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Wednesday, August 7, 2013

Following Suit

(Venere, 2013)
Goldman Sachs, A Class Act.
Recently, The Policy Geek has been following a story on some key banking players. Not to ruin the ending for you, but spoiler alert....

USA Today, yesterday (article snippet):
"HONG KONG (AP) — AUGUST 5, 2013 — A class-action lawsuit has been filed in the U.S. against the London Metal Exchange (LME) and Goldman Sachs, alleging that their "anti-competitive and monopolistic behavior" in aluminum storage has unfairly influenced the price of the commodity.
Wall Street banks and the metal exchange are facing increased scrutiny of their involvement in businesses that store and transport commodities, such as oil and aluminum.
In July, a Senate committee held a hearing into whether banks should be allowed to control power plants, warehouses and oil refineries. The owner of the LME, Hong Kong Exchanges and Clearing, said in a statement Sunday (8/4/13) that it will fight the lawsuit, which it believes is without merit."
A class-action lawsuit. Who woulda thunk it possible to even attempt to take on the big banks? This step comes fast on the heels of our investigation into LME and Goldman Sachs. USA Today continues:
"In the past few days, Goldman announced it is taking measures to make more aluminum immediately available to customers at its Detroit metal storage facilities, which is run by Metro International and operates under LME regulations.
The bank pointed out in making its announcement that "the overall delivered price of aluminum is down nearly 40% since its 2006 peak levels."
Here's the problem with this lobbied press release. As we know, one great way to make money is to make bets predicting the future value of a product. In other words, betting market prices will go up, or down. We'll refer to these bets as Options, although depending on the side of the table you decide to sit on, you could be trading either "Put Options" or "Call Options".

A bank can afford to sell a commodity at a loss, because they make money on the peak sale, the low pick up, and all the storage related billing services in the middle. With the big bucks coming in from owning warehouses, guaranteed, rain or shine, and the associated hedge bets easily available to lay, and then fix, who cares if the price goes down?

The price goes down when a bank wants to buy a stock. The price goes up when the bank actually releases inventory or stock. There is only one conclusion to make, albeit hard to swallow. Our banks control the prices of the world's major commodities, especially a strong commodity that doesn't lose it's value over time when stored, like aluminum, and oil.

One by one, fraudulent practices, more easily hidden before the age of internet research, are being held up to massive public scrutiny. Though there may be few arrests, and small fines to be paid for now, at least the ponzi schemes are being taken down.
Deutsche accused of bankrolling illegal land grabs in Asia.
Everybody Wants To Rule The World.
Earlier this year, electricity prices were called out as unusually high in California and areas of the Midwest. On July 30th, The New York Times, and others, reported the results of an in depth investigation which revealed rampant big bank intervention, only this time it was JP Morgan accused of imposing extra costs on the system. Adding no value, this big bank interjected themselves as middlemen between power producers and the utility companies that actually sell power to consumers and businesses. JPMorgan struck a $410 million settlement. Well now, that seems fair, doesn't it?

You break it, you buy it.
Were JP Morgan's actions really all that bad? We must be talking about fractions of a cent per customer, right? In open court, the bank was accused of devising “manipulative schemes” to transform “money-losing power plants into powerful profit centers.

"You People"
When you are JP Morgan, you don't have to concern yourself with others' profits. It doesn't matter if you are dealing with an investor owned power producer, or a consumer owned utility. their success or failure is not your concern. This is not your grandfather's savings and loan.

Greed is all well and good, but Avarice, now that's a bedfellow. In the selective perception of a bank's radar, profit isn't profit unless it's huge, like Jabba The Hut huge. They take that avarice, dress it up as the holy grail, and make every move accordingly. As long as a bank makes bank on every transaction within a commodity's supply chain, they profit, and they're happy.

Utility companies, which directly serve all of humanity, could change hands a million times, they wouldn't care. Power suppliers whose products are necessary to humanity's basic survival, are not really their concern, and easily replaceable long term. And besides, we are just talking a percentage of a cent per transaction. Nothing to see here.

Asia Today, 2013

Settling down.
The settlement agreement reached on the 30th listed a dozen different strategies used by JP Morgan to fix prices. The settlement also details that the bank had believed their scheme would generate between $1.5 billion and $2 billion in profits by 2018. Now they'll just have to make some other plans.

Banking on America
Some commodities are not that easily recognized. Housing, for instance. Everyone needs housing. The American Dream is to own a house. Plain and simple. Unfortunately, the long fingers of the big banks can't reach far enough into your wallets with interest rates alone, no, since 2000, banking institutions started to double down on bundled mortgage derivatives.

The Obama Administration is starting to hold some of them to task. Among other major deals, after recent criminal banking fraud charges were filled against Bank of America, the finance giant agreed to an $8.5 billion settlement, a $1.6 billion settlement, and another settlement worth more than $10 billion. Heavy fines, but no hefty time in jail, for anyone. Last night, the Chicago Tribune reports that the U.S. government filed two civil lawsuits against Bank of America with accusations of bank investor fraud.

The financial outlays and fines hitting the headlines are a great start. At least someone is doing something, but it's a drop in the bucket compared to the profiteering our banks have been proliferating in like pirates on the high seas.

There oughta be a law against banks who invest in a commodity while controlling other parts of the supply chain. Tearing down our carefully constructed protections is not the exclusive property of the Right Wing Republicans in Congress, but it would seem the main heartbeat of the GOP meme itself. A glimpse of the big picture makes it clear, new and improved legislation is required to regain overall control of America's commodity distribution chain.

So when you see something, say something. It could just save the world.

The Policy Geek

UPDATE FROM REUTERS: August 8, 2013"Lawsuits alleging aluminum price fixing by big banks will shine an uncomfortable light on the role played by the London Metal Exchange, suggesting that the murky world of metal trading is likely to attract more attention from the authorities. Even if it successfully defends itself from class action lawsuits by aluminum manufacturers, the LME may have to accept greater external oversight into a trade that until now flourished with little external supervision.

The LME, which was sold last year by its member bank owners to the operator of the Hong Kong Stock Exchange, is a defendant in lawsuits which accuse Goldman Sachs (GS.N), JP Morgan (JPM.N) and Glencore-Xstrata of rigging the aluminum market. The lawsuits, brought by small aluminum manufacturers in the United States, accuse the banks and traders of hoarding metal in warehouses, driving up the prices of industrial products from soft-drink cans to aeroplanes.

Plaintiffs argue that the LME abetted the scam by writing rules that made it possible and ignoring calls to change. Although the LME insists its rules were made independently, at the time the actions took place Goldman and JP Morgan were its two biggest shareholders, with JP Morgan owning 10.8 percent and Goldman owning 9.5 percent."

UPDATE FROM REUTERS: August 26, 2013 ~ "A judge has dismissed London Metal Exchange Ltd as a defendant from U.S. antitrust litigation accusing banks and commodity companies of conspiring to drive up aluminum prices by restricting supply, hurting manufacturers and purchasers. In a decision made public on Tuesday, U.S. District Judge Katherine Forrest in Manhattan concluded that the LME was an "organ" of the UK government, and therefore immune from the lawsuit under the Foreign Sovereign Immunities Act.

Forrest acknowledged that her decision may at first glance seem "somewhat surprising and counterintuitive," noting that the LME is a privately-held, for-profit company subject to extensive regulation. But she said the relevant case law "tips decidedly" toward a grant of immunity, noting that the LME is required by law to perform "the decidedly public function of market regulation."

Established in 1877, the LME was bought in December 2012 by Hong Kong Exchanges and Clearing Ltd. The LME said more than 80 percent of non-ferrous metals futures business is transacted on its platforms, totaling $14.6 trillion in 2013.

The decision does not affect other defendants in the case, which include the large mining company Glencore Plc, Goldman Sachs Group Inc, JPMorgan Chase & Co, and various commodity trading, metals mining and metals warehousing companies."
UPDATE May 1, 2015 ~ "Citing jurisdictional issues, a New York federal judge on Thursday dismissed the London Metal Exchange, JPMorgan Chase & Co., Goldman Sachs Group Inc., Glencore International AG and others from multidistrict litigation accusing them of manipulating aluminum prices. U.S. District Judge Katherine B. Forrest denied a motion by direct-purchaser plaintiffs Agfa Corp., Agfa Graphics NV and Mag Instrument Inc. to reconsider the LME's dismissal, saying the LME was permanently dismissed due to sovereign immunity. Glencore PLC and other foreign entities were permanently dismissed due to lack of personal jurisdiction, according to the order. In all, the judge said, the LME, LME Holdings Ltd., Hong Kong Exchanges & Clearing Ltd., JPMorgan, Henry Bath & Son Ltd., Goldman, Glencore International, Glencore UK Ltd., Glencore PLC and Pacorini Metals AG were no longer parties in any of the MDL actions.

Plaintiffs Agfa, Mag Instrument and Eastman Kodak Co. are alleging similar antitrust violations — that between 2010 and 2013, several banks, affiliated warehousing companies, the LME and other financial institutions agreed to delay delivery of aluminum to customers producing products like drink cans. The plaintiffs said that the delay inflated rents on metal storage and that the trading companies profited from futures trading based on the resulting market conditions while the plaintiffs paid inflated prices for aluminum.

Judge Forrest nixed the complaints, finding that the plaintiffs lacked antitrust standing and hadn't sufficiently pled the existence of a conspiracy. She also dismissed the LME, finding that despite being privately owned, it was protected as part of the U.K. government."
So, we suppose, that is that. Will the practices stay the same? Or will some sort of  reform take place? Time will tell.

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