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Goldman Sachs buys aluminum

2013-07-21

The New York Times has another article about “capitalism” and the exciting ways you can make money by controlling industries.  Goldman Sachs has bought an interest in the aluminum industry, namely the warehouses that store the finished metal before it is sent out to manufacturers for use in beer cans, cars, and the like.  By controlling some of the warehouses and some stock in the 1,500 pound aluminum ingots, Goldman Sachs has been able to make a huge profit and raise the price of beer cans by 1/10 cent each (multiplied by 96 billion cans a year.)  The market distortions caused by Goldman’s play on aluminum stocks has caused complaints among aluminum users and some major manufacturers are starting to go around Goldman’s warehouse system.

The problem is caused by an exemption that has been given to financial companies allowing them to buy into other industries.  This exemption is supposed to expire soon, but the Securities and Exchange Commission is likely to allow it to continue due to intense lobbying.  The next target after aluminum will be copper:  JP Morgan has been applying for approval of a plan that would allow a troika of Morgan, Chase, and Black Rock to own 80 percent of the copper on the market.

Here is a quote from the Times that describes the consequences of a financial company taking a controlling interest in a commodity to distort the market:

“Because Metro International charges rent each day for the stored metal, the long queues caused by shifting aluminum among its facilities means larger profits for Goldman. And because storage cost is a major component of the “premium” added to the price of all aluminum sold on the spot market, the delays mean higher prices for nearly everyone, even though most of the metal never passes through one of Goldman’s warehouses.

“Aluminum industry analysts say that the lengthy delays at Metro International since Goldman took over are a major reason the premium on all aluminum sold in the spot market has doubled since 2010. The result is an additional cost of about $2 for the 35 pounds of aluminum used to manufacture 1,000 beverage cans, investment analysts say, and about $12 for the 200 pounds of aluminum in the average American-made car.

“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.”

This is what unfettered capitalism does to markets.  The Securities and Exchange Commission must promulgate rules and regulations that prevent this kind of speculation that produces profits for nonproductive organizations and interferes with the smooth operation of commodities markets.  Those markets were set up to help companies that produce things, farmers, and others who contribute real things to society.  Banks and financial institutions should not be allowed to get their profits by interfering in markets that are not their business.

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