5 ms·

A Shuffle of Aluminum, but to Banks, Pure Gold

72 points by smd4 13y ago

deleted 13y ago
[deleted]
guard-of-terra 13y ago
Could not figure out what is going on from reading the page one, can somebody explain using simple terms?
- ParanoidFrank 13y ago
  Goldman and others lobby for regulations that allow them to inflate the real price of a commodity without actually doing anything with it. Taxpayers pay representatives to represent Goldman while paying billions upon billions in extra costs for nearly every function in life.
- ParanoidFrank 13y ago
  I forgot to mention, when busted they are allowed to pay a fine that is less than the damage done. Enabling them to continue on.
  - cobrausn 13y ago
    You can edit your previous post instead of making a new one with the 'edit' link.
- berlin45 13y ago
  TL;DR (From what I understood): Banks work around regulations to artificially increase the time they are allowed to store metal for - essentially shipping it to each other, back and forth, for a very long time. As they charge for storage, this increases the price of the metal for all manufacturers who use it, who then pass it on to consumers.
- pasbesoin 13y ago
  I did not read too far into the article, but I read far enough to gather that this is one instance of something I've been reading about elsewhere. Even the specific commodity, aluminium, sounds familiar. Goldman is one of the largest -- and therefore, most effective -- players, but basically Goldman and its ilk have been using their financial (and legal) clout to essentially corner commodity markets. They are creating effective monopolies for themselves -- or sufficient control to significantly influence availability and therefore pricing. In this particular instance, as far as I read, they are using their control of aluminium stocks and warehousing to jack up the prices they receive. This may abut regulatory and other concerns, resulting in a "shuffling exercise" to place their price increases within boundaries and definition of an established market mechanism and regulation. Still in the process of being converted from a public resource to a private commodity -- in the U.S. and some other countries, at least -- but another one to keep an eye on is water, including potable water. There are companies working to privatize supplies, with an eye to charging you whatever the market will bear. And if and when they control said market? And given that most communities are single sourced for local, bulk delivery?
- Lagged2Death 13y ago
  Metal exchange spot prices for Al are affected by the length of time the stock has been stored; the warehouses dilly-dally to raise the price, the powers who could do something about it (the metal exchange) get a cut for ignoring the whole scam.
- patio11 13y ago
  Some people believe that the future price of aluminum is going to be sufficiently higher than the prevailing price today that they would prefer to pay to store their aluminum and sell at some point in the future. The NYT correctly suggests that this increases the price of aluminum today and that this generates (literal) rent for people who own warehouses. The NYT is furious about it, because they are not envisioning the possible future headline "Women and poor worst hit as consumer good prices skyrocket due to aluminum shortage." Note: this is me explaining what is happening rather than explaining the causal chain which the NYT thinks is happening, because my version is a lot simpler and more likely to be correct.
  - anon1385 13y ago
    Wasn't the point of the original Routers article that GS owned the storage warehouses and therefore could (and did) control the speed/amount of aluminium being shipped out, against the wishes of those who owned the metal. i.e. GS have huge control over the supply of a finite resource. Saying 'well the price did fall' doesn't undermine the argument that GS were controlling the supply to their own benefit since we don't know what positions GS took on aluminium over that time.
  - derleth 13y ago
    > the possible future headline "Women and poor worst hit as consumer good prices skyrocket due to aluminum shortage." Actually, I'd expect rolling blackouts long before an actual Al shortage. (Reasoning: Aluminum is one of the most abundant metals in the crust, but it's never found pure. It's always found in an ore, and the cheapest way to refine the ore is very electricity-intensive. As a side note, aluminum was once a fairly expensive metal; the tip of the Washington Monument is made out of it, which was an extravagant expense at the time.)
deleted 13y ago
[deleted]
temphn 13y ago
The only way that Goldman could possibly make more money by artificially delaying shipments would be because of a market-distorting regulation. And sure enough, here it is: industry rules require that all that metal cannot simply sit in a warehouse forever. At least 3,000 tons of that metal must be moved out each day. Without looking I'd bet this is some kind of "anti-hoarding" provision, probably intended to prevent single manufacturers from cornering the market. As is typical, it caused exactly the opposite of the desired consequence. Moreover, said rule means (among other things) that no manufacturer can hold a strategic reserve of aluminum for unexpected spikes in demand without playing the games that Goldman is playing. Naturally, the response of the New York Times is that we need more such rules and regulations, that next time we'll anticipate their consequences, that the only failing is that they haven't been "strict" enough. But the "stricter" the rule, the more that little guys get hit with it while Goldman uses teams of lawyers to define and then exploit a safe harbor.[1] In this sense, Goldman and the NYT are in cahoots: "strict" regulations directly benefit big companies. [1] http://en.wikipedia.org/wiki/Safe_harbor_(law) http://en.wikipedia.org/wiki/Safe_harbor_(law) A safe harbor is a provision of a statute or a regulation that reduces or eliminates a party's liability under the law, on the condition that the party performed its actions in good faith or in compliance with defined standards. Legislators may include safe-harbor provisions to protect legitimate or excusable violations, or to incentivize the adoption of desirable practices.
- Lagged2Death 13y ago
  Without looking I'd bet this is some kind of "anti-hoarding" provision, probably intended to prevent single manufacturers from cornering the market. As is typical, it caused exactly the opposite of the desired consequence. In your first sentence you admit you don't know what's going on, then in your second sentence you claim that "it caused exactly the opposite of the desired consequence." The point being, this could be an old rule that's worked well until just recently, as far as you know. It's possible it's done more good than ill. In any case, it's described as an "industry rule," not a government regulation, as your quote makes clear. It's the result of industry "self-regulation." The article mentions this. The shuffle of stock is an end-run around that rule, but it's not the cause of the higher prices. The delay-to-raise-prices scam would be easier to run and more profitable if the rule that makes the shuffle necessary didn't exist.
droithomme 13y ago
The New York Times is claiming that they have just discovered this scheme through investigative reporting, but the article is a rewrite of a July 2011 Reuters article by other authors. http://www.reuters.com/article/2011/07/29/us-lme-warehousing-idUSTRE76R3YZ20110729 http://www.reuters.com/article/2011/07/29/us-lme-warehousing...
- patio11 13y ago
  They're presumably avoiding that because they'd have to answer the uncomfortable question "And how many billions of dollars have speculators stolen from hardworking Americans by hoarding aluminum since the Reuters piece?" "Er, the spot price is down by a third, actually."
  - fixxer 13y ago
    Exactly. I'm just happy that GS found a use of Detroit.
  - MikeCapone 13y ago
    People need to realize that if you hoard something, you might be reducing supply now, but if you want to make money you have to eventually sell and that increases supply at some later point. There's no cure for high prices like high prices, and vice versa.
    - msandford 13y ago
      Goldman will probably pump-and-dump the warehousing business onto someone unsuspecting. 1. Buy up metal warehouses 2. Stockpile metal, thus reducing market supply 3. Watch as market price increases and rental income holds steady 4. When market prices have risen enough (say 30-50%) and you have a giant stockpile of metal, put the whole business up for sale 5. A giant inventory coupled with high prices and increasing cashflow for the last several years makes the business very attractive to someone with money but not a lot of sophistication 6. Goldman makes a boatload and doesn't have to figure out how to unwind the mess 7. Unsuspecting buyer goes bankrupt within two years
jgalt212 13y ago
Goldman's Moto: Don't NOT be evil.
Qantourisc 13y ago
Banks/big capitals are evil, I prefer them dead (well the financial instance not the person. The persons however deserve a good old fashion whipping, at the least.)
Zakharov 13y ago
They talk about the money made storing aluminium in the warehouse, who's paying that? It sounds like Goldman owns both the aluminium and the warehouses, so all they're doing is buying aluminium and refusing to sell it.
danbmil99 13y ago
I think it's an old trick, called "cornering the market". One of the clearest ways Ayn Rand's vision of unbridled capitalism is not a practical reality.

72 points by smd4 13y ago

deleted 13y ago

[deleted]

guard-of-terra 13y ago

Could not figure out what is going on from reading the page one, can somebody explain using simple terms?

ParanoidFrank 13y ago
Goldman and others lobby for regulations that allow them to inflate the real price of a commodity without actually doing anything with it. Taxpayers pay representatives to represent Goldman while paying billions upon billions in extra costs for nearly every function in life.
ParanoidFrank 13y ago
I forgot to mention, when busted they are allowed to pay a fine that is less than the damage done. Enabling them to continue on.
- cobrausn 13y ago
  You can edit your previous post instead of making a new one with the 'edit' link.
berlin45 13y ago
TL;DR (From what I understood): Banks work around regulations to artificially increase the time they are allowed to store metal for - essentially shipping it to each other, back and forth, for a very long time. As they charge for storage, this increases the price of the metal for all manufacturers who use it, who then pass it on to consumers.
pasbesoin 13y ago
I did not read too far into the article, but I read far enough to gather that this is one instance of something I've been reading about elsewhere. Even the specific commodity, aluminium, sounds familiar. Goldman is one of the largest -- and therefore, most effective -- players, but basically Goldman and its ilk have been using their financial (and legal) clout to essentially corner commodity markets. They are creating effective monopolies for themselves -- or sufficient control to significantly influence availability and therefore pricing. In this particular instance, as far as I read, they are using their control of aluminium stocks and warehousing to jack up the prices they receive. This may abut regulatory and other concerns, resulting in a "shuffling exercise" to place their price increases within boundaries and definition of an established market mechanism and regulation. Still in the process of being converted from a public resource to a private commodity -- in the U.S. and some other countries, at least -- but another one to keep an eye on is water, including potable water. There are companies working to privatize supplies, with an eye to charging you whatever the market will bear. And if and when they control said market? And given that most communities are single sourced for local, bulk delivery?
Lagged2Death 13y ago
Metal exchange spot prices for Al are affected by the length of time the stock has been stored; the warehouses dilly-dally to raise the price, the powers who could do something about it (the metal exchange) get a cut for ignoring the whole scam.
patio11 13y ago
Some people believe that the future price of aluminum is going to be sufficiently higher than the prevailing price today that they would prefer to pay to store their aluminum and sell at some point in the future. The NYT correctly suggests that this increases the price of aluminum today and that this generates (literal) rent for people who own warehouses. The NYT is furious about it, because they are not envisioning the possible future headline "Women and poor worst hit as consumer good prices skyrocket due to aluminum shortage." Note: this is me explaining what is happening rather than explaining the causal chain which the NYT thinks is happening, because my version is a lot simpler and more likely to be correct.
- anon1385 13y ago
  Wasn't the point of the original Routers article that GS owned the storage warehouses and therefore could (and did) control the speed/amount of aluminium being shipped out, against the wishes of those who owned the metal. i.e. GS have huge control over the supply of a finite resource. Saying 'well the price did fall' doesn't undermine the argument that GS were controlling the supply to their own benefit since we don't know what positions GS took on aluminium over that time.
- derleth 13y ago
  > the possible future headline "Women and poor worst hit as consumer good prices skyrocket due to aluminum shortage." Actually, I'd expect rolling blackouts long before an actual Al shortage. (Reasoning: Aluminum is one of the most abundant metals in the crust, but it's never found pure. It's always found in an ore, and the cheapest way to refine the ore is very electricity-intensive. As a side note, aluminum was once a fairly expensive metal; the tip of the Washington Monument is made out of it, which was an extravagant expense at the time.)

deleted 13y ago

[deleted]

temphn 13y ago

The only way that Goldman could possibly make more money by artificially delaying shipments would be because of a market-distorting regulation. And sure enough, here it is: industry rules require that all that metal cannot simply sit in a warehouse forever. At least 3,000 tons of that metal must be moved out each day. Without looking I'd bet this is some kind of "anti-hoarding" provision, probably intended to prevent single manufacturers from cornering the market. As is typical, it caused exactly the opposite of the desired consequence. Moreover, said rule means (among other things) that no manufacturer can hold a strategic reserve of aluminum for unexpected spikes in demand without playing the games that Goldman is playing. Naturally, the response of the New York Times is that we need more such rules and regulations, that next time we'll anticipate their consequences, that the only failing is that they haven't been "strict" enough. But the "stricter" the rule, the more that little guys get hit with it while Goldman uses teams of lawyers to define and then exploit a safe harbor.[1] In this sense, Goldman and the NYT are in cahoots: "strict" regulations directly benefit big companies. [1] http://en.wikipedia.org/wiki/Safe_harbor_(law) http://en.wikipedia.org/wiki/Safe_harbor_(law) A safe harbor is a provision of a statute or a regulation that reduces or eliminates a party's liability under the law, on the condition that the party performed its actions in good faith or in compliance with defined standards. Legislators may include safe-harbor provisions to protect legitimate or excusable violations, or to incentivize the adoption of desirable practices.

Lagged2Death 13y ago
Without looking I'd bet this is some kind of "anti-hoarding" provision, probably intended to prevent single manufacturers from cornering the market. As is typical, it caused exactly the opposite of the desired consequence. In your first sentence you admit you don't know what's going on, then in your second sentence you claim that "it caused exactly the opposite of the desired consequence." The point being, this could be an old rule that's worked well until just recently, as far as you know. It's possible it's done more good than ill. In any case, it's described as an "industry rule," not a government regulation, as your quote makes clear. It's the result of industry "self-regulation." The article mentions this. The shuffle of stock is an end-run around that rule, but it's not the cause of the higher prices. The delay-to-raise-prices scam would be easier to run and more profitable if the rule that makes the shuffle necessary didn't exist.

droithomme 13y ago

The New York Times is claiming that they have just discovered this scheme through investigative reporting, but the article is a rewrite of a July 2011 Reuters article by other authors. http://www.reuters.com/article/2011/07/29/us-lme-warehousing-idUSTRE76R3YZ20110729 http://www.reuters.com/article/2011/07/29/us-lme-warehousing...

patio11 13y ago
They're presumably avoiding that because they'd have to answer the uncomfortable question "And how many billions of dollars have speculators stolen from hardworking Americans by hoarding aluminum since the Reuters piece?" "Er, the spot price is down by a third, actually."
- fixxer 13y ago
  Exactly. I'm just happy that GS found a use of Detroit.
- MikeCapone 13y ago
  People need to realize that if you hoard something, you might be reducing supply now, but if you want to make money you have to eventually sell and that increases supply at some later point. There's no cure for high prices like high prices, and vice versa.
  - msandford 13y ago
    Goldman will probably pump-and-dump the warehousing business onto someone unsuspecting. 1. Buy up metal warehouses 2. Stockpile metal, thus reducing market supply 3. Watch as market price increases and rental income holds steady 4. When market prices have risen enough (say 30-50%) and you have a giant stockpile of metal, put the whole business up for sale 5. A giant inventory coupled with high prices and increasing cashflow for the last several years makes the business very attractive to someone with money but not a lot of sophistication 6. Goldman makes a boatload and doesn't have to figure out how to unwind the mess 7. Unsuspecting buyer goes bankrupt within two years

jgalt212 13y ago

Goldman's Moto: Don't NOT be evil.

Qantourisc 13y ago

Banks/big capitals are evil, I prefer them dead (well the financial instance not the person. The persons however deserve a good old fashion whipping, at the least.)

Zakharov 13y ago

They talk about the money made storing aluminium in the warehouse, who's paying that? It sounds like Goldman owns both the aluminium and the warehouses, so all they're doing is buying aluminium and refusing to sell it.

danbmil99 13y ago

I think it's an old trick, called "cornering the market". One of the clearest ways Ayn Rand's vision of unbridled capitalism is not a practical reality.