"This is how" Goldman does it

[Chuck Bao]

Do you remember when the Hunt Brothers tried to corner the silver market? Goldman seems to be exceeding where the Hunt Brothers failed. The real beauty of the plan is that Goldman doesn’t have to use much of its own money to do it. Instead, it is using its enormous influence in global markets to direct the physical storage of aluminum into its own warehouses.

I do recognize that free capitalism is the best system. But, we are swimming with some sharks, some Great White Sharks, it seems.


• Wall Street is chock full of shysters. That is not new. The big diff now is that they are so big that they can control the economy for their own personal gain.

• This strategy probably carries over to many other commodities. My energy analyst is convinced that “so says Goldman, so goes crude prices.”

• I honestly don’t know why physical delivery of aluminum to manufacturers should be late or slow.

• You can just bet that their Goldman metal traders in London know how much of the metal is leaving their warehouses.

• China has been basically doing the same thing by manipulating global commodity markets with their stop-and-go purchasing patterns. So, I guess that Goldman is at least keeping it American manipulation and keeping their obscene profits here.

Do you have any thoughts?

http://www.msnbc.msn.com/id/43931226/ns/business-us_business/


Goldman's new money machine: warehouses

By stockpiling aluminum, Goldman is profiting, and creating tension
By Pratima Desai, Clare Baldwin, Susan Thomas and Melanie Burton
updated 7/31/2011 12:29:31 AM ET

In a rundown patch of Detroit, enclosed by a cyclone fence and barbed wire, stands an unremarkable warehouse that investment bank Goldman Sachs has transformed into a money-making machine.

The derelict neighborhood off Michigan Avenue is a sharp contrast to Goldman's bustling skyscraper headquarters near Wall Street, but the two operations share one important element: management by the bank's savvy financial professionals.

A string of warehouses in Detroit, most of them operated by Goldman, has stockpiled more than a million tons of the industrial metal aluminum, about a quarter of global reported inventories.

Simply storing all that metal generates tens of millions of dollars in rental revenues for Goldman every year.

There's just one problem: much less aluminum is leaving the depots than arriving, creating a supply pinch for manufacturers of everything from soft drink cans to aircraft.

The resulting spike in prices has sparked a clash between companies forced to pay more for their aluminum and wait months for it to be delivered…

...Analysts question why London's metals market allows big financial players like Goldman to own the warehouses which store huge quantities of metal even as they trade the commodity. Robin Bhar, a veteran metals analyst at Credit Agricole in London says the conflict of interest is so acute he wants U.S. and European anti-trust regulators to weigh in.

"I think it makes a mockery of the market. It's a shame," Bhar said. "This is an anti-competitive situation. It puts (some) companies at an advantage, and clearly the rest of the market at a disadvantage. It's a real, genuine concern. And I think the regulators have to look at it."

[Veritas]

Do you have any thoughts?
God knows I'm about as laissez faire as it gets, but Goldman et al engage in behavior that should be criminalized.

[Breadburner]

I think Goldman were the ones that boned Tom Kavisto here in Tulsa....

[sperry]

All this crap just creates market failures and is completely against what capitalism is all about. It's not about efficiency or competition, it's about market power.

[sappstuf]

The Koch brothers have to be behind this somewhere....

[Chuck Bao]

God knows I'm about as laissez faire as it gets, but Goldman et al engage in behavior that should be criminalized.

It can't be. Global trading in metals is largely on the LME (London Metal Exchange). As stated in that article, Goldman hasn't broken any LME rules.

Welcome to the new, new economy. It's a global economy and money wins out every damn time.

So join a Goldman Sachs hedge fund or commodities fund and get your share or don't. I don't think they really care too much about protest votes.

[KantoSooner]

Goldman is a shark, but I don't think they necessarily break the law. The only thing that ultimately reins in big players is risk. And, of course, they are doing everything in their power to control and limit risk. And they're damn good at it. More power to them.
When the market goes south, however, and they haven't forecast it, then why on God's green earth, do we bail them out?
IMHO, there were two primary causes for the 'crash'/'economic crisis'/whatever you want to call it: A gross failure on the part of SEC and other regulators to enforce laws we already had on the books and, second, a systematic removal of risk from the system.
Had we let more Wall Street insiders and general chucklehead/lemming traders lose ALL their money (and their trophy wives, their cars, their houses in the Hamptons, their mistresses, their airplanes and all the rest) you'd see some sobriety and active thinking going into investment strategies.
Had our 'regulators' (and I use the term advisably and with great and totally justified contempt. Looking at you, Eliot Spitzer.) spent more time paying attention to what the market was doing and less to arranging grandstanding prosecutions (Matha Stewart, anyone? Oh, yeah, she was waaaaaaaaay more important than Bernie Madoff or the repackaging of sub-prime loans. I feel so protected knowing that Martha got stripped of her ill-gotten $60K), they might have had time in their busy days to have stopped the thing in its tracks years earlier.
Goldman, and their actions, are not causative, they are, ahem, derivative. The problem(s) are further upstream.

[JohnnyMack]

Goldman is a shark, but I don't think they necessarily break the law. The only thing that ultimately reins in big players is risk. And, of course, they are doing everything in their power to control and limit risk. And they're damn good at it. More power to them.
When the market goes south, however, and they haven't forecast it, then why on God's green earth, do we bail them out?
IMHO, there were two primary causes for the 'crash'/'economic crisis'/whatever you want to call it: A gross failure on the part of SEC and other regulators to enforce laws we already had on the books and, second, a systematic removal of risk from the system.
Had we let more Wall Street insiders and general chucklehead/lemming traders lose ALL their money (and their trophy wives, their cars, their houses in the Hamptons, their mistresses, their airplanes and all the rest) you'd see some sobriety and active thinking going into investment strategies.
Had our 'regulators' (and I use the term advisably and with great and totally justified contempt. Looking at you, Eliot Spitzer.) spent more time paying attention to what the market was doing and less to arranging grandstanding prosecutions (Matha Stewart, anyone? Oh, yeah, she was waaaaaaaaay more important than Bernie Madoff or the repackaging of sub-prime loans. I feel so protected knowing that Martha got stripped of her ill-gotten $60K), they might have had time in their busy days to have stopped the thing in its tracks years earlier.
Goldman, and their actions, are not causative, they are, ahem, derivative. The problem(s) are further upstream.

Eliot Spitzer didn't prosecute Martha Stewart.

[KantoSooner]

He didn't act on information that Bernie's little circus didn't add up, either.

[AlbqSooner]

I do recognize that free capitalism is the best system. But, we are swimming with some sharks, some Great White Sharks, it seems.

Wny do you hate white people?;)

[Fish&Game]

I remember when the Dukes tried to corner the frozen orange juice market...we see how that turned out for them!

[Chuck Bao]

Wny do you hate white people?;)

Well, I could have said Humpback Whales or conversely Right Whales. Okay, what can I say now? I am indeed rascisted and I full on hate on the white folk?

[Chuck Bao]

I remember when the Dukes tried to corner the frozen orange juice market...we see how that turned out for them!

Good point! I have been very fond of saying that the smartest people make the dumbest mistakes. And, I took that as reassurance that the market integrity would eventually be restored.

We really do need Eddie Murphy as president, right about now.

[Veritas]

I remember when the Dukes tried to corner the frozen orange juice market...we see how that turned out for them!
Yeah, twenty something Jamie Lee Curtis topless. I'd call that an epic success.

[picasso]

Good point! I have been very fond of saying that the smartest people make the dumbest mistakes. And, I took that as reassurance that the market integrity would eventually be restored.

We really do need Eddie Murphy as president, right about now.

Special Agent Orange?

[soonercruiser]

Top Contributors to Barack Obama | OpenSecrets
www.opensecrets.org › ... › List All Candidates › Barack Obama - CachedSimilar
We need your help! Your donations help us hold politicians accountable. ... Goldman Sachs, $1012841. Harvard University, $862604. Microsoft Corp, $852167 ...

Gonna bet you don't hear a peep out of Obama or the Justice Dept.!
:rolleyes:



http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=n00009638

Barack Obama (D)
Top Contributors
This table lists the top donors to this candidate in the 2008 election cycle. The organizations themselves did not donate , rather the money came from the organization's PAC, its individual members or employees or owners, and those individuals' immediate families. Organization totals include subsidiaries and affiliates.

Because of contribution limits, organizations that bundle together many individual contributions are often among the top donors to presidential candidates. These contributions can come from the organization's members or employees (and their families). The organization may support one candidate, or hedge its bets by supporting multiple candidates. Groups with national networks of donors - like EMILY's List and Club for Growth - make for particularly big bundlers.

University of California $1,642,735
Goldman Sachs $1,012,841
Harvard University $862,604
Microsoft Corp $852,167
Google Inc $814,540
JPMorgan Chase & Co $807,799
Citigroup Inc $736,771
Time Warner $623,118
Sidley Austin LLP $600,298
Stanford University $595,716
National Amusements Inc $563,548
WilmerHale Llp $549,918
Skadden, Arps et al $543,539
Columbia University $536,202
UBS AG $532,674
IBM Corp $532,372
General Electric $528,180
US Government $517,908
Morgan Stanley $512,232
Latham & Watkins

[87sooner]

this is why the rich get richer in this country..
and we keep electing the crooks that go to washington to make sure it continues....

[JohnnyMack]

Top Contributors to Barack Obama | OpenSecrets
www.opensecrets.org › ... › List All Candidates › Barack Obama - CachedSimilar
We need your help! Your donations help us hold politicians accountable. ... Goldman Sachs, $1012841. Harvard University, $862604. Microsoft Corp, $852167 ...

Gonna bet you don't hear a peep out of Obama or the Justice Dept.!
:rolleyes:

I totally agree. This is easily the most disappointing thing he's done.

But for the last 30 years every single president has been a puppet to wall street, starting with the great Ronald Reagan.

[Chuck Bao]

I totally agree. This is easily the most disappointing thing he's done.

But for the last 30 years every single president has been a puppet to wall street, starting with the great Ronald Reagan.

Agree and spek.

Obama didn't bring the change that I had hoped.

No matter how ya slice it, it is all whack.

The Wall Street companies can donate millions to every election campaign and get back billions. It is pretty much a no-brainer for them.

Even the NCAA is better at policing this type of crap and that is pretty pathetic

[NormanPride]

This is the downside of an economy that is based on perceived value rather than actual physical goods like gold and silver. It becomes easier and easier to game the system so that all the money flows to you no matter what the outcome is in the markets.

[OUMallen]

God knows I'm about as laissez faire as it gets, but Goldman et al engage in behavior that should be criminalized.

Then you're not laissez faire.

No one, in this day and age, should be laissez faire.

[Veritas]

This is the downside of an economy that is based on perceived value rather than actual physical goods like gold and silver. It becomes easier and easier to game the system so that all the money flows to you no matter what the outcome is in the markets.
Unfortunately that damned FDR let that cat out of the bag and Nixon let it breed. We're now stuck with fiat currency.

[Position Limit]

chuck,
i read that article last week. it's a nice read and doesnt suprise me. i would have figured a large hedge fund to do it instead of goldman. it's slightly similar to the wide contago oil storage trade involving tanker leasing. i have mixed feelings. i like that the commodities market still has some signs of the wild west, but the upside seems to be limited to the largest players. i would love to see a massive haircut on goldmans end one of these days. too much political heat the second time around for a bailout. also, the way the LME is structured with only 12 market makers is crazy. whose di*k to you have to suck to be one of the 12?

[KantoSooner]

Unfortunately that damned FDR let that cat out of the bag and Nixon let it breed. We're now stuck with fiat currency.

Of course, if you demand full convertability, you build in llimits to the capitalization of your economy and thus limit growth and the potential size of the economy.
I think you can have 'money' exist as a notional commodity without having the distortions we have seen in the last decade or so.
One nice thing to try would be defined downside risk. If you can't define it, you can't sell it. That would pretty much put an end to the trade in derivatives as we know it.

[pphilfran]

Does this harm the thought that people should be forced to take delivery when they "purchase" commodities? Like, uh, crude?

[KantoSooner]

What would physical delivery accomplish? Is limiting fractional purchases and/or 'speculation' a good thing?

I kind of like well capitalized markets rather than those controlled by whoever has the biggest warehouses and best armed security guards.

Getting into a speculators' market had a lot to do with bringing down the age of feudalism and promoting modern representative democracies.

I'd suggest Niall Ferguson's (sp.?) The Rise (Ascent?) of Money. Excellent history of how we got to where we are today.

Societies that demand 'real' money and 'actual' transactions tend to be pretty nasty places for the vast majority.

[Chuck Bao]

What would physical delivery accomplish?

As a requirement for investment, obviously not.

I was just alarmed that industries were saying that they weren't getting their aluminum supplies as needed. It should be criminal for any financial firm to purposely bottleneck supplies for gains. Now, it could be a terribly skewed and biased article and I am 50/50 on the veracity of it.

I do know that many industries have gone to "Just in Time" ordering system to improve their cash flow and limit inventories held on hand. Instead of holding inventories, they try to use much cheaper hedging contracts to protect against future commodity price fluctuations to meet current contracted sales. Skyrocketing commodity prices (all priced in dollars) are putting tremendous pressure on the industrial sector and maybe they have tried to narrow the window on "Just in Time" ordering and that is now backfiring on them.

I know that industries are suffering now. I don't have any US statistics, but I do notice that working capital loans to industries from Thai commercial banks over the last year have grown substantially and that is due to higher priced commodities and some of that can be attributed to speculation and greed. If you don't think consumers are paying for it, you could be mistaken.

[Dio]

University of California $1,642,735

I thought California was broke. Where in the hell did they get this money?

[Sooner5030]

dio, I think the money is actually from individuals but they gave at events sponsored by employees of the university system. But I'm just guessing.