Tuesday, July 23, 2013

Loose Banking Regulation – Yes Mr. Obama We Are Talking About You – Allows Banks to Buy Commodities Companies

A Lesson That Has to be Learned Again and Again – Banks Need to Stick with Banking

In the 1930’s Federal legislation called the Glass Steagall Act forced commercial banks to stay pretty much in the commercial banking business.  The reason for this special treatment of regulating banks as opposed to other companies is that a strong healthy banking system is critical to a strong healthy economy.

But thanks to conservatives and in this case a lot of liberals, regulation got a bad name.  Despite the fact that the New Deal regulations cleaned up the banking industry, starting in the 1970’s banks said they had learned their lessons and de-regulation started.  The results were an S & L crisis and most recently the Great Recession. 

Now we learn that the so-called regulation heavy Obama administration has loosened regulations so banks can get into the commodities speculation business.

Only a tenth of a cent or so of an aluminum can’s purchase price can be traced back to the strategy. But multiply that amount by the 90 billion aluminum cans consumed in the United States each year — and add the tons of aluminum used in things like cars, electronics and house siding — and the efforts by Goldman and other financial players has cost American consumers more than $5 billion over the last three years, say former industry executives, analysts and consultants.

The inflated aluminum pricing is just one way that Wall Street is flexing its financial muscle and capitalizing on loosened federal regulations to sway a variety of commodities markets, according to financial records, regulatory documents and interviews with people involved in the activities.

The maneuvering in markets for oil, wheat, cotton, coffee and more have brought billions in profits to investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more every time they fill up a gas tank, flick on a light switch, open a beer or buy a cellphone. In the last year, federal authorities have accused three banks, including JPMorgan, of rigging electricity prices, and last week JPMorgan was trying to reach a settlement that could cost it $500 million.

Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to companies that control operations at major ports like Oakland, Calif., and Seattle.

Read closely, banks are accused of acting illegally, unethically and manipulating markets.  Gee who would have expected that.

So the U. S. is going to have to learn its lessons, again and again and again.  If this nation does not closely regulate banking it will have a succession of Great Recessions.  A smart nation would learn from the 2007 horror.  The United States is going to need a few more banking crises, maybe even a lot more.

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