"Back in June 2011 we first reported how "
Goldman,
JP Morgan Have Now Become A Commodity Cartel As They Slowly Recreate De Beers'
Diamond Monopoly" in an article that explained, with great detail, how
Goldman
et al engage in artificial commodity traffic bottlenecking
(thanks to owning all the key choke points in the commodity logistics chain) in
order to generate higher end prices, rental income and numerous additional top
and bottom-line externalities and have become the defacto commodity warehouse
monopolists. Specifically, we compared this activity to similar cartelling
practices used by other vertically integrated commodity cartels such as De
Beers: "While the obvious purpose of "warehousing" is nothing short of
artificially bottlenecking primary supply, these same warehouses have no problem
with acquiring all the product created by primary producers in real time, and
not releasing it into general circulation: once again, a tactic used by De Beers
for decades to keep the price of diamonds artificially high."
Over the weekend, with a 25 month delay,
the
NYT "discovered" just this, reporting that the abovementioned practice was
nothing but "pure gold" to the banks. It sure is, and will continue to be. And
while we are happy that the mainstream media finally woke up to this practice
which had been known to our readers for over two years, the question is why now?
The answer is simple - tomorrow, July 23, the Senate Committee on Banking will
hold a hearing titled "
Should
Banks Control Power Plants, Warehouses, And Oil Refiners."
While congratulations are also due to the Senate for finally waking up to
this monopolistic travesty conducted by the big banks, we can only assume that
this is due to various key non-bank industry participants (such as MillerCoors)
crying foul so much that even the Fed is now involved and is supposedly
reviewing its own decision from 2003 that allowed this activity in the first
place.
Bloomberg
explains:
When the Federal Reserve gave JPMorgan (JPM) Chase & Co. approval in 2005
for hands-on involvement in commodity markets, it prohibited the bank from
expanding into the storage business because of the risk. Five years
later, JPMorgan bought one of the world’s biggest metal warehouse
companies.
While the Fed has never explained why it let that happen, the central bank
announced July 19 that it’s reviewing a 2003 precedent that let deposit-taking
banks trade physical commodities. Reversing that policy would mark the
Fed’s biggest ejection of banks from a market since Congress lifted the
Depression-era law against them running securities firms in 1999.
“The Federal Reserve regularly monitors the commodity activities of
supervised firms and is reviewing the 2003 determination that certain commodity
activities are complementary to financial activities and thus permissible for
bank holding companies,” said Barbara Hagenbaugh, a Fed spokeswoman. She
declined to elaborate.
“When Wall Street banks control the supply of both commodities and financial
products, there’s a potential for anti-competitive behavior and manipulation,”
Brown said in an e-mailed statement. Goldman Sachs, Morgan Stanley and JPMorgan
are the biggest Wall Street players in physical commodities.
Of course, when one is a monopoly, the revenues follow easily. The trick, of
course, is to keep Congress very much unaware of said monopoly and let the good
times roll.
The 10 largest banks generated about $6 billion in revenue from commodities,
including dealings in physical materials as well as related financial products,
according to a Feb. 15 report from analytics company Coalition. Goldman Sachs
ranked No. 1, followed by JPMorgan.
While banks generally don’t specify their earnings from physical materials,
Goldman Sachs wrote in a quarterly financial report that it held $7.7 billion of
commodities at fair value as of March 31. Morgan Stanley had $6.7 billion.
On June 27, four Democratic members of Congress wrote a letter asking Fed
Chairman Ben S. Bernanke, among other things, how Fed examiners would
account for possible bank runs caused by a bank-owned tanker spilling
oil, and how the Fed would resolve a systemically important financial
institution’s commodities activities if it were to collapse.
Just because questions like these
finally had to be
asked, one has to laugh. One person not laughing, tough, is Ben Bernanke - the
man whose Fed allowed bank commodity cartellization to take place originally. He
is certainly not laughing now that he may be forced to undo this permission, in
the process impairing banks to the tune of billions in revenue: as a reminder,
the Fed works purely to benefit America's banks and to provide them with
whatever top-line amenities they need and are confident they can pass by under
the noses of dumb congressmen. But at least the Fed promises it can "supervise"
all these TBTF banks. Or can it?
Now, “it is virtually impossible to glean even a broad overall picture of
Goldman Sachs’s, Morgan Stanley’s, or JPMorgan’s physical commodities and energy
activities from their public filings with the Securities and Exchange Commission
and federal bank regulators,” Saule T. Omarova, a University of North
Carolina-Chapel Hill law professor, wrote in a November 2012 academic paper,
“Merchants of Wall Street: Banking, Commerce and Commodities.”
The added complexity makes the financial system less stable and more
difficult to supervise, she said in an interview.
“It stretches regulatory capacity beyond its limits,” said Omarova, who is
slated to be a witness at the Senate hearing. “No regulator in the financial
world can realistically, effectively manage all the risks of an enterprise of
financial activities, but also the marketing of gas, oil, electricity and
metals. How can one banking regulator develop the expertise to know what’s going
on?”
Now that the entire world is looking, and not just a select subset of Zero
Hedge readers, the full extend of Goldman's monopoly becomes apparent:
Goldman Sachs owns coal mines in Colombia, a stake in the railroad that
transports the coal to port, part of an oil field off the coast of Angola and
one of the largest metals warehouse networks in the world, among other
investments. Morgan Stanley’s involvement includes Denver-based TransMontaigne
Inc. (TLP), a petroleum and chemical transportation and storage company, and
Heidmar Inc., based in Norwalk, Connecticut, which manages more than 100 oil
tankers, according to its website.
Mark Lake, a spokesman for New York-based Morgan Stanley, referred to company
regulatory filings that said the bank didn’t expect to have to divest any of its
activities after the grace period ends. He declined to elaborate or to comment
on the Fed’s announced rule review.
Brian Marchiony, a spokesman for JPMorgan, also declined to comment on the
review, as did Michael DuVally, a Goldman Sachs spokesman.
...
In February 2010, Goldman Sachs bought Romulus, Michigan-based Metro
International Trade Services LLC, which as of July 11 operates 34 out of 39
storage facilities licensed by the London Metal Exchange in the Detroit area,
according to LME data. Since then, aluminum stockpiles in Detroit-area
warehouses surged 66 percent and now account for 80 percent of U.S. aluminum
inventory monitored by the LME and 27 percent of total LME aluminum stockpiles,
exchange data from July 18 show.
Traders employed by the bank can steer metal owned by others into
Metro facilities, creating a stockpile, said Robert Bernstein, an attorney with
Eaton & Van Winkle LLC in New York. He represents consumers who
have complained to the LME about what they call artificial shortages of the
metal.
“The warehouse companies, which store both LME and non-LME metals, do not own
metal in their facilities, but merely store it on behalf of the ultimate
owners,” said DuVally, the Goldman Sachs spokesman. “In fact, LME warehouses are
actually prohibited from trading all LME products.”
at
http://www.zerohedge.com/news/2013-07-22/ahead-tomorrows-hearing-goldman-and-jpms-commodity-cartel
