Ah, the charade continues. Just last week Reuters reported that "Goldman Sachs Expands Physical Base Metals Team," hiring a prominent physical metals trader as the "U.S. Bank continues to bolster its physical commodities trading business." Thereby assigning to the lexicon another example of "the more it changes, the more it stays the same."
Well, you see according to Reuters:
- "Banks have built physical trading operations"
- "End to prop desks turned banks to physical trading"
So there you are, simple and straight forward. Dodd-Frank imposes Volcker Rule limitations on proprietary trading of derivatives such as futures contracts for oil, copper, grain and on, so the banks go one step deeper and make an end run to avert oversight. They forgo derivative instruments and trade in the physical product.
In a normal world it would all make sense, but in this world of Wall Street hegemony over our lives and economy it becomes another scheme to rip off Main Street and everyone's wallet. Further, adding insult to injury, it presumes we are all dotes and that our government and our oversight agencies are asleep at the switch or worse.
You see, it presumes that the restrictions on the prop trading of banks is meant to address trading of derivative instruments only. That the trading of physical commodities is outside the purview of Dodd-Frank/Volcker -- a totally ludicrous and ridiculous interpretation hatched up by the mega-banks and their lobbyists to permit them to continue the profitable wave of proprietary trading in physical commodities at our expense and cost.
How is that, you ask? Well firstly, what business does a bank have gambling on the rise and fall of prices of physical commodities. Yes, banks have a role in helping to finance the trade in these commodities as in all products. But to become principals in this extraordinarily risky business while being responsible for the safekeeping of their depositors monies guaranteed by Main Street taxpayers through programs such as the Federal Deposit Insurance Corporation (FDIC) strikes at the very heart of what the limitations on prop trading is meant to achieve, and what it means to be a bank.
Even more egregious is the near limitless access these banks have (in the billions upon billions) to near cost free Fed financing permitting them to gamble away in physical proprietary trading impacting, to their own benefit, the price and markets of vital commodities (please see as specific examples its chartering supertankers with millions of barrels of oil being kept at sea for months at a time - "Banks in Collusion With The Fed Shamelessly Spike Up Price of Oil/Gasoline" or spiking the price of a base metal such as copper-"JP Morgan Chase Banks On Buying Into The Casino".
The Fed must desist in funding the trading operations of these Mega-Bank Holding companies so that they can no longer use the Fed window to play casino with commodities that are basic to our economic well-being and Dodd-Frank needs to be overhauled to prohibit banks from all proprietary trading in commodities whether through derivative instruments or physical product. Period!