Commodities

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.