The big Wall Street parasites, among them JP Morgan and Goldman Sachs, have been involved in the physical trade of commodities and in commercial operations of large corporations, such as energy companies, so that they can pad their bottom line at the expense of the rest of us. This situation is similar to that which existed from about the 1890's until the New Deal regulations passed in the 1930's in the wake of the Great Depression. Those regulatory structures have, however, been dismantled, beginning with the passage of the 1999 Gramm-Leach-Bliley Financial Services Modernization Act which repealed the 1933 Glass-Steagall Act and opened the way for these Wall Street firms to again take over and control ever larger chunks of the American economy for their sole profit.
This was all the subject of a sparsely attended hearing, chaired by Sen. Sherrod Brown (D-Ohio) of the Senate Banking Committee, this morning.
The official topic of the hearing was "Examining Financial Holding Companies: Should Banks Control Power Plants, Warehouses, and Oil Refineries?" The answer of "no" was provided by two of the witnesses; a third witness tried to argue that banks have been doing this sort of thing since the time of Ancient Egypt, and so there's nothing unusual in them doing it, now; and the fourth, Saule Omarova, a law professor at the University of South Carolina, said that there is great risk in banks being involved in such activities, but that we don't have the data on this to draw any conclusions. There is a great need to shed more light on these activities, she said.
Omarova was the only one of the four witnesses who endorsed the return of Glass-Steagall when asked about the pending legislation introduced by Sen. Elizabeth Warren (D-Mass.). Omarova told Warren that she thought the proposed bill "is a potential move in the right direction," though it might not fully solve the problem that was the topic of the hearing. She suggested expanding it to include addressing commercial and commodities activities by banks. Warren replied that Glass-Steagall is but one tool in the tool box. It doesn't solve all problems, but it is a move in the right direction, and it will help disentangle the mess that we're in now.
Omarova, who was reminded by Warren that "You have written about how regulators chipped away at Glass-Steagall in the 1980s," appeared to be blurring the Glass-Steagall writ here. In fact, it is open and shut: A commercial bank's or holding company's activity of "merchant banking investments" in physical commodities and infrastructure, was prohibited by the 1933 Glass-Steagall Act, and is explicitly prohibited by all three current bills, HR129, S985, and S1282. The wild speculative/market-gaming potentials involved are currently leading to fines on Barclays and JPMChase larger than those for LIBOR rigging. The Fed is suddenly, publicly "reconsidering" its 1998-2003 permissions to the big banks to engage in these crimes, because of the threat of Glass-Steagall; and it got a letter demanding that it do this on June 27, from four House sponsors of HR129.
Another witness, Timothy Weiner, Global Risk Manager for Commodities/Metals at beer maker MillerCoors LLC, described for the committee how Goldman Sachs's control of warehousing of aluminum (ironically, in Michigan) raises costs for the beer maker. The system, operated under the rules of the London Metals Exchange, provides the incentive to aluminum producers to keep their product in the warehouses. This does two things. It allows Goldman Sachs to drive up the price by squeezing the supplies, and they collect billions of dollars in rents from the warehouses. When MillerCoors orders and pays for aluminum for beer cans, it takes 12 to 18 months for delivery to actually be made. Weiner said that this has cost his company millions of dollars, and prevents the company from investing in innovation and new products.