Goldman,Using The Conservative-Libertarian Model, Made $5 Billion By Manipulating Inventories of Aluminum
What sexual favors were exchanged so that the New York Times blunted the impact of an important, detailed investigative story on Goldman profiteering, this time in the aluminum market, by releasing it on a heat-addled summer Saturday?
On a high level, the story sets forth a simple and damning case. Not all that long ago, banks were prohibited from being in operating businesses. But the Federal Reserve and Congress have loosened those rules and big financial players have gone full bore backward integrating from commodities trading into owning major components of the delivery and inventorying systems. This doesn’t just give them a big information advantage by having better access to underlying buying and selling activity. It allows them to manipulate inventories, and thus, prices. And Goldman’s aluminum henanigans increased prices all across the market, not just for the customers who chose to use them for warehousing and delivery.
The article A Shuffle of Aluminum, but to Banks, Pure Gold by David Kocieniewski, tells us that the newly-permissive rules allowed Goldman to buy Metro International Trade Services, a concern in Detroit with 27 warehouses that handles a bit over 25% of the aluminum available for delivery. And here’s where the fun and games begin:
Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again.
This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange, an investigation by The New York Times has found. The back–and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal. It also increases prices paid by manufacturers and consumers across the country…
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.
The Times’s sources estimate the price impact across the market at 6 cents per pound, which adds $12 to the price of a typical car. Goldman piously claims it obey all the rules, but obeying the rules is far from operating in a fair or pro-customer manner.
The last thing conservatives and rightie libertarians want is a competitive market. They want total control and anyone who suggests using some regulation to stop that control is quickly gang piled on as a liberal pinko communists.
