Wall Street Commodity Trade Inquiry: Are Big Banks Driving Up Prices?
A Senate inquiry is looking at commodity trading on Wall Street to see if it includes practices that drive up prices. Lawmakers are wondering if allowing big banks to control big industries like oil and metals leads to unnecessary price inflation.
One example of this is some banks, including Goldman Sachs, who have been accused of forcing aluminum prices up by hoarding supplies. This may have cost consumers billions of dollars.
The Senate Banking Committee hearing will examine the legality of banks that brought in $4 billion from commodity trading last year, reports Reuters. Banks under review include Morgan Stanley, Goldman Sachs, and JPMorgan Chase.
Decreased regulation in commodity trades and banking have allowed both to continue to overlap. If the Senate inquiry decides that these actions are illegal, it would have a major impact on Wall Street.
Representatives from companies who buy large amounts of aluminum, like MillerCoors, testified at the hearing Tuesday. They told Senators that metal warehouses controlled by banks, like those part of the London Metal Exchange, had driven up prices. Because of this, they say they had to pay an extra $3 billion last year.
New York Times reports that Goldman Sachs-owned warehouses in Detroit use a formula to determine aluminum costs — and to drive them. This has lead to intentional shipment delays and increased prices.
Even though this commodity trading practice has driven customers like Coca Cola away, it still drives up market prices everywhere.
The inquiry could have larger implications, too. Big banks have not only been buying up metal warehouses. Oil pipelines and tankers and cargo transport infrastructure have also been bought up in recent times.
It is not only possible but likely that if big banks are found to be driving up prices, this could mean more than industrial metal. It would mean rising consumer goods, from gas at the pump to veggies at the store have had their prices inflated.
The banks were not present at the first day of hearings on Tuesday. However, Goldman Sachs released a statement saying their commodity trading practices were completely legal.
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