Goldman Sachs and Manipulating Commodities

This blog has previously posted items on Goldman Sachs buying up warehouses that store, for example, aluminum in Detroit.  Goldman gets rental fees for storing aluminum and can to some extent control the amount of the metal released for sale.  That is not even to mention Goldman can speculate on the price of the metal in addition to manipulating it.

Now we see that the SEC has gone further and given the big banks a "license to manipulate commodities"  by letting investors "take a direct stake in commodities, rather than through commodities futures."  JP Morgan has its copper interests; Goldman Sachs has its aluminum.

SEC Gives JP Morgan and Other Big Banks License to Manipulate Commodities
By Yves Smith - Naked Capitalism
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The SEC has paved the way for investors to take a direct stake in commodities, rather than through commodities futures. The agency gave the green light to JP Morgan to launch a fund whose shares would be backed by warehoused copper. The implications are not pretty. Per Khan:

In practical terms, the SEC handed traders at J.P. Morgan control over 20 to 30 percent of the copper available for immediate delivery from the London Metals Exchange — the commercial market where companies that use copper go to procure last-minute supplies.
The investors purchasing shares in J.P. Morgan’s fund won’t be buying copper to use, but to store. The intricacies of the fund are complex, but its underlying rationale is straightforward: the more shares investors buy, the more copper is taken off the market. And the more copper that is taken off the market, theoretically the more valuable the copper and the shares become.

Moreover, it’s a no-brainer that this JP Morgan “innovation” will lead to the creation of copycat fund in other markets, most troublingly those for agricultural products.

Read the entire article here