Wow, let’s give giant “kudos” today to journalist Gretchen Morgenson, researcher Alain Delaquérière, and the New York Times, where those two hang their investigative journalist hats.
If you didn’t catch the Business Day section in the Sunday Times yesterday, Gretchen just blew the lid off something that’s been going on for years but has managed to be tucked away so well it’s hardly ever seen the light of day.
If you’ve been paying any attention to what happens on Wall Street, you’re probably not even going to be surprised.
Shocked, yes, but surprised? No.
It’s only costing us about $5 billion this time around…
The Federal Reserve, which oversees – that means “regulates” – big banks has managed to not overlook, but oversee to it that banks (I’m talking about the “Sopranos” of Wall Street) that aren’t supposed to own non-financial assets are allowed to own non-financial assets.
Here’s the thing. If you let big banks with all that clout and control over Congress and their regulators (that’s called “regulatory capture”) own non-financial assets, with their power and control, they could get out of control and take over the free world. No, not take it over to run it. Take over free markets to run up their profits and bonus pools.
It’s been happening, and in the worst way. Gee, what a surprise.
Gretchen’s article was about how Goldman Sachs bought Metro International Trade Services for $550 million in 2010, in order to effectively control the warehousing of aluminum, which happens in Detroit, Mich.
Detroit? Goldman Sachs is there in Detroit and running a business, and the city is bankrupt?
Yep, that’s because Goldman’s 27 industrial warehouses in Detroit don’t hire a lot of people, because they don’t need to. It turns out they have just a small force of truck drivers and warehouse employees who load the aluminum stored there on trucks that go, get this, back and forth between their own warehouses. Loading the stuff here, unloading it there, then moving some from there to over here. In other words, they “daisy chain” aluminum.
Since Goldman took over the warehouses, the delivery time for aluminum from their warehouses has gone from six weeks to 16 months!
Things are slow for a reason.
Goldman collects rent on the aluminum in its warehouses, to the tune of $250 million a year. The longer it sits in their warehouses, the more rent they collect and the longer it takes to get from their clutches to the end users – folks like car manufacturers and soda bottlers.
Here’s the rub. The stuff can’t just sit there in the warehouses. That’d be illegal. The London Metals Exchange, which makes up the rules for storing metals that are traded on their exchange, says stuff can’t be warehoused away because that would allow folks to corner the market for metals. If you’re a trader, you can’t buy the stuff and lock it up and keep buying more and lock it up to raise the price. That’s manipulation. You just can’t do it.
Unless you’re Goldman Sachs, or JPMorgan Chase, or Citigroup, or Barclays (you get the picture)…
Back to what Goldman is doing. They’re moving the aluminum around because the LME says you can’t just sit on it. So, they move it, back and forth. Technically, that’s not sitting on it. So it’s perfectly legal. And incredibly profitable.
According to the NYT article, this little game has cost American consumers $5 billion over the last three years.
Oh, about the LME, and why aren’t they all over Goldman? Because, you guessed it, Goldman, along with the other usual suspects, are members of the London Metals Exchange. And… the LME gets a 1% vig on all the rent collected.
The story here is that Goldman is allowed, by the Fed and the SEC and Congress, to own these warehouses in order to get around rules governing storing metals to prevent price manipulation to manipulate the price of aluminum higher, which costs us all more.
They, this time Goldman, JPMorgan and Blackrock, now want to do the same thing with copper. The three houses have approval to buy up 80% of the world’s copper – an even more crucial commodity – on behalf of “investors” and hold it in warehouses.
Are they doing it with other stuff? You bet your bottom dollar they are.
Here’s the thing. If you control the conduits, like pipelines and tankers, and you control the storage facilities for commodities and finished industrial products, you can manipulate prices.
Now, in case you don’t get the whole picture, in which case, smack yourself… the big banks trade all this stuff. Gold, silver, oil, gasoline, commodities, you name it, they trade it. And just to prove to yourself that you’re not stupid, what’s the purpose of trading?
Ah, that would be to make money.
The whole bloody game is rigged.
There’s only one way out.
Know what it is?