Inaction on Goldman Sachs’ Aluminum Market Manipulation Reveals Republicans Don’t Really Believe in the Free Market
A recent New York Times article exposed Goldman Sachs’ manipulation of the aluminum market by moving the metal from warehouse to warehouse on a daily basis. This game of keep-away artificially drove up prives. As a result, The Atlantic published a piece titled, “The Huge Threat to Capitalism That Republicans are Ignoring.” In the article, author Conor Friedersdorf argues that this “crony capitalism” is on par with the dangers communism posed to capitalism in the 1950’s.
The NYT article provides background:
Hundreds of millions of times a day, thirsty Americans open a can of soda, beer or juice. And every time they do it, they pay a fraction of a penny more because of a shrewd maneuver by Goldman Sachs and other financial players that ultimately costs consumers billions of dollars.
The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again.This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange, an investigation by The New York Times has found. The back-and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal. It also increases prices paid by manufacturers and consumers across the country. Tyler Clay, a forklift driver who worked at the Goldman warehouses until early this year, called the process “a merry-go-round of metal.”
Only a tenth of a cent or so of an aluminum can’s purchase price can be traced back to the strategy. But multiply that amount by the 90 billion aluminum cans consumed in the United States each year — and add the tons of aluminum used in things like cars, electronics and house siding — and the efforts by Goldman and other financial players has cost American consumers more than $5 billion over the last three years, say former industry executives, analysts and consultants.
For those who wish to see the free market truly rule the American economy (Republicans…cough, cough) this is the exact type of behavior that should have people up in arms. Yet no one is.
The revolving door that allows government and big business influencers to be one-in-the-same is largely to blame for the lack of concern here. Everyone who’s doing the U.S. dirty knows each other. This is not a one-party party either. Democrats regularly drag their cumberson briefcases through the same revolving door.
A quick scan of the revolving door list on OpenSecrets.org shows 37 people who have gone from Goldman Sachs to government positions or vice versa.
A good place to start is with Joshua Bolten, currently the Managing Director of Rock Creek Global Advisors. His resume shows that from 1994-1999 he acted as the Executive Director of Government Affairs for Goldman Sachs. He then left to become part of the Bush/Cheney 2000 campaign. After the election he became part of the White House staff. He worked his way up the ladder until he eventually became President Bush’s Chief of Staff from 2006-2009. In other words, while President Bush was helping direct the bailout of financial institutions such as Goldman Sachs, his Chief of Staff was their former Executive Director of Government Affairs. Of course, Henry Paulson, who after being the CEO of Goldman Sachs from 1975-2005 became the Secretary of the Treasury in 2006, presided over the bailout.
And we wonder why government is not fighting crony capitalism.
A few other examples:
-Former New Jersey Governor and U.S. Senator Jon Corzine who from 1975-1999 was the CEO of Goldman Sachs.
-Stephen Friedman, Senior Chairman of Goldman Sachs for over 20 years before becoming an economic advisor to President Bush and eventually the chair of the Federal Reserve bank of NY from 2008-2009, during the height of the recession and bailout.
-Gary Gensler, partner at Goldman Sachs from 1979-1997 who now serves on the Commodity Futures Trading Commission.
-Robert Hormats, Vice Chairman of Goldman Sachs from 1982-2009, is now the Deputy U.S. Trade Represntative.
-Mark Patterson, the VP of Government Affairs for Goldman Sachs from 2003-2008, became the Chief of Staff to the Department of the Treasury in 2009.
So why do the alleged defenders of the free market allow these distortions of the free market? Perhaps they do not believe in the free market after all. According to Friedersdorf:
Preventing this sort of thing ought to be a high priority for anyone who wants to see free-market capitalism succeed in America. So long as our economic system resembles what Adam Smith described — the profit motive benefiting everyone, as if by an invisible hand — much of the American public can be counted on to support politicians who campaign as unapologetic capitalists, even if people are rewarded unequally, based on the value their labor is producing.
But if “capitalism” starts to be associated in the public mind with Wall Street profiting by deliberately slowing down industrial productivity (or with Mitt Romney making millions by buying companies and gaming the tax implications of shuttering them), Americans are not going to support capitalism. They’re going to regard it as a rigged system that only profits wealthy insiders.
In the short term, Republicans and Democrats alike benefit by allying themselves with the wealthy insiders. Like the GOP, President Obama has benefited from Wall Street money. But in the longer term, enough stories like this New York Times scoop will destroy Republicans, because rhetorically, they’re the ones insisting that the market is beneficial and more or less fair, even as a transparently corrupt financial sector consumes a larger percentage of the overall economy.
At the end of his piece, Friedersdorf quotes George Will who earlier this year wrote for the Washington Post:
By breaking up the biggest banks, conservatives will not be putting asunder what the free market has joined together. Government nurtured these behemoths by weaving an improvident safety net and by practicing crony capitalism. Dismantling them would be a blow against government that has become too big not to fail. Aux barricades!” by weaving an improvident safety net and by practicing crony capitalism. Dismantling them would be a blow against government that has become too big not to fail. Aux barricades!”
This is the truth laid out before you with little subtext. It is all right there in front of your eyes. The “Government nurtured these behemoths” and we know that the government is made up of said behemoth’s former employees. It’s a vicious cycle and any true defender of the free market should be quick to change the game.