by wjw on July 22, 2013

So Goldman Sachs, Wall Street’s House of All That’s Evil, has figured out a way to magically lift money from all our pockets.

It turns out that while Congress was busy passing all 875 bewildering pages of the Dodd-Frank Act to better regulate our financial titans, they also loosened some regulations, and big banks are now allowed to trade in commodities.

So what did Goldman do?  Corner the market in aluminum, that’s what.

Before Goldman bought Metro International three years ago, warehouse customers used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold — to more than 16 months, according to industry records.

Longer waits might be written off as an aggravation, but they also make aluminum more expensive nearly everywhere in the country because of the arcane formula used to determine the cost of the metal on the spot market. The delays are so acute that Coca-Cola and many other manufacturers avoid buying aluminum stored here. Nonetheless, they still pay the higher price.

Every time we open a can of soda, buy a car, or purchase consumer electronics, we are putting money in Goldman’s pockets.  People open a lot of cans of soda in a given day.

Because the rules set by the London Metal Exchange (which for some reason are followed in the States) don’t allow companies to just store metal in their warehouses forever, Goldman shuttles tons and tons of the stuff around every day— not to customers, but from one warehouse to the next.

Aluminum industry analysts say that the lengthy delays at Metro International since Goldman took over are a major reason the premium on all aluminum sold in the spot market has doubled since 2010 . . . 

And of course they’re not stopping with aluminum. After a sustained lobbying effort, the Securities and Exchange Commission late last year approved a plan that will allow JPMorgan Chase, Goldman and BlackRock to buy up to 80 percent of the copper available on the market . . . In filings with the S.E.C., Goldman has said it plans by early next year to store copper in the same Detroit-area warehouses where it now stockpiles aluminum . . . 

The maneuvering in markets for oil, wheat, cotton, coffee and more have brought billions in profits to investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more every time they fill up a gas tank, flick on a light switch, open a beer or buy a cellphone. In the last year, federal authorities have accused three banks, including JPMorgan, of rigging electricity prices, and last week JPMorgan wastrying to reach a settlement that could cost it $500 million.

(I’m all for banks paying these big fines when they misbehave, but it all goes into the treasury, and the victims get nothing.)

Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to companies that control operations at major ports like Oakland, Calif., and Seattle.

Until recently, Congress prevented banks from owning commodities and infrastructure, not only because it gives them enormous advantages in the market, and gigantic leverage in pricing, but because of the risk of  what happens when such structures fail.

But there’s no risk any longer, at least for the banks.  If things go smash, they can dip into our pockets once more.

Frank Shannon July 22, 2013 at 11:17 am

The only mistake I see in your post is the bit at the end where you say ” If things go smash, they can dip into our pockets once more.” It is a little misleading since they never took their hands out of our pockets the last time.

Patricia Mathews July 22, 2013 at 2:01 pm

And in care of wartime? They’ll have the entire nation over a barrel! Walter, you do not run that scenario by someone who is even older than today’s War Baby seniors without causing nightmares, you simply do not.
“Those who have dismissed history is irrelevant because ‘this time is different’ are doomed to repeat it; this time as a pratfall.” Brrrr….

Ralf The Dog. July 23, 2013 at 2:43 am

Those who manipulate commodities and futures markets can make money short term. Quite often, they get burned long term. It makes me feel better about moving to a cash position, just before a market spike.

Greed is not good.

DensityDuck July 24, 2013 at 6:37 am

I thought they were already allowed to speculate in commodities and that’s how oil got to be $100 a barrel.

Let’s not forget that at the beginning of the century, $1.50 a gallon was considered an insanely high price for gasoline.

wjw July 24, 2013 at 7:03 am

There are plenty of people who speculate in commodities, but until recently big banks weren’t allowed to, for fear that they’d lose their depositors’ money.

The commodities market is very, very volatile, and I’ve heard it said that you shouldn’t deal in commodities unless you’re the sort of person who can “take a trunk full of money to the top of a hill, throw it all to the four winds, and laugh.”

Jim Janney July 24, 2013 at 7:23 pm

The Hunt brothers’ mistake was not cutting Congress in on the deal.

bkd69 July 26, 2013 at 5:09 pm

I’ve recently come to the conclusion that the collective noun for a bunch of investment bankers is a fuckyou.

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