In a 400-page report prepared for a Senate hearing on commodities market rigging, Goldman Sachs (aka the Vampire Squid of Wall Street) was again being accused of questionable business practices. According to the Senate report, Wall Street banks may have manipulated commodities markets raising the costs on consumers. Add this to the long list of Goldman’s other indictments and it becomes clear that it is time for regulators to kill the squid. Goldman should be stripped of its bank holding status and turned back into a pure investment bank. Investors, lenders, and the market can then more appropriately deal with Goldman’s misdeeds than toothless and captured regulators have.
CNN Money offers a good summary.
Banks have long been involved in trading commodities, but recently they’ve become major players in the transport and storage of commodities like aluminum, copper, and uranium
The report found that in some cases, the banks “used their physical commodity activities to influence or even manipulate commodity prices.”
Market jamming: The probe zeroed in on Goldman’s ties to aluminum, a key metal involved in everything from soda and beer cans to manufacturing cars and jets.
Goldman encouraged its clients to move aluminum around for one warehouse to another, the report said. The bank even went as far as offering cash incentives to do so.
The deals, referred to as “merry-go-round” transactions by the report, helped cause unprecedented backlogs. Some metal owners to wait up to about two years to get their metal out of storage, the report claimed.
The long lines drove prices higher and made it harder for aluminum buyers to hedge their price risks. Some industrial aluminum users claimed the dysfunction inflated aluminum costs by $3 billion, the report said.
Jeremy Jones, CFA
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