Distorting markets: The aluminum racket
Published: Friday, July 26, 2013, 8:57 p.m.
Washington, which allowed big Wall Street banks to enter nonfinancial businesses, now must stop their gross distortion of commodities markets, which is adding billions of dollars to their bottom lines — at manufacturers' and consumers' expense.
The New York Times reports that Goldman Sachs, for example, exploits London Metal Exchange pricing rules “by shuffling tons of aluminum each day among the 27 warehouses it controls in the Detroit area,” housing more than a quarter of the market supply. That enables the warehouses to charge more rent for storing aluminum longer — and their customers' average wait for aluminum delivery to factories, six weeks before Goldman took over the warehouses three years ago, has grown to more than 16 months.
As a result, a larger “premium” is added to spot-market aluminum prices, so all aluminum users pay more — including more than $5 billion in additional costs for U.S. consumers.
The Commodity Futures Trading Commission and the Senate are investigating. But the Federal Reserve is reportedly unlikely to reverse its 2003 determination that let Wall Street banks enter the commodities market — and the Securities and Exchange Commission late last year OK'd Goldman (which has since withdrawn) and two other firms buying up to 80 percent of available copper.
Washington must stop allowing such Wall Street market distortion and cornering — and put manufacturers, consumers, the economy and, above all, unperverted markets first.
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