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How the Sopranos of Wall Street Just Took Us for $5 Billion in “Rent”

24 | By Shah Gilani

Wow, let’s give giant “kudos” today to journalist Gretchen Morgenson, researcher Alain Delaquérière, and the New York Times, where those two hang their investigative journalist hats.

If you didn’t catch the Business Day section in the Sunday Times yesterday, Gretchen just blew the lid off something that’s been going on for years but has managed to be tucked away so well it’s hardly ever seen the light of day.

If you’ve been paying any attention to what happens on Wall Street, you’re probably not even going to be surprised.

Shocked, yes, but surprised? No.

It’s only costing us about $5 billion this time around…

The Federal Reserve, which oversees – that means “regulates” – big banks has managed to not overlook, but oversee to it that banks (I’m talking about the “Sopranos” of Wall Street) that aren’t supposed to own non-financial assets are allowed to own non-financial assets.

Here’s the thing. If you let big banks with all that clout and control over Congress and their regulators (that’s called “regulatory capture”) own non-financial assets, with their power and control, they could get out of control and take over the free world. No, not take it over to run it. Take over free markets to run up their profits and bonus pools.

It’s been happening, and in the worst way. Gee, what a surprise.

Gretchen’s article was about how Goldman Sachs bought Metro International Trade Services for $550 million in 2010, in order to effectively control the warehousing of aluminum, which happens in Detroit, Mich.

Detroit? Goldman Sachs is there in Detroit and running a business, and the city is bankrupt?

Yep, that’s because Goldman’s 27 industrial warehouses in Detroit don’t hire a lot of people, because they don’t need to. It turns out they have just a small force of truck drivers and warehouse employees who load the aluminum stored there on trucks that go, get this, back and forth between their own warehouses. Loading the stuff here, unloading it there, then moving some from there to over here. In other words, they “daisy chain” aluminum.

Since Goldman took over the warehouses, the delivery time for aluminum from their warehouses has gone from six weeks to 16 months!

Things are slow for a reason.

Goldman collects rent on the aluminum in its warehouses, to the tune of $250 million a year. The longer it sits in their warehouses, the more rent they collect and the longer it takes to get from their clutches to the end users – folks like car manufacturers and soda bottlers.

Here’s the rub. The stuff can’t just sit there in the warehouses. That’d be illegal. The London Metals Exchange, which makes up the rules for storing metals that are traded on their exchange, says stuff can’t be warehoused away because that would allow folks to corner the market for metals. If you’re a trader, you can’t buy the stuff and lock it up and keep buying more and lock it up to raise the price. That’s manipulation. You just can’t do it.

Unless you’re Goldman Sachs, or JPMorgan Chase, or Citigroup, or Barclays (you get the picture)…

Back to what Goldman is doing. They’re moving the aluminum around because the LME says you can’t just sit on it. So, they move it, back and forth. Technically, that’s not sitting on it. So it’s perfectly legal. And incredibly profitable.

According to the NYT article, this little game has cost American consumers $5 billion over the last three years.

Oh, about the LME, and why aren’t they all over Goldman? Because, you guessed it, Goldman, along with the other usual suspects, are members of the London Metals Exchange. And… the LME gets a 1% vig on all the rent collected.

The story here is that Goldman is allowed, by the Fed and the SEC and Congress, to own these warehouses in order to get around rules governing storing metals to prevent price manipulation to manipulate the price of aluminum higher, which costs us all more.

They, this time Goldman, JPMorgan and Blackrock, now want to do the same thing with copper. The three houses have approval to buy up 80% of the world’s copper – an even more crucial commodity – on behalf of “investors” and hold it in warehouses.

Are they doing it with other stuff? You bet your bottom dollar they are.

Here’s the thing. If you control the conduits, like pipelines and tankers, and you control the storage facilities for commodities and finished industrial products, you can manipulate prices.

Now, in case you don’t get the whole picture, in which case, smack yourself… the big banks trade all this stuff. Gold, silver, oil, gasoline, commodities, you name it, they trade it. And just to prove to yourself that you’re not stupid, what’s the purpose of trading?

Ah, that would be to make money.

The whole bloody game is rigged.

There’s only one way out.

Know what it is?

Shah

24 Responses to How the Sopranos of Wall Street Just Took Us for $5 Billion in “Rent”

  1. H. Craig Bradley says:

    JUST PAY AND GO ON YOUR MERRY WAY

    Sure, hunt down some of the board members of G.S. and “wack them”. I know, the public abors “violence”. But heck, the public does not know about all this “high finance” and “politics” anyway, neither do they care. The public did not read the articles. Nor are they about to. They just pay and go on their merry way.

    John Q. Public’s interest in the automotive world goes like this: ” you get 40,000 miles on a set of radial tires”. Nothing deeper. So, someone has to look out for the country. Someone must be the vigilante.

    • Frank Birdsong says:

      Where I come from there is a simple, effective solution. Round ‘em up, tar and feather them, run ‘em out ‘o town.

      Then … change the rules and make a big todo out of it in the new media. Expose any politicians and any psueudo politicians (appointees) and take them to court for fraud and abuse of power.

      • Brad M says:

        Sounds fine with me birdsong, but I think most will just have a coke ( in a more expensive can ) and a smile. Freedom and wealth take a constant watch dog to maintain. America has grown too cynical, apethetic and divided to stand up to these bullies. As history has shown well, when this happens, an ever growing government and its elitist allies will gladly strip the people of both their wealth and freedoms.

  2. Jay Curtis, author of THE CODE says:

    Yes, I know what it is. Forbid banks from owning commodities period. Anyone other than a producer of metals or a consumer of metals should not be allowed to speculate in metals. We need Teddy Roosevelt back to bust up the trusts. We are in the very same position as when he simply said no to these kind of practices and weathered the storm of their wrath.

  3. Edouard d'Orange says:

    Mr. Gilani: you say: “The story here is that Goldman is allowed, by the Fed and the SEC and Congress, to own these warehouses in order to get around rules governing storing metals to prevent price manipulation to manipulate the price of aluminum higher”. So the answer is to stop allowing these companies to own the warehouses (non-financial assets) and manipulate prices.The LME obviously won’t lift a finger because it profits from rents and trading from the members like Goldman Sachs. Can any of these organizations, the Federal Reserve, the “captured” SEC or the corrupt Congress stand up and do the right thing? Doubt it. Now, we know about the monopolizing, but will anyone do anything?

    • voteright2014 says:

      Meanwhile Obama and his family take an African vacation costing the taxpayers over $100 million.

  4. cory bell says:

    shah, know any witch docters to curse the banksters? might work, congress won’t do what is correct. thks for info.

  5. David George says:

    Shah: why don’t you just take the lead on this and become a sort of an Elliott Ness but instead of leading a task force lead a revolution? You can find people willing to sit on the steps of the capitol or on the streets in front of Goldman Sachs, the SEC or Fed. John Adams said that without general knowledge among the public liberty cannot succeed. We need to create a greater awareness than is possible through your fine columns.

  6. D. Agami says:

    Shah, very incisive on your part to find and figure out these trickeries with which some few manipulate and create waves and tides and hurricanes in the financial seas. Awareness is the first step of the handling and the second is to figure out a way to stop them from owning non-financial assets. I often wonder how they control metal prices, and this definitely is one way

  7. Phil says:

    I’m ready: I’ve sharpened up my pitchfork and have the torches ready to light. “Let’s roll!”

  8. John McConnehey says:

    When i was a wee little one there was this thing we had called the Gold Certificates then later Silver Certificates….

    Now we have Bernakes that no one can figure the value of!!!!

  9. John Kosty says:

    What’s so surprising, it’s the only way Republicans can operate, they have to be doing something illegal. Voter suppression and after midnight legislation is just another example of how they operate. It’s sickening because we know about what they are doing yet NOBODY is doing anything about it,Bhaaaa, bhaaa, bhaaaaa.

  10. Taika says:

    “The whole bloody game is rigged.

    There’s only one way out.

    Know what it is?”

    Yea, revolution. Everything else is just a fart in Sahara and sooner America (the people) realises that, and here´s the thing – ACT on it, the better it will be for the whole world. You guys should REALLY listen what your founding fathers has to say…

  11. Patricia E says:

    Shah,

    I hear that the Avaaz organisation (Avaaz.org) has had an impact on the G8′s decision to clamp down on tax evasion by companies. They are also having an impact on decisions being made by the Brazilian Senate. They have nearly 25 million members worldwide now.

    The public needs to be educated.

    And the Fed and its supporters need to be given the 100th birthday party they deserve.

    Cheers!

    Pat E

  12. David McDonald says:

    There are two books that should be in every classroom (high school and College) ” Freedom Betrayed ” by Herbert Hoover, don’t bother looking for it in the library, I bought it on Amazon and “Free Fall ” by Joseph Stiglitz, Nobel prize winner The former will make you weep that he lost to FDR; the latter tells you about why we are in the present fix and who to hold accountable (Ha Ha)

  13. Sailor Jo says:

    This country is getting more and more disgusting. The trouble is that moving to some other country does not help as the US businesses run almost everything everywhere. The businesses are protected by the US military which has bases in almost any country of some size.
    Still, I guess I will go to some island and mimic the three monkeys.

  14. James Thompson says:

    When consumer/citizens are enlightened via reliable, honest, ethical, intelligent reporting sources, use their God given analytical powers of reason (common sense), but do nothing to remedy illegal, moral, and ethical wrongs; then the ostrich/sheep deserve to be shorn.

  15. bmc123 says:

    Oh Shah, every time you write you depress me! :-)
    Still, it’s better to know than not to know. Can’t fix the problem if you don’t know it exists. Now, how to fix the problem, that’s a problem! I’ll have to get back to you about that!!

  16. robert w. says:

    During the financial meltdown, Goldman-Sachs was made whole by the US government. It has more power than any agency of the US or any other government. Detroit’s bankruptcy will not affect Goldman, nor would the total collapse of the US government be more than a temporary inconvienience. Goldman’s worldwide power and influence will ensure it’s survival as governments collapse. Rolling Stone’s description of Goldman as the “giant vampire squid” is wholly accurate. They might have also said “immortal”.

  17. LG Diana says:

    Can anybody expect any meaningful change when 47% of the body politic receives a government paycheck of one kind or another?

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