A senate sub-committee investigation that has been ongoing for the last two years has found that Wall Street banks may have become heavily involved with physical commodities markets, increasing risks to financial stability, industry, consumers and markets.
The sub-committee that was chaired by Senator Carl Levin, from Michigan noted that the massive involvement by Wall Street in physical commodities put the American economy, manufacturers and the integrity of the market at risk. The findings of the sub-committee are contained in a 396-page report that will shed light on the ongoing debate about the breakdown of the traditional barrier between commercial activities and banking.
Some of the details included in the report are the activities of such banks like Morgan Stanley, JPMorgan Chase, and Goldman Sachs. One of the details includes the controversial management by Goldman Sachs of the warehouses that store most of the warranted aluminum in the US. These details are bound to further the debate on whether such activities could harm businesses and consumers and provide a back-door channel for manipulation of the commodity markets.
According to the chairman of the sub-committee, it was time to restore the separation between banking and commerce, and to prevent Wall Street from using non-public information to profit at the expense of industry and consumers.
“Banks have been involved in the trade and ownership of physical commodities for a number of years, but have recently increased their participation in new ways,” said Sen. John McCain, R-Ariz. “This subcommittee’s hearing is an opportunity to examine that involvement, determine whether it gives rise to excessive risk, and identify potential causes for concern that warrant further oversight by Congress and financial regulators.”
It turns out that it was not Goldman Sachs alone that had been doing this. JPMorgan Stanley had amassed physical commodity holdings that were equal to about 12% of its Tier 1 capital, while declaring far less to regulators. The report also discloses that, until recently, Morgan Stanley controlled 55 million barrels of oil storage capacity, 100 oil tankers, and 6,000 miles of pipeline, while also working to build its own compressed natural gas facility and supply major airlines with jet fuel.
Details are also provided about Goldman’s ownership of a uranium trading company and two open pit coal mines in Colombia. When one of the mines was shut down last year due to labor unrest, Goldman’s Colombian subsidiary requested military and police assistance to end a human blockade — before paying the miners with $10,000 checks to end the protest.
The bipartisan sub-committee made several recommendations some of which are: –
What do you think of the behavior of Wall Street bankers? Comment below!
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