REUTERS/Jayanta Dey
The Federal Reserve is currently "reviewing" a landmark 2003 decision that first allowed regulated banks to trade in physical commodity markets.
Why exactly shouldn't banks be able to trade physical commodities? To see one argument, take a look at a big report from David Kocieniewski in today's New York Times.
According to Kocieniewski, a Goldman Sachs-owned company has been involved in an elaborate plan to move around
Kocieniewski's investigation centers on Metro International Trade Services, an aluminum storage company that
Aluminum storage facilities are not allowed to mindlessly sit on aluminum — industry standards require them to move 3,000 tons of the metal every day. However, according to the Times, Metro International gets around this law by moving the metal between its own warehouses every day. One analyst estimated that around 90 percent of the metal moved each day went to another Goldman-owned warehouse.
The body that governs the industry has shown little interest in reforming the practice, Kocieniwski writes. This may be because the body — the London Metals Exchange — collects 1 percent of the rent from aluminum storage facilities. Limiting the amount of rent received would cost it millions.
This all makes for a somewhat absurd working environment. Workers told the Times that they'd routinely see the same drivers making three or four round trips a day. Some warehouses reportedly sat empty 12 or more hours a day, the Times reports, despite the huge backlog.
If the practice is as the Times describes it, it is very hard to see what value is given to society by the activity. A loose coalition of companies that use aluminium — including Boeing and Coca-Cola — have begun to put pressure on Goldman. However, the issue may go beyond aluminum — JP Morgan, Blackrock and Goldman have all been given approval by the S.E.C to buy a large amount of copper available on the market and stockpile it, Kocieniwski reports.