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Showing posts with label bankrupt. Show all posts
Showing posts with label bankrupt. Show all posts

Friday, August 2, 2013

Sachs of Gold II

Detroit. The Motor City. Motown.
What's in a Name? Hockey Town. City of Champions. Rock City. The culture that inhabited this space in Michigan has left its imprint on generations. When we drive, when we sing, when we dance, there will always be a little Detroit in all of us. Yesterday we sang the ballad of The Big D, and how it became one of the most profitable cities in the world. Not back in the 20s, or 50s, but now, right now.

Detroit Today
From the days of prosperity and growth, we've seen a slow motion slip into poverty. Generationally, parts of the city were just abandoned. We hear horror stories, we see photos, and it all sounds just awful. Property values crashed. Businesses tanked. Blocks and blocks of empty houses. Who would want to live there now?

Most of the talk show chatter focuses on the bankruptcy details. NBC asks, "If Detroit is allowed to stop or shorten payments to their retirees, will states like California or Illinois follow suit?" CNN warned, "Large, unfunded pensions for city and state workers across the US are looming liabilities", and Chris Mathews added, "Detroit is the canary in the coalmine. If they get away with going bankrupt, not delivering on pension promises, we could be looking at a domino effect in the future."

Living in a World of Their Creation
There's alot of talk around Detroit and its problems. But no talk about a little district in Detroit known as Hamtramck. Try to say that out loud, and you'll get some idea of why no one talks about Hamtramck.

Hamtramk is home to the now famous Goldman Sachs' warehouses, that make billions a year, while producing nothing at all. It sits in the center of the bankrupt community of Detroit, the city that went broke. Flat broke. Emergency managers were put in charge of towns all over Michigan. With a swipe of the Governor's hand, venture capitalist Gov. Snyder (R) completely replaced elected officials to help "manage" "low income" areas, and quickly, things went from worse to over.

To make sure you are up to speed at this point, The Daily Show, as usual, offers a somewhat concise update, so grab a cold one, enjoy the laugh, we'll see you back here in five.


The Daily Show July 25, 2013 ~~ We suggest starting at :35

Who's In Charge Here?
In the video from our last blog post, we left off with an NBC interview of beloved Sen. Sherrod Brown of Ohio (D), who currently sits on the Senate Banking Committee. Brown said he had no idea where the metals market oversight was based. Who made the rules, anyway? How can we end this national scam in practice? Who's going to take responsibility here?!?

Inside the Goldman Sachs Aluminum Warehouses of Hamtramck
(Detroit, Metro International.com, 2013)
A World of Pure Imagination
Say you are what the banks call a 'consumer'. You use commercial grade aluminum in bulk to produce cars or planes, crutches or the great American gift of soda cans, or whatever, somewhere in the world. Well, ya can't just go down to ye olde local aluminum store. No. If you want that kind of aluminum (or zinc, or copper), you're gonna need a warrant. There is only one place in the world to get that canceled warrant of purchase, wait for it, from a coven of members known as The Ring who run the London Metal Exchange. Seriously.

Regardless of where metal is stored after being mined, consumers around the world fill their metal needs at global prices set by business conducted in The Ring.

What's in a Name?
A holdover from the days of yore, when Britain ruled the world, if you want to buy aluminum, you need to do it in London. To start with, this isn't really new news. International metal trading began in Britain when the Romans invaded in AD43, but by the early 19th century, there were so many commodity traders at court, it became impossible to do business. As a result, individual groups of traders set up shop in the coffee houses of London. A merchant with metal to sell would draw a circle in the sawdust on the floor and call out 'Change', at which point all those wishing to trade would gather around in a circle, or ring, and make their bids and offers. The name stuck.

Change You Can Believe In
None of this was a fast process. Shipments took months and months to come in from all over the world. The need for a central unit to watch over the purchases, and deliveries of these metals, made it necessary to create a watchdog organization.

In 1877, LME was founded to oversee the locations, travel times and price changes of the world's trades in metal. Over time, they incorporated oversight of other commodities, as well. Since the process was slow as molasses, this was rather easy to do.

LME traded copper and tin since its inception. Lead and zinc since 1920. Special high grade zinc since 1986. Primary aluminium was introduced in December 1978. Nickel trading started in April 1979, and the featured commodity of this news cycle, aluminium alloy, was added in October 1992. Later, cobalt and molybdenum, were included. Fun Fact; molybdenum is a superalloy, stronger than all the rest, made up of oxidized minerals.

Copper Ingots Stacked
(Minersweekly.com, 2010)
Today, 80% of the world's aluminum is, at one point or another, held in a warehouse that is part the LME system. The remaining 20% comes from scrap metal, or from secondary metal processors, who originally picked up their raw aluminum from an LME warehouse.

If you are still awake and reading, god bless you. Seriously. This is thick stuff, and nothing about it is fun. It's about dusty warehouses, and historical trading details. Metal is cold, and statistics about storage do not a fantasy team make. But a Policy Geek is always curious, and these issues directly affect the economies of the whole planet. Mostly importantly, it has a tight connection to this We Are The 99% thing.

The 3rd, and hopefully final installment, pulls back the curtain, so we can pay attention to the Gold Men Standing behind it. For the third installment: see Heavy Meddle Coming Soon


Thursday, August 1, 2013

The Aluminati's Sachs of Gold

Let's take a closer look
(Fast Company, 2013)
Fun Facts
Auto Icon, Henry Ford (despite his antisemitic writings distributed during the later part of his life), was widely considered the father of the age of industrialization. Thanks to Ford, in 1901, Detroit became the Silicon Valley of its day. He invented "the living wage", the assembly line, and once he opened his factory in Dearborn, a suburb of Detroit, the city became an instant mecca for innovation. Today is Henry Ford's birthday.

(Not So) Fun Facts
According to the Michigan Historical Review: Over time,“Detroit was betrayed by a lack of political vision, torn asunder by racial conflict, and devastated by deindustrialization." By the 1960s, Detroit had become the center of President Lyndon Johnson’s War on Poverty, and a mecca for the civil rights movement. 

No man's land.
(Atlaobscura, 2013)
When the riot on Detroit’s 12th Street broke out in the summer of 1967, Gov. George Romney ordered the Michigan National Guard into the city, and President Johnson sent in Army troops. About 7,200 rioters were arrested and more than 2,000 buildings destroyed. Yes, you heard right. The Romney's are in this story too.

Detroit Riots
(Kennedy Picker, 1967)
By 1974, the well-intentioned War On Poverty programs were terminated nationwide after race riots and a series of confrontations between police and inner city black youth.

By 2012, Detroit was generating $33 of long-term debt for every $1 of net assets recorded.

Morally Bankrupt
As you must have heard by now, on July 18th, Detroit, The Motor City, The Birthplace of Motown Music, filed for bankruptcy. That happened. Detroit flatlined. Of course, there is plenty of blame to go around. Depending on who you read, it was a result of high crime rates, race issues, greedy unions, ill equipped emergency managers, bad accounting, fraudulent land grabs, and/or the slow decline of the auto industry.

The great bustling city of the modern automobile has become a no man's land. No schools, no water service, no streetlights.

A new young generation will eventually take on the task of rebuilding. They'll set a standard for reinvention. They'll revision what it means to be a state-of-the-art city.

We'll Begin With A Spin
But wait. What's that rumbling sound coming out of the ashes? Ask any local, and they'll tell you it's the sound of the "merry go round" of trucks over at the Goldman Sachs warehouses, commonly referred to as Metro International Trade Services. As it turns out, despite its decline, Detroit is actually the most profitable city in the world.

Last week, MSNBC reported on some of that unusual activity going on in a city with almost nothing going on. Here’s the best wrap up of how the story began (you're going to have to be patient, there's a commercial first):

The Spin
(NBCNews.com, July 23, 2013)

Come With Me And You'll See
This isn't easy. Slowing delivery times sounds benign. They know. How do you make "physical commodities" sexy? Ya can't. And that's exactly how the banks like it. The details of this saga, the ones that take Detroit from then until now, are hard to follow and boring to listen to, but if you are willing to take on a little extra credit, you'll be glad you did. And mad as hell. We did our best to make this meals-on-wheels taste like a gourmet feast paired with a fine french wine. So, bon appetit.

Humanity, meet the Bankers. Bankers, meet the rest of the civilized world.

The Main Players
Merrill Lynch, Pierce,and Fenner and Smith
Morgan Stanley
Credit Suisse Securities (USA)
Goldman, Sachs
UBS Securities

The Minor Players
Citigroup Global Markets
Moelis and Company
RBC Capital Markets Corporation
The Williams Capital Group
Davenport and Company
(Let's see who gets angry for not being thought of as a major player, shall we?)

Who's In Charge
LME

For the rest of this piece, please see Sachs Of Gold II
The Policy Geek