Goldman Sachs is Controlling the Price of Your Favorite Beer

Let’s all start drinking our beer out of glass bottles to thwart Goldman Sachs’ diabolical plot to make your cans of beer more expensive than ever.

Let me explain. Last Saturday, the New York Times published a story about big bank Goldman Sachs and its involvement in the aluminum warehouse business in cities like Detroit. Here's an example: Goldman purchasesd a leading aluminum warehousing firm, Metro International, as well as an overseas aluminum provider, the London Metal Exchange. After it becomes the owner and boss of the warehouses, it deliberately slows down its customer service so that orders can take anywhere up to 16 months to ship instead of the typical six weeks they used to. In fact, because there is already a quota in effect that requires 3,000 tons of the particular metal to be moved out of storage per day, banks like Goldman are just shuffling the commodity between their multiple warehouses to keep the time-in-house climbing. Oh and then, because of the arcane rules of the aluminum spot market, the price of the aluminum goes up due to the increase in average store times; this price increase comes in the form of a premium that your sacred beer companies have to pick up when they make their purchases, which then influences the price of the cans that they create and that you buy at your local liquor store.

Even more simply, more time in warehouses means more expensive aluminum and more expensive beers (and sodas, I guess). In fact, the Times calculated that the buying power and control that these banks have over the aluminum market to generate extra revenue has leveraged a cost of about $5 billion over the past three years (which is really only a tenth of a cent per can, but a lot of goods come in aluminum cans in this country). This means that, even if prices are lower than they were during periods of economic boom (prices are lower now than they were in 1988 – see the graph below), they are still higher than they would be under fairer market conditions. 

Look at Americans’ affection for beer compared to their feelings of big banks! Something here is just not right:

Unfortunately, all of this questionable Goldman activity is perfectly legal.

The bank responded to the Times’ accusations with a fact sheet it tweeted earlier this afternoon, which explains that it holds “an inventory position in a particular physical commodity for the purposes of meeting the needs of our clients or as a hedge for positions in commodity futures or derivatives we assume as a market maker.” This isn’t unlike JP Morgan’s shady dealings in the energy market in California or Morgan Stanley’s ownership of oil storage tanks and power plants, all of which will apparently come under Federal Reserve review in the coming weeks regarding a 2003 decision that permitted regulated banks to trade in physical commodity markets. This could mean no more banks in oil, water, energy, coffee, and could mean no future involvement in the copper industry.

A Fed review is definitely welcomed and definitely in order. But, at least for now, try out glass bottles and plastic cups at your summer parties and beach cookouts – I don’t think big banks have their hands in those markets yet.