The big banks are at it again

See Taibbi's as usual fine reporting here. Some excerpts:

"But it would take half a generation – till now, basically – to understand the most explosive part of the bill [Gramm-Leach-Bliley Act], which additionally legalized new forms of monopoly, allowing banks to merge with heavy industry.[...] Today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs own oil tankers, run airports and control huge quantities of coal, natural gas, heating oil, electric power and precious metals. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to metals like zinc, copper, tin, nickel and, most infamously thanks to a recent high-profile scandal, aluminum."


"Then, just for kicks, they're also betting on the timing and efficiency of these same industrial processes in the financial markets – buying and selling oil stocks on the stock exchange, oil futures on the futures market, swaps on the swaps market, etc. Allowing one company to control the supply of crucial physical commodities, and also trade in the financial products that might be related to those markets, is an open invitation to commit mass manipulation. It's something akin to letting casino owners who take book on NFL games during the week also coach all the teams on Sundays. [...] In these new, even scarier kinds of manipulations, banks that own whole chains of physical business interests have been caught rigging prices in those industries."


"Basically, a bank or a trading company wants to buy commodities cheap in the present and sell them for a premium as futures. This trade, sometimes called 'arbitraging the contango,' works best if the cost of storing your oil or metals or whatever you're dealing with is negligible – you make more money off the futures trade if you don't have to pay rent while you wait to deliver. So when financial firms suddenly start buying oil tankers or warehouses, they could be doing so to make bets pay off, as part of a speculative strategy – which is why the banks' sudden acquisitions of metals-storage companies in 2010 is so noteworthy."

"We need to make prices. The head of Chase's commodities division actually said this, out loud, and it speaks to both the general unlikelihood of God's existence and the consistently low level of competence of America's regulators that she was not immediately zapped between the eyebrows with a thunderbolt upon doing so. Instead, the government sat by and watched as a curious phenomenon developed at all of these new bank-owned warehouses, in the aluminum markets in particular. [...] 'In layman's terms, they were artificially jacking up the shipping and handling costs.' [...] The result of all this was a bottlenecking of aluminum supplies. A crucial industrial material that was plentiful and even in oversupply was now stuck in the speculative merry-go-round of the bank finance trade."