Goldman's new money machine: warehouses

Investment banks do provide valuable services: market making (providing liquidity in many markets), capital raising, the creation of financial instruments so investors can hedge against certain kinds of risk and so on.<p>Unfortunately I think we're reaching the point of banks overstepping their bounds and creating far more problems than they really should.<p>This strategy seems similar to the "demand shock" approach they used in driving up wheat prices in recent years. And of course the subprime crisis was the result of lax regulation, arguably criminal negligence by Standard &#38; Poor's and Moody's (who rated certain baskets of loans as AAA) and a lot of players who simply didn't have to bear any risk.<p>I'm really not sure what the solution is here but something really needs to bring this system into check. Such paper shenanigans are having real negative consequences.<p>In Australia we have a strict financial regulation regime, arguably too strict in some cases, but we didn't have the bubble in real estate prices that the US did. "No doc" and "low doc" lending never reached the point of collapsing the market.<p>One could argue that financial regulation is to blame and you're probably right but I have no faith in the US government's ability to correct this or pretty much anything else. Washington now seems to be nothing more than a battleground for special interest lobbying and ideologues devoid of rationality.<p>In the past ~30 years or so investment banks have generally undergone a change from being a partnership to being a corporation. The major difference between the two is partnerships have unlimited liability. Much like a law firm, the partners are <i>personally</i> liable for losses.<p>I've come to the conclusion that this change has been detrimental to the function of the financial industry as a whole. Combine this with Federal government bailouts and investment bankers seem to act with complete impunity with regards to risk.<p>Something needs to change.

Goldman is the great american bubble machine, and it's disgusting.<p><i>"From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression -- and they're about to do it again"</i><p><a href="http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405" rel="nofollow">http://www.rollingstone.com/politics/news/the-great-american...</a>

This has been posted here before. Part of me respects then for being such excellent hackers of the letter of the law, but mostly I agree that this firm in specific is a. Armpits squid which is out of control and distorts markets, causes widespread harm to markets and individuals, and is not effectively controlled by regulators (who are largely Goldman alumni, in their revolving door system). I have no idea what the right solution is to this problem. I am kind of ashamed to have several friends who now work for Goldman.

A normal person would never starve a child to better his own lot. Instead he will give his pension fund savings to Goldman Sachs, who will then promptly cause a world-wide famine by manipulating the food markets. Which is why GS gets paid the big bucks - they absolve the future retirees of the moral responsibility for the starvation of the less fortunate.

This is pretty awful, but it seems like one of these problems that could and should be solved by the free market.<p>Somebody should just start a new metals exchange that caters to the needs of its clients rather than trying to squeeze them. There is no reason why America has to do its metals trading in some ancient London exchange.

A similar thing is happening with generic chemotherapy drugs. Profit margins for generics are thin, so few companies manufacture them. When a supply issue arises, distributors stockpile the drug and charge hospitals one or two scales of magnitude of the generic price.

My understanding of this is you buy a futures contract that says you get so much metal on a certain date. The date arrives, and Goldman Sachs tells you that you own the metal, but it is in our warehouse. Further, you have to wait months before you can get it out of the warehouse, and you owe rent until then.

Did anyone else feel this was a poorly written article? Maybe I'm obtuse, but I found it _very_ difficult to understand. I felt like the writers were too busy sexing up the article to focus on explaining what's going on here...<p>It sounds like metal traded on the LME must be stored in an LME certified warehouse. The LME-certified warehousing market doesn't appear to be very competitive, as Metro/GS can take its sweet time getting you your metal yet not go out of business. _LME's_ conflict of interest is that it's supposed to regulate warehousers when one of its biggest members (GS) owns said warehouses. The alleged "warehouse strategy" then was for GS to buy the warehouses and create the conflict in the first place.<p>Did I get it?

I realise these are quite hyperbolic, but you might be interested to watch this short profile of commodities giant Glencore, mentioned in the article: <a href="http://www.youtube.com/watch?v=u6rSBifsvwg" rel="nofollow">http://www.youtube.com/watch?v=u6rSBifsvwg</a>

I find it curious the article never mentions the real culprit in hogging resources - China. When I was working in the bike industry, over the course of a few years, ALL of our bikes jumped in price considerably. After talking with one the reps from Specialized, they said China has put a huge strain on raw materials like Aluminum, Titanium, and Steel. By doing so, they've pushed the prices up across the board.<p>The stuff Goldman Sachs is doing pales in comparison to what China has been doing over the past 5-8 years.

Please can someone stage a protest outside their warehouse to prevent all movement in and out?

Wow, finally this months old story is making the rounds here?

How is this any different to stockpiling gold?