don’t. . .
When the futures contracts that commodity funds own are about to expire, fund managers have to sell them and buy new ones; otherwise they would have to take delivery of billions of dollars’ worth of raw materials. When they buy the more expensive contracts—more expensive thanks to contango—they lose money for their investors. . . . Just as they did with subprime mortgage-backed securities, Wall Street banks are transferring wealth from their clients to their trading desks. “You walk into a casino, you expect to lose money,” says Greg Forero, former director of commodities trading at UBS (UBS). “It’s the same with these products. You’re playing a game with a very high rake, a very high house advantage, and you’re not the house.”
The article brought to mind two outstanding documentaries I recently watched on finance and the “real economy.”
There is a good discussion of the film “American Casino” here, including an excerpt from an interview with Maryland law professor Michael Greenberger:
The film skillfully juxtaposes the stories of those who made tens of millions of dollars trading MBS’s, and Baltimore residents ruined by subprime deals.
Second, the film Flow is a very provocative take on the commodification of water: