MOUNT CLEMENS, Mich. - Hundreds of millions of times a day, thirsty Americans open a can of soda, beer or juice. And every time they do it, they pay a fraction of a penny more because of a shrewd maneuver by Goldman Sachs and other financial players that ultimately costs consumers billions of dollars.
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.
Tyler Clay, a forklift driver who worked at the Goldman warehouses until early this year, called the process "a merry-go-round of metal."
Only a tenth of a cent or so of an aluminum can's purchase price can be traced back to the strategy. But multiply that amount by the 90 billion aluminum cans consumed in the United States each year - and add the tons of aluminum used in things like cars, electronics and house siding - and the efforts by Goldman and other financial players has cost American consumers more than $5 billion over the last three years, say former industry executives, analysts and consultants.
The inflated aluminum pricing is just one way that Wall Street is flexing its financial muscle and capitalizing on loosened federal regulations to sway a variety of commodities markets, according to financial records, regulatory documents and interviews with people involved in the activities.
The maneuvering in markets for oil, wheat, cotton, coffee and more have brought billions in profits to investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more every time they fill up a gas tank, flick on a light switch, open a beer or buy a cellphone. In the last year, federal authorities have accused three banks, including JPMorgan, of rigging electricity prices, and last week JPMorgan was trying to reach a settlement that could cost it $500 million.
David Fuller's view Historically, a
modest amount of commodity speculation has helped to increase liquidity in these
markets, and it seldom had more than a very short-term effect on prices.
However, veteran subscribers may recall that Fullermoney has opposed large scale moves by investment banks and other financial institutions into commodity futures markets since at least 2007. Initially, they were mainly promoting tracker funds, which were mostly long only. These inevitably pushed prices of raw materials considerably higher, creating commodity price inflation, which reached a peak in July 2008. The process was repeated following the credit crisis crash, leading to another expensive bubble peak in 2011, which had little to do with a surge in consumer demand but a lot to do with long side commodity speculation. Here is one of our many comments on commodity tracker funds from that period.
However, the short-sighted investment institutions which purchased commodity futures tracker funds did not do very well because every three months they were hit by contango and transaction costs when their expiring futures positions were rolled forward. Fortunately, that fashion faded and the unwinding of tracker fund positions and ETFs in commodities helped to lower prices in recent years. Unfortunately, the investment banks came up with a subtler and even more profitable scheme. Call it: The return of the blood sucking squid. Fortunately, The New York Times has done a very good job of exposing it.