A New York Times investigation finds that Goldman Sachs is using loose market regulations to inflate the price of aluminium cans, a set-up that costs consumers around $5 billion a year.
From the Times:
The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum. 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.
Though this only amounts to about a tenth of a cent increase 0n the price of an aluminum can, the number of cans consumed in the country per year plus the fact that aluminum is used in other products like cars and electronics, means that it all adds up.
Other banks have gotten into the game as well, and three have even been accused of rigging the price of electricity. The Times explains how they can do it:
Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to companies that control operations at major ports like Oakland, Calif., and Seattle.
In the case of aluminum, Goldman bought Metro International Trade Services, one of the country’s biggest storers of the metal. More than a quarter of the supply of aluminum available on the market is kept in the company’s Detroit-area warehouses.
Goldman does not appear to be violating any laws, and the firm contends that it is following the rules set up by the London Metal Exchange. But the Exchange also happens to get a 1 percent cut of all of the rent brought in by the metal warehouses. And "Until last year, it was owned by members, including Goldman, Barclays and Citigroup. Many of its regulations were drawn up by the exchange’s warehouse committee, which is made up of executives of various banks, trading companies and storage companies," the Times reports.
Read the full article here.