By Pam Martens: July 31, 2013
After packing his administration with 1 percenters or people earning a lucrative living off the 1 percenters, President Obama has decided, seemingly out of the blue, to hit the stump on behalf of the plight of the struggling middle class while railing against the income inequality that plagues the U.S.
Could the President’s new focus have anything to do with a new probe of Wall Street practices opened by Carl Levin and the Senate’s Permanent Subcommittee on Investigations? The Subcommittee is delving into the hoarding of physical commodities by the largest firms on Wall Street.
Whether the President is cognizant of the fact or not, the two issues are indelibly linked. Hoarding physical commodities pushes up prices on everything from the cost of food and beverage packaging to the price of a tank of gas to get to work or heating oil to stay warm in the winter. That’s effectively another wealth drainer for the middle class and an impediment to the poor to rise out of poverty.
If Wall Street is further using its superior knowledge of how much physical commodity supply it has removed from the market, or its superior knowledge of how slowly it plans to release supplies to trade for itself (proprietary trading), it’s on a par with exactly what banks have been charged with in the rigging of the London interest rate benchmark known as Libor: harming consumers while enriching themselves.
Levin’s Subcommittee has subpoena power and knows how to use it. That might explain last Friday’s sudden announcement by JPMorgan to exit the physical commodities business, saying it has decided to sell those assets – one business day before getting smacked with a $410 million fine on charges it rigged electricity prices in California and the Midwest.
As Wall Street On Parade reported on July 23, the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, chaired by Senator Sherrod Brown, held a hearing last Tuesday on the matter, titled: “Examining Financial Holding Companies: Should Banks Control Power Plants, Warehouses, and Oil Refineries?”
Timothy Weiner, the Global Risk Manager of the giant beer brewer, MillerCoors LLC, told the Subcommittee that the aluminum the company was attempting to purchase to can its beers was controlled by the big Wall Street firms, who as members of the London Metal Exchange (LME), were setting all the rules for how and when it would be released from the metal warehouses, also owned by the same Wall Street firms.
Weiner expanded further:
“These bank holding companies are slowing the load-out of physical aluminum from these warehouses to ensure that they receive increased rent for an extended period of time. Aluminum users like MillerCoors are being forced to wait in some cases over 18 months to take physical delivery due to the LME warehouse practices or pay the high physical premium to get aluminum today. This does not happen with any of the other commodities we purchase. When we buy barley we receive prompt delivery, the same with corn, natural gas and other commodities. It is only with aluminum purchased through the LME that our property is held for an extraordinary period of time, with the penalty of paying additional rent and premiums to the warehouse owners, until we get access to the metal we have purchased.”
According to Weiner, the Wall Street firms that are members of the LME also make up its Warehouse Rules and Regulations committee, while also owning a large number of warehouses that store metals. Weiner said that through December 2012, Goldman Sachs was the largest LME principal and through its ownership of Metro International Trade Services owns one of the largest warehouse complexes in the LME system, controlling 29 of the 37 warehouse locations at the LME approved site in Detroit. According to Weiner, “This site houses approximately one quarter of the aluminum stored in LME facilities globally and over 70% of the available aluminum in North America. Henry Bath (100% owned by JPMorgan), Glencore and other trading companies also own LME warehouses.”