Monday, July 22, 2013

The "Free Market" isn't free at all


Parasites all in a row.

It's Monday, and like many of you I have a burr under my saddle.  Where most of you are just pissed it's Monday, my heartburn is a little more complex.  The heat source of my slow burn?  The Big Banks....again.  They've found another way to screw us, and of course, since Congress gave them a wink and a nod, it's completely legal.  But should it be?

They've taken a page from the business plan of 'ol John D. Rockefeller.  He didn't actually drill for oil....he just had a stranglehold on the pipelines (and the refining process).

It seems a group of financial players, most notably Goldman Sachs, owns many of the warehouses where aluminum bought/sold on the spot market is stored.  *yawn*  I know.  

It's been one of those sleepy little secrets that hasn't drawn attention until now, but has cost us consumers big time....$5B over just the past 3 years.  Yet they've added absolutely NOTHING to the economy in the process.  They are the absolute definition of "parasite".

Huge 1500 lb blocks of aluminum that will ultimately be used in beverage cans, cars, etc, sit in one of the Goldman Sachs-owned Detroit area warehouses.  An end user, say Coca Cola, buys a bunch of them and they are shipped out.  This process before Goldman bought the warehouses took about 6 weeks.  Now it takes about 16 months.  

Why the delay?  Because Goldman's warehouses alone hold 1.5 MILLION tons, and they charge $.48 per ton per day storage fee.   Other big banks have similar schemes at play, too.

Coca Cola and other end users complained to the London Metal Exchange (who somehow is charged with setting the rules) and the LME issued an edict:  Warehousers must move out at least 3,000 tons per day.  

And now they do....from one of their warehouses to another of their warehouses down the street.  It's just a big shell game.  Oh, and it isn't as if the LME is truly impartial.  They get 1% of all storage fees collected.  *stinky*

And it gets worse.  Thanks to intense bank lobbying, the Securities and Exchange Commission has approved a plan that will allow JPMorgan Chase, Goldman Sachs, and BlackRock to buy up to 80% of the copper on the market.  They also have "interests" in oil, wheat, cotton, electricity generation, and more. 

Just FYI, JPMorgan is currently negotiating the terms of a $500M settlement with the Feds for electricity rate rigging.  *I'm not feelin' the love*

Experts say that by owning oil pipelines, port facilities, and warehouses, it gives them inside info on who's producing, moving, buying, and selling commodities, enabling them to make timely speculative purchases for themselves. It amounts to virtual "insider trading".  (A 2011 internal Goldman memo suggested that speculation drove up the price of a barrel of oil by a third, or about $10 per fill-up for the average driver.)

To my super-conservative friends who say we need less regulation and government interference (which I must admit sounds very good on paper), understand this:  The "free market" isn't free.  It's rigged.  

The bankers have simply set themselves up as middlemen.  They are adding NOTHING to the economy.  They are just parasites sucking the life out of society's producers.  Just because it's "legal" doesn't make it right.

S


10 comments:

  1. I just bought some more stock in GS and JPM...Thanks!

    One problem is, how do you regulate the regulators? Disclosure and shining a big light on these types of practices might help, so you are doing your part.

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    1. Joe, the regulators are managed by the politicians, and WE vote for the politicians. WE need to get off our fat, lazy, smug asses and vote the bums out. Oh, and IMO term limits would help, too.

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  2. You have to admire how they always find new and better ways to screw us over. Honestly, Lex Luthor, the Joker, or any other comic book villain has nothing on these guys.

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  3. I agree with Pat. And along those lines, sometimes I think that anarchy is the best answer (not really - I'm too wimpy to live off the land & defend myself).

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  4. Just because it's "legal" doesn't make it right.---Truer words were never spoken (or written.) I've heard it said that we don't need term limits because we can vote the bastards out, but I don't think the general public understands the amount of money lobbyists throw at these congressmen. The longer these folks stay in office the more susceptible they are to influence and bribery.

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  5. Scott, here is the other side of the story...I think...my head is spinning, but the issue as usual is more complicated then a NYT reporter makes it. I'm pretty sure we would be worse off without commodity trading, but this issue is too complicated for me. I might relax my head for a while and then reread both articles, or maybe i'll just watch Judge Judy.

    http://finance.fortune.cnn.com/2013/07/22/goldman-sachs-coke-aluminum/?iid=Lead

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  6. Very interesting article, Joe. Thanks for sharing. It does, however, raise about as many questions as it answers. If buying and selling of aluminum between investors who never intend to take possession of it is the norm, surely the London Commodity Exhange knows that. So why the "movement of 3,000 tons a day" rule? It was done to satisfy....who? If the LCE is getting a cut of the storage fees THEIR rule mandates, isn't that in itself conflict of interest? And if investor A sells 100 tons to investor B, why would this change of ownership necesitate a physical move from one warehouse to another? Why not just a simple computer entry?

    And if an end user...we'll use Coke...is buying its aluminum straight from the producers in order to end run the storage costs, why would they bother to even make the appeal to the LCE in the first place? What would they care what the warehousers did? It was somehow negatively affecting them or they wouldn't have put up the fight.

    And the fact that the price now is no where near as high now as it was before the crash in 2008 is little consolation. Think back....commodity specualtion was rampant back then. Remember $147 oil? Those were crazy times, and it was no surprise the bubble burst. The price should rightfully never have been that high. The pre-crash 2008 price should not be used for any benchmark.

    And with all that aluminum just sitting there being traded back and forth between traders....isn't that really just speculation? How much of the price end users pay is just to satisfy the speculators before "supply and demand" ever enters into it?

    You're right....it's a very complex issue my puny little brain is having a hard time wrapping itself around, but my nose is having no trouble realizing something somewhere smells.

    S

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    1. And I didn't see anything in the Fortune article to explain the stretched final delivery time from 6 WEEKS to 16 MONTHS. Who stands to gain from that? The end user? How? The warehouser? Ummm....@ $.48 per ton per day....maybe. ;)

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  7. Now I'm tempted to start growing my own wheat and all the rest of my food. Damn, the HO won't let us have chickens. I want to be majorly outraged and don't quite know how. :-(

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