High commodity prices? Blame Wall St

By Barani Krishnan - Analysis

NEW YORK (Reuters) - Speculators are likely the first to be blamed in any discussion of today's soaring commodity prices.

But the people who profit without taking delivery of a single barrel of oil, ounce of gold or bushel of corn may not have taken these assets to record highs without the encouragement and products of Wall Street banks and firms, according to some.

"The ugly truth is that the securitization of commodities has eased the way for money flows to raise commodity prices beyond that which the current fundamentals of the global economy can sustain over the long term," Michael Frankfurter, a fund manager at California's Cervino Capital Management, told a conference on base metals in New York last week.

Securitization of commodities refers to Wall Street's method of repackaging futures on commodity exchanges into products that can generate investment banking fees, not unlike subprime mortgages and municipal bonds.

The spotlight has again shifted to commodity speculators after crude oil hit a peak of $112 a barrel and corn $6.40 a bushel in U.S. trading this week. U.S. oil and gold futures have already seen record highs more than a dozen times this year. Wheat and soybeans have also hit repeated tops.

Industry observers cite huge fund inflows into commodities as a reason for such rises. The surge of such funds, often called speculative or hot money, has led to high prices in everything from gasoline to bread and clothing, enraging consumers around the world.

"There is an orgy of speculation in futures markets," U.S. Sen. Byron Dorgan, a North Dakota Democrat, told Congress last week. "This is a 24-hour casino with unbelievable speculation."

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