Does Cargill Use Derivatives To Help Small Business Or To Gamble On The Market?

In testimony before Congress, Jon Hixson of Cargill portrayed his company’s use of derivative as an aid to small business. (I provide a link to the full testimony below.)

Testimony Before the House Committee on Financial Services On Reform of the Over-the-Counter Derivative Market: Limiting Risk and Ensuring Fairness

“We offer customized hedges to help bakeries manage price volatility of their flour so that their retail prices for baked goods can be as stable as possible for consumers and grocery stores,” he told the committee’s wagging heads. “We offer customized hedges to help a restaurant chain maintain stable prices on their chicken so that the company can offer consistent prices and value for their retail customers when selling chicken sandwiches.”

Cargill earned 525 million dollars in the first quarter of this year. The total company is valued at 6 billion dollars according to its SEC filing.

Thus, we have clear evidence that derivatives are beneficial to Cargill. But when you read the testimony there is an absence of any numbers pointing to benefit for any of these small businesses. In fact, we are essentially asked to simply believe Cargill’s point of view.

I prefer numbers and verifiable evidence.

Derivatives are controversial because the use of derivatives during the 2007 economic crisis has been catastrophic destroying many financial institutions and were instrumental in creating the continuing economic difficulties.

It might be wiser to forego the use of derivatives for safer financial instruments. While derivatives may aid small business, they are also risky instruments. Do these different rationales conflict? Yes. Are there other choices? I am sure that in the multitude of financial instruments being sold today, there are other options.

I do have one question not addressed in the testimony, “In these transactions, who bears the risk of loss, Cargill or the small businesses?” I have seen that Goldman Sachs when using derivatives charged the investors with purchasing insurance to make sure the company suffered no loss. Is this the case here?

James Pilant

Too Many Business Ethical Failures

When I was eighteen I remember watching an interview with Art Buchwald, the great political humorist. He was asked if he had difficulty finding material to write about each week. He laughed and said that during the Watergate scandal his columns wrote themselves. He said writing under the Ford administration was much tougher. There wasn’t a scandal a day.

When I want to write about a business failing what I believe are its duties, it takes about a minute of internet searching. A particularly juicy one takes about five minutes. There is far more than I can write about. This ought to please me in some small way but it doesnt. This is a tidal wave of misconduct.

I teach Business Ethics. Have I got a chance against a tidal wave of misconduct. When confronted by a stubborn business culture that refuses to follow the dictates of conscience, religion or the public interest, do I just drown? What’s my answer?

You fight. What’s right is right and that you may very well not prevail is not the first consideration. The first consideration is whether or not you are doing what is right in the eyes of God and man. So, I fight.

Islam’s Business Teachings

There are many negative stereotypes about Islam in the United States. Many foolishly belief that Islam is the same everywhere. Like Christianity, Islam has many branches.

I want to call your attention, gentle reader, to the ethical teachings of Islam in regard to business practices. Islam has particular teachings about the ethics of business. It provides guidance to its members in the business community.

Quoting from a Washington Post article:

But Islam has its own detailed system of business ethics, including a ban on interest-bearing loans and stocks and aversions to debt, hording and overvaluing. And it is becoming more of an issue as Muslims’ affluence and interest in business grows — something visible in classes such as the Fairfax Institute’s and in the appearance of Islam-friendly mutual funds and establishment of Islamic finance programs at universities such as Rice in Houston and James Madison in Harrisonburg, Va.

http://www.washingtonpost.com/wp-dyn/content/article/2006/05/06/AR2006050600747.html

Consumers Losing Faith in Business

The article itself from BNET is a little self paroding talking about Business as the engine of recovery that people ought to look up to and respect but worries that it will take time to regain that respect. You think! This is what happens when business ethics disappear in the search for greater profits. This is what happens when the next quarter’s profits are the only measure of success and not what kind of people we are.

For many people talking about business ethics is just a brief joke, something whose existence is as likely as the Easter bunny. We can do better. No longer can business ethics be taught as a search for ways to avoid public relations problems but a search for what is good and right in all men in all ages.

From the article: Pay is part of the problem but the discontent goes wider. Four out of five people don’t trust business leaders to put the needs of staff or shareholders above their personal interests, according to Edelman’s Trust Barometer. A similar proportion think business ethics have deteriorated.

For years the workers and middle class have been the targets of bad legislation and exploitation by increased costs from banks, internet providers, and health insurance. A vulture culture devoted to worshiping the predator is not conducive to business ethics. It is conducive to lip service and a superficial appearance of compliance with the values of society. This is a great country with an amazing history of accomplishment. We can do better.

http://blogs.bnet.co.uk/sterling-performance/2009/10/29/why-nobody-trusts-business-anymore/

Tom Petters – 3.5 billion not small change

Generally speaking few people begin a life of crime suddenly and without warning. Usually there are many small crimes and a certain “casualness” toward the accepted standards of society.

Tom Petters’ trial in Minnesota on hedge fund fraud (Ponzi scheme) begins this week.

Let me quote from the Wall Street Journal article:

In high school in Minnesota, he started a business selling stereo equipment to students at a local university, but his parents shut him down after learning he was skipping school. He later dropped out of college to work for an electronic retailer, but he was so broke in 1988 that he had to move in with his brother, Jon.

Add in a divorce, a stint in cocaine rehab, and involvement in multiple breach-of-contract lawsuits with business partners, both as a defendant and plaintiff.

There were plenty of warnings if someone was willing to look. Am I saying that people cannot turn their lives around? Certainly not. But I don’t believe in living with your eyes closed either. jp

http://industry.bnet.com/financial-services/10004501/tom-petters-goes-to-trial-in-historys-second-largest-hedge-fund-ponzi-scheme/

http://blogs.wsj.com/law/2009/04/22/tom-petters-and-the-alleged-dvd-fraud/

BBC Coverage of the Financial Coverage

I want to call attention to the British Broadcasting Company’s coverage of the global economic crisis. This is much better than anything else I have found in explaining what has happened. I recommend it. jp

http://news.bbc.co.uk/2/hi/in_depth/business/2007/creditcrunch/default.stm

 

Swimming Pool

Maybe throwing yourself into a swimming pool is the modern day counterpart to jumping from a building in the 1929 crash?

Jeffry Picower

Jeffry Picower is dead. He drowned in the pool behind his home. The philanthropy he set up in 1989 had to fold in the aftermath of the Madoff scandal. But Picower was alleged to have benefited to the tune of seven billion dollars personally. He was a close friend of madoff and had been for many years.

Did the weight of what he had done compel him to take his own life? Was the weight of the legal problems before him too much to bear? Was it an accident? It was a very convenient and well timed accident.

If this was suicide, was it the easy way out or the honorable way out?

http://www.msnbc.msn.com/id/33472579/ns/business-us_business/

Forgive My Lack of Posts

I’m sorry. I’ve been preoccupied with a new born kitten that I am hand feedling. I will be back on board in a couple of days. Thanks!

Wisdom in Conduct

I have been reading Christopher Browne Garnett’s book, Wisdom in Conduct. He defines wisdom in conduct this way: Wisdom in conduct is, therefore, the habitual application to conduct of the fruits of knowing, discriminating, and evaluating, and this over a full span of years. (Page 13)

I find this a compelling definition and I intend to use it in my work.