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Wall Street’s Shameful Commodities Market Play

November 25, 2014 Blog

Wall Street banks, which never stopped raking in money despite their key role in causing the 2008 global financial collapse, are at it again.

The latest round of big bank hijinks are hurting the American consumer where it hurts, right in their pocketbooks. Big Wall Street banks are manipulating the prices of commodities, like aluminum and copper, and their price rigging activities and Orwellian trading strategies are driving up prices on the commodities that millions of average Americans use every day.

A US Senate report on commodities-market activities released last week underscored the role Wall Street was playing in skewing the commodities markets to its favor. The report accused major banks such as Goldman Sachs, JPMorgan and Morgan Stanley of “being so powerful they were able to influence prices, gain trading advantages and put the broader financial system at risk by entering volatile businesses such as uranium trading and coal production,” according to a Wall Street Journal report by Christian Berthelsen and Ryan Tracy.

What’s more, Wall Street is creating a scenario in which it can shoot itself in the foot again, just as it did in the mortgage-backed securities crisis. Senator Carl Levin, Democrat of Michigan, who chairs the U.S. Senate Permanent Subcommittee on Investigations, said it had “found substantial evidence that these activities exposed major banks to catastrophic risks that are poorly understood. They are raising costs and uncertainty for the end users of commodities, which hurts American manufacturers and consumers.”

The Wall Street banks “built up voluminous inventories of aluminum, copper and other commodities” which the Senate report found “often exceeded regulatory limits on the size of commodity holdings. It portrays banks straying far beyond their traditional business lines to dabble in lucrative but risky activities that posed legal and financial threats to the firms,” according to the WSJ.

The Senate Report cited that Morgan Stanley held 55 million barrels of oil-storage capacity, enough supply for nearly three-days-worth of US consumption and Goldman Sachs reportedly engaged in “merry-go-round” transactions involving aluminum for its own financial gain.

The metal would simply be transferred from warehouse to warehouse in such transactions, driving up the price by keeping it off the market and away from the consumer. Meanwhile, Goldman, notorious for creating ways to play both sides of a trade, also generated revenue through a subsidiary that owned the warehouses that held the aluminum.

The Senate report also cited that Deutsche Bank, in September 2010, asked for delivery from a warehouse of 100,000 tons of aluminum in a single transaction. That was “the largest withdrawal in the history of the global market for physical metal at the time,” according to the WSJ. “The wait time for clients hoping to get their metal ballooned from 20 days to four months.”

It is likely that these banks dealt a blow to Joe Six-pack as the 2010 aluminum shortage “drove up aluminum prices and prompted complaints to lawmakers from major aluminum consumers like MillerCoors”, the nation’s leading beer manufacturer.

Once again, Wall Street fails to get it. The Street’s reckless behavior in the housing bubble caused millions of Americans to suffer substantial losses in their life savings and retirement accounts. Now, the Street is profiting through commodities at the expense of the average American and creating incredible stress in a still fragile US economy.

Who out there can stop these guys?

Senator Levin to the rescue.

Zamansky LLC are securities and investment fraud attorneys representing investors in federal and state litigation against financial institutions.