Lack Of Government Regulation Allows Banks To Own And Speculate Against Their Own Commodities

Goldman Sachs is at it again! They have been sued by Masters Screens Inc. for allegedly restricting aluminum supplies which consequently drove up prices. Goldman owns Metro International Trade Services which is one of the country’s biggest warehouses that store the metal. According to New York Times, this warehouse contains over a quarter of the supply on the market. Industry regulations require that at least 3,000 tons of metal be moved each day. In order to get around these regulations, Goldman dictates that drivers transfer the metal from one of their owned warehouses to another of their warehouses. Therefore, the supply isn’t actually being moved to customer warehouses, but in fact, only moving to other warehouses owned by Goldman Sachs. This shady practice allows Goldman to continue to charge rent to store the metal and manipulate prices of the valuable metal used in everyday products like cans for soda, beer and food.

aluminum_warehouse

So how much does this practice raise prices? Well on the individual can, it doesn’t seem like much. An estimated one-tenth of a cent is added to the purchase price of products. However, if you multiply the 90 billion cans consumed by tax-payers every year in addition to cars, electronics and other products that contains the metal in equates to about 5 billion dollars over the last 3 years. This is staggering amount of money that has been passed on to the tax payer! Before Goldman purchased Metro International, the average wait time for warehouse customers was about 6 weeks. Since the purchase of Metro International the wait has gone up to 16 months!

This kind of practice happens with other commodities as well including oil, wheat, cotton and coffee. Goldman Sachs and other financial giants have bought up oil pipelines, ports and various energy distributors. By owning these commodities, these institutions have great insight into how well they can do in the future. Therefore they can take advantage of the stock market by trading and speculating which in turn can drive up prices. This form of insider trading should be illegal however; in the world of commodities this practice is perfectly legal, if not encouraged. For example, in a Goldman Sachs memo, analysts even suggested that speculation by investors accounted for a third of the price for a barrel of oil, which translates to an extra 10 dollars every time someone fills up at the pump

So how has this practice been able to continue? You guessed it, the rampant deregulation of the financial markets starting in the 80’s have allowed banks to buy up commodities and dictate how they are distributed through the market. The Bank Holding Company Act of 1956 barred banks from participating in “non-financial business.” But after the push to deregulate the financial markets under Reagan Republicans and bipartisan efforts under the Clinton Administration, it has been essentially a free-for-all in the commodities market.

AluminumSlab

The next commodity up for grabs is copper. The Securities and Exchange Commission has approved of a plan that would allow them to buy up to 80 percent of the copper on the market. Although Goldman has recently stated that it will not go through with the plan to purchase copper, the government has laid the ground work for them to take advantage of this lucrative option.

What seems like a blatant breach of insider trading laws appears to be the norm now in the financial industry. The consolidation of finance capital and industry is becoming increasingly centralized which inevitably destroys the notion of “free” markets. Financial firms that hold vast amounts of capital are able to dictate the future prices of commodities everyday tax payers use, thereby bringing banks increasing profits while artificially raising the prices for consumers. Armed with cadre of lobbyists and bought off politicians, banks like JP Morgan and Goldman Sachs are able to abuse the markets for their own financial gains. This appears to only be the beginning, braces yourselves the financial onslaught is coming.