Friday, July 26, 2013

Goldman Sachs makes your beer more expensive

The great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money Goldman Sachs is making your beer more expensive by cornering the aluminum market. Also your canned soda, juice and anything else affected by the price of aluminum. 

The way Goldman Sachs is manipulating the market is probably less important than the fact that no one will go to jail for it. 

But here's how the Wall Street behemoth does it, according to US News & World Report:
...a million and a half tons of aluminum – a quarter of the national supply at any given moment – typically sits in a network of 27 Detroit warehouses owned by Goldman Sachs. And hardly anyone would have thought that manufacturers seeking to purchase that aluminum might wait 18 months or more for delivery, while warehouse owners like Goldman Sachs collect additional rent, paid for by consumers of aluminum products ranging from beer cans to home siding. 
In an important hearing yesterday before the Senate Banking Committee, Tim Weiner of MillerCoors described the operation and how it boosts prices for real-economy companies. The witnesses at yesterday's hearing explained how the largest Wall Street banks have accumulated massive amounts of physical commodity infrastructure, ranging from warehouses to oil tankers to power generation plants. 
Supply bottlenecks in bank-owned warehouses are only one part of the story. Banks are central players in the financialization of commodity markets, the treatment of physical commodities as purely financial assets to be manipulated for trading and investment purposes, rather than inputs for the real economy. 
The original purpose of markets in commodities and commodity derivatives was to ensure steady prices and consistent availability for real-economy users of commodities. But the selling of commodities as an inflation hedge and a retirement asset (over $440 billion in investor money has poured into commodity investment funds since 2004, as opposed to just $25 billion into equity funds) has transformed these markets, increasing price levels and price volatility, and opening up many opportunities for manipulation.
At least Sen. Elizabeth Warren is on it. Earlier this week she said she wanted Wall Street firms like Goldman Sachs to have way less control of commodities. Business Insider reported that warren, on Tuesday, said in that same Senate Banking Committee hearing,
"...I share the concern of many of my colleagues about asset managers at huge Wall Street banks exercising control of key parts of America's infrastructure..."
Here's the back story:
Back in 2003 the Federal Reserve decided to temporarily allow banks to purchase commodities directly. That means oil, power, copper, aluminium etc. This September, that temporary regulatory relaxation is set to expire, and if it does, a big chunk of Wall Street's business will expire with it. 
And now that the ruling is up for discussion, Congress gets to weigh in. Wall Street be warned, if this hearing was any indication, the Senate is coming down on the side of culling the commodities business. 
Warren decried the idea that banks would use "other people's money" in pension and retirement savings "to pave the way for big banks to be able to control an electric plant or an oil refinery." 
Let's hope Congress decides to limit Wall Street's ability to control commodities markets. But we're not holding our breath.