This Wall Street maneuver is costing consumers billions. The rouge actors identified by the article are the usual suspects.
Aluminum is being shuffled from one warehouse to another to exploit pricing regulations set up by an overseas commodities exchange, The New York Times reports.
Full Story:
http://www.cnbc.com/id/100901270But there may be hope:
The Fed is "reviewing" a landmark 2003 decision that first allowed regulated banks to trade in physical commodity markets, it said on Friday, a move that may send new shockwaves through Wall Street.
Full Story:
http://www.cnbc.com/id/100900759Another article from Reuters:
http://www.reuters.com/article/businessNews/idUSBRE96J0AS20130720
Comments
"Under “pressure to generate large profits,” the agency’s investigators said, traders in Houston devised a workaround. Adopting eight different “schemes” between September 2010 and June 2011, the traders offered the energy at prices “calculated to falsely appear attractive” to state energy authorities. The effort prompted authorities in California and Michigan to dole out about $83 million in “excessive” payments to JPMorgan, the investigators said. The behavior had “harmful effects” on the markets, according to the document." (http://www.zerohedge.com/news/2013-05-03/will-jpmorgans-enron-be-end-blythe-masters)
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As for commodity warehousing:
This was being discussed a couple of years ago (In this article from 2011: http://online.wsj.com/article/SB10001424052702304803104576426131256469252.html) , when banks and commodity traders were buying up warehouses left and right. "In the past 18 months, Goldman, J.P. Morgan Chase JPM -0.37% & Co. and trading firms Glencore International 0805.HK -0.16% PLC and Trafigura Beheer BV have snapped up warehouse operators, all of them accredited to house metal traded through the London Metal Exchange, or LME. The buying binge means the four firms now are landlords to about two-thirds of the LME's entire metal stocks, from aluminum to copper to zinc."
"Metal users such as beverage giant Coca-Cola Co. KO +0.69% and can maker Novelis Inc. have expressed concern to the LME that the Detroit warehouses send out too little of the commodities they need. The LME has responded by instructing warehouse to release more commodities.
"This is inappropriate," says Nick Madden, chief procurement officer at Novelis, referring to the release limits and the wait to receive aluminum. Warehouses in Detroit owned by Goldman are only required to release 1,500 metric tons of metals a day. The warehouse only rarely surpasses this limit, according to LME data.
Novelis, a beverage-can maker, is the largest user of aluminum in the U.S. "We see it as very unhealthy for the market," he says. "The ultimate bill goes to the consumers."
Procurement officers at Coke and Novelis have said the limited releases are driving metal costs higher. A Goldman spokesman says its warehouse unit "is fulfilling the LME's requirements."
With record levels of commodities piling up, companies that own the warehouses are raking in nearly $1 billion in rental revenue each year, according to LME data."
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Nothing's going to happen to change this. Lobbying and whatnot will result in a fine and some other, minor nonsense. If anything, I don't think anything is probably going to happen - I noticed that a fuss was being made over commodity warehousing the other day; it was made two years ago and no one really did anything about it.
"GS, JPM 3:22 AM The physical commodities activities of major banks such as Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS) are set to be the subject of a Senate hearing on Tuesday, when legislators will explore whether banks should be allowed to continue to store metal, transport oil and operate mines. On Friday, the Fed said it's reviewing whether banks that take deposits should allowed to trade physical commodities. The Senate hearing and Fed review come amid an NYT investigation into how GS's activities have driven up aluminum prices. [Commodities] Comment!"
Bank lobbyists are already hard at work. lol.
Nothing will ever be done about it. And once in a while Madoff and Corzine come along. Does not really do jack to protect anyone. The best one can hope for is for these financial extremists to pay a fine to the SEC without admitting any wrongdoing.
Nothing ever changes, including us fretting over it. We all know the game is rigged. We all have families to take care off. So we invest in this stock market dreaming of riches it will bring. Man, life really sucks!
Oligarchy has always worked for me:
ol·i·gar·chy
[ol-i-gahr-kee]
noun, plural ol·i·gar·chies.
1. a form of government in which all power is vested in a few persons or in a dominant class or clique; government by the few.
2. a state or organization so ruled.
3. the persons or class so ruling.
OR, the book; How to profit and enjoy investing during the age of Oligarchy.
Not that this house likes it; but the best we could ever consider, is that we are informed gamblers
Yes, we investors here are really up against the investing wall too many times.
However, I/we choose to be up against the wall; while others (big houses, etc.) continue to move the wall, all the while knowing the very many who don't know about or choose to not recognize the wall exists.
Hopefully, our house's monetary investment folly over about 35 years will not ever end in a flaming pile of monetary 1's and 0's.
Take care,
Catch
In our government-regulated financial areas??
SURELY you are mistaken!
(Now, you want to talk outright fraud and thievery, that's another situation entirely).
As always, "If, when you look around the table, you don't recognize the patsy; you're the patsy."
JPM Exits physical commodity biz.