When you're born into this world, you are given a ticket to the Freak Show, and when you are born in America, you get a front row seat
— George Carlin
The point of today's post is simple, probably deceptively so.
Steve Hargreaves of CNN Money is asking Are big banks driving up commodity prices?
OK, I can hear some of you laughing. Wipe that smirk off your face! — this is not a laughing matter
From oil to electricity to metals, big banks, hedge funds and other "non-users" now own a large chunk of the world's resources.
That banks are allowed to own physical commodities — as opposed to
purely financial assets like futures contracts — is a relatively new
phenomenon.
In 2003, the Federal Reserve, which regulates
investment banks, decided there was little risk to consumers or markets
if the banks were allowed to own the commodities themselves.
But now critics are questioning whether that activity is distorting markets and driving up prices.
Critics? As you will see below, this report is "fair and balanced," as all such reports in the-world-made-by-humans must be.
"These activities threaten to undermine the fundamental policy
objectives that underlie the principle of separating banking from
commerce," Saule Omarova, a law professor at the University of North
Carolina at Chapel Hill's School of Law, wrote in a paper last year.
Omarova will be among four people testifying at a Senate hearing
Tuesday on the impact banks are having on the commodities markets.
This comes on the heels of several reports of banks accused of hoarding commodities and driving up prices...
And The New York Times recently reported that Goldman Sachs is driving up the price of everything from soda cans to cars, by
stockpiling its customers' aluminum in Detroit warehouses. By shuffling
the metal between warehouses that it owns, Goldman is able to collect
more rent for housing the metal, while complying with complex
commodities laws.
Big banks are accused of driving up the cost of everything from aluminum cans to gasoline.
Let's skip the details. The details don't matter. I don't care about the details. I don't care about "complex commodities laws." Let's focus on the question of interest: are big banks driving up commodity prices? I will answer that question with a few questions of my own.
Is the Pope Catholic?
Does the Pope wear a funny hat?
Is the ocean salty?
Is the sky blue?
And so on. Confused humans will say you can't jump to conclusions! You've got to be fair here! You need to weigh and balance the evidence!
No, I don't.
In fact, I know with great certainty that commodity price manipulation by the Big Banks is far worse than the fairly surfacy stuff I can see.
And why don't I need to be "fair" to Big Bankers and those trading commodities at the Big Banks? Because I know how humans behave generally, and I also know that among humans, commodity traders at the Big Banks are the scum of the Earth. Those assholes would run over their own grandmother to make a buck. They belong in the 4th circle (for the greedy) of Dante's Inferno.
And because I know about these humans, it is easy to imagine how the Federal Reserve, in 2003, "decided" that there was little risk to consumers or markets
if the banks were allowed to own the commodities themselves. How it was that central bankers rationalized that particular decision is of no interest to me. If humans are unable to see the obvious dangers of scumbags at the Big Banks trading in markets in which they own substantial assets, I can not help them. It's a no-brainer, literally.
Yet, here we are. Humans find themselves in this same place again and again and again ... the list is infinite. At the appropriate level of observation and understanding, there is no need for Congressional hearings, and later, another "settlement" with the outgunned and compliant SEC, where those charged with prosecuting the Big Banks will later retire from "public service" and go to work for the Big Law Firms representing the Big Banks.
How did things get to this point? I'm not talking about the historical details, for example this one—
Commercial banks are prohibited from owning
trading assets, but the two former investment banks argued that their
commodity activities are permitted under a "grandfathering" clause in a
1997 law that effectively scrapped much of the Glass-Steagel act
separating the commercial and investment banks.
As I said, studying the details of this particular fall from grace is a waste of time. I want to talk briefly about how I myself got to this point.
About four years ago in 2009, a Big Personal Shift began for me which (at that time) was about 20 years in the making. It didn't happen all at once, as with an epiphany. Rather, it was a process which continues to this day and culminated in the posts I've written on DOTE over the last 18 months or so. I believe those later posts are much sharper and clearer than the posts I wrote earlier back in 2010 and 2011.
But back to 2009. I was disgusted with human beings, but this time I did not remain stuck in that disgust and my other emotional reactions to human shenanigans. No, this time I started asking some very specific, tough questions, although they were vaguely formulated at the time. Questions like these—
Why (in my mind) was I still occasionally defending human fuck-ups and dividing up what humans do into "good" behavior and "bad" behavior?
Why did I still occasionally divide the world up into "good guys" and "bad guys", coming down hard on one side of various questions (as in today's example)?
Why was some part of me still clinging to Obligatory Hope and good outcomes?
Why was I still occasionally playing these perpetual, futile human games (like this commodity price manipulation/investigation of same game)?
And so on. It took a while, but I got to the point where I could see both sides of any human struggle and I could also see that both sides were almost always equally fucked up. In an ideal world, I'd like to see lots of things, things like strict separation of commodity trading and ownership by the Big Money Boys. But preventing bad outcomes like that one is like trying to stop a glacier from moving forward by standing in front of it. Why do human beings always tolerate the very existence of Big Money Boys who are ripping them off? That's a better question.
I saw that the Human Condition, by and large, was all of a piece, it was a unified whole. There was a thing called Human Nature and I was staring right at it. There was no avoiding seeing it anymore. I now call this mess Flatland.
I resolved to start telling the Awful Truth after these "revelations" hit me and I had fully absorbed the obvious lessons they contained. No more game playing for me, for example this nonsense from the CNN Money article.
Even in cases where banks can own the commodity, like electricity, many think their involvement is a good thing.
While there may be some cases of banks behaving badly, on the whole,
more players has meant lower and stable prices for consumers, [some people]
argue.
"From over 30 year of experience, I can tell you that
the introduction of more buyers and sellers has been beneficial," said
Susan Court, an analyst at SJC Energy Consultants specializing in FERC
issues. "It makes for a more liquid market."
I got better at telling the Awful Truth over time. There wasn't much of a pre-defined vocabulary for me to draw upon. I had to invent it as I went along.
So I don't want to argue about whether Big Banks are driving up commodity prices. The answer is as plain as the nose on your face. Only a blind man could not see it. Only a self-deluding big-brained bipedal primate which will never get a clue could possibly think the answer is complex, nuanced, worthy of study, requires hearings before Congress, and so on.
Summing up, the question on the table is are big banks driving up commodity prices?
Once the expected corruption kicked into high gear, which was inevitable, the self-evident answer was, and always will be—
Does a bear shit in the woods?
You might be surprised to learn how many questions this simple, sarcastic retort answers.