It’s five years since Northern Rock hit the rocks, and four years since Lehman Brothers went bust. The banking system remains fragile, a number of Eurozone banks still posing a threat of global systemic instability. Regulatory reform creeps ahead, slowly, very slowly, and (as Andy Haldane pointed out in his paper The Dog and The Frisbee) will not work anyway. In other words, after half a decade the financial crisis is still in full swing. We are all paying for it in direct taxpayer subventions, through the central banks massively subsidising banks’ costs, and through slow growth – the latest US figures showing real median incomes at their lowest since 1995 – 1995! – illustrate the point starkly.
So I was shocked an angry to read a small article in the second section of the FT this morning (Banks Force Aluminium Market Shake-Up) pointing out that big investment banks have started speculating in aluminium. At a time of slow global growth, metals prices should be falling. Instead, there has been a 50% increase this year in aluminium because Goldman Sachs, JP Morgan and the like are buying up large stocks and warehousing them to restrict supply.
“The increasingly dominant role of banks including Goldman Sachs, JP Morgan and Deutsche Bank – as well as traders such as Glencore – has prompted a surge to record levels in the premium consumers pay for metal over the benchmark price set at the London Metal Exchange.”
This comes on the back of evidence that investment bank speculation on food commodities through new indices (launched by Goldmans) made a significant contribution to the increases in food prices in recent years.
Is anybody else angered by this? And why are politicians and regulators as silent on this front as they have been until very recently on the use of the financial system for tax avoidance and money laundering? A number of books have flagged up these behaviours in banking – Nicholas Shaxson’s [amazon_link id=”0099541726″ target=”_blank” ]Treasure Islands[/amazon_link], Misha Glenny’s [amazon_link id=”0099481251″ target=”_blank” ]McMafia[/amazon_link] and [amazon_link id=”0099546558″ target=”_blank” ]Dark Market[/amazon_link], Matt Taibbi’s early ‘vampire squid’ intervention in [amazon_link id=”0385529961″ target=”_blank” ]Griftopia[/amazon_link] – and other journalists have been covering the dark side of banking. But there is no salience for these issues in policy and political circles. Why aren’t central banks concerned about soaring commodity inflation when the economy is flat, and the deliberate market distortions causing it?
[amazon_image id=”0099546558″ link=”true” target=”_blank” size=”medium” ]DarkMarket: How Hackers Became the New Mafia[/amazon_image]
I’m amazed they’ve missed gambling this commodity for so long.
The whole (original) premise of commodity markets has been usurped in favour of yet another high-frequency casino table, where the (net) losers are the people who might use the commodity. It makes no sense for an economic system to choose this.
By rights, smart politicians should be highlighting this (even the outcry over petrol pump prices ignores this root cause). Public support would be loud and swift.
I think we know why they remain silent though, and sadly, that’s a huge part of the problem.
I suspect the lacuna stems from the fact that governments – and particularly treasury departments – have been largely ‘captured’ by the investment bankers. This is particularly true of the UK and US but applies elsewhere too. http://www.ianfraser.org/dear-david-cameron-entrusting-economic-policy-to-ex-investment-bankers-is-no-solution/ [see my comment at the bottom too].
This is very depressing. It really gets to me this. I am left with the impression that there are two types of Brits: have a sense of fair play, cricket if you will, and are trying to generate real value in the conduct of their lives. Then there are the others: who understand the game to be personal gain ahead of everything else, gaming the rules to get ahead. These two types appear to exist regardless of class and religion.
Ian mentions government capture by bankers – but a bigger problem has been the capture of economists by bankers and their supporters.
It’s very hard to find a mainstream economist who will endorse any kind of anti-speculation action. So who is going to formulate a policy?
The blogosphere is even worse – Tim Worstall is a one man flood of justifications for speculation…
This post has struck a chord with many people – and I think left us all depressed. It’s hard to spot any agents for change on the horizon, isn’t it? In which case, events will not be moving in a particularly benign direction….