My answer "Yes"... Is The Federal Reserve To Blame For Physical Commodity Manipulation? – U.S. Senate
Thanks to easy access to capital provided by the Federal Reserve, Wall Street banks were able to bully their way into commodity markets and manipulate prices to their advantage, said Senator Carl Levin Friday.
“Wall Street banks with near-zero borrowing costs, thanks to easy access to Fed-provided capital have used that advantage to elbow their way into commodities markets,” said Levin, the chairman of the Senate’s Permanent Subcommittee on Investigations, at an ongoing hearing being held in Washington, DC.
He added that this has “opened the door to price and market manipulation” by these banks.
Senator and former Republican presidential nominee in 2008 John McCain shared Levin’s views saying that “these banks think they’re still too big to fail” and have “hurt ordinary consumers.” He added that the Federal Reserve “hasn’t done enough” to prevent these violations by banks.
Senator Levin specifically highlighted Goldman Sachs’ activities in the aluminum market, saying that its increased involvement with aluminum put the bank in a position to influence the price of the physical commodity’s price.
As highlighted in a 400-page report released by the Senate on Wednesday, Goldman Sachs’ purchase of Metro International Trade Services LLC (Metro), a Detroit-based company responsible for storing aluminum, was used for the bank’s own financial advantage, hurting average consumers.
“Under Goldman’s ownership, Metro implemented practices to aggressively attract and retain aluminum in its Detroit warehouses,” the report said, which, then increased aluminum prices for American companies.
The two-day hearing is said to end Friday where other issues questioned will be the Federal Reserve’s role in banks’ manipulation of physical commodity markets.
The fact that these big banks have access to near zero interest rates and lower capital requirements, thanks to the Federal Reserve’s help, gives them a competitive advantage over private sector companies in the physical commodity markets, Levin said.
“Since the Federal Reserve is the source of those competitive advantages, does it have a responsibility to ensure that banks don’t use those competitive advantages to engage in market manipulation or unfair trading?” he asked during the hearing.
The Federal Reserve has announced that it is taking steps to fix issues raised in the physical commodity market. Ahead of the Senate hearing, the central bank said that it will issue a new set of rules in the first quarter of 2015 to address some of the concerns that have been raised over the last few years.
"We are conducting a careful and thorough assessment of the costs and benefits of financial holding company engagement in these activities," Fed Governor Daniel Tarullo said in prepared remarks ahead of a Senate hearing. |
