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Posts tagged ‘Goldman Sachs’

Merkel Gets Tough as Russian Troops Hold War Games.


Russia launched new military exercises near its border with Ukraine on Thursday, showing no sign of backing down on plans to annex its neighbour’s Crimea region despite a stronger than expected drive for sanctions from the EU and United States.

In an unusually robust and emotional speech, German Chancellor Angela Merkel warned of “catastrophe” unless Russia changes course, while a man was killed in Ukraine in fighting between rival protesters in a mainly Russian-speaking city.

At the U.N. Security Council, the United States circulated a draft resolution that would declare illegal Sunday’s planned referendum on independence for Ukraine’s Crimea region.

But Russia, one of the Security Council’s five veto-wielding permanent members, made clear it opposed the draft.

“Russia announced they will kill it,” a senior Western diplomat told Reuters.

In Berlin, Merkel removed any suspicion she might try to avoid a confrontation with Russian President Vladimir Putin.

“We would not only see it, also as neighbors of Russia, as a threat. And it would not only change the European Union’s relationship with Russia,” she told parliament. “No, this would also cause massive damage to Russia, economically and politically.”

Secretary of State John Kerry said serious steps would be imposed on Monday by the United States and Europe if the referendum on Crimea joining Russia takes place on Sunday as planned.

Merkel, a fluent Russian speaker who grew up in communist East Germany, has emerged in recent days as a leading figure in threatening tough measures against Moscow.

Her foreign minister, Frank-Walter Steinmeier, said that over the weekend, European states would draw up a list of Russians who will face visa restrictions and asset freezes.

Putin declared Russia’s right to invade its neighbor on March 1, as Russian troops were already seizing control of Crimea, a Black Sea peninsula with a narrow ethnic Russian majority and a Russian naval base.

Events have moved rapidly, perhaps signalling an effort by Moscow to turn the annexation into a fait accompli before the West can coordinate a response.

In the Ukrainian city of Donetsk, a young man was stabbed to death and more than a dozen people were in hospital after pro-Russian and pro-European demonstrators clashed. The violence was the worst since last month’s overthrow of the Moscow-backed president, Viktor Yanukovich.

But in an apparently conciliatory move, Russia backed deployment of an OSCE monitoring mission in Ukraine, including Crimea, the Swiss chairman of the European rights watchdog said.

The leader of pro-Moscow separatist politicians in Crimea, who took power there after armed men seized the regional parliament on Feb. 27, predicted a strong vote in favor of union with Russia in Sunday’s referendum.

“We have a survey by renowned Ukrainian and Crimean polling experts showing clearly and plainly that more than 80 percent of people in Crimea are ready to join the Russian Federation,” Crimean Prime Minister Sergei Aksyonov told Reuters.

Aksyonov, whose election in a closed session of the regional parliament is not recognized by Kiev, dismissed opponents’ accusations he will fix the referendum on Moscow’s orders. “We guarantee that all aspects of European law will be followed, including security for voters,” he said in an interview.

Western countries dismiss the vote as illegal. “The referendum on Sunday will have no legitimacy, no legal effect, it can have no moral effect. It is a piece of political theater that is being perpetrated at the barrel of a gun,” Daniel Baer, the U.S. ambassador to the OSCE, told reporters in Vienna.

At the United Nations, U.S. Ambassador Samantha Power said time was running out for a peaceful solution. She urged Russia to listen to the “remarkably unified” voices of its 14 fellow members of the Security Council and the Ukrainian people.

Diplomats said the one-page resolution would urge countries not to recognize the results of the vote in Crimea. A vote on the draft was postponed until Saturday at the latest to allow time for more negotiations.

Russia has taken territory from its former Soviet neighbors in the past with no serious consequences — in 2008 it invaded Georgia and seized two breakaway regions. But if Putin was hoping for a similarly tepid response this time, he may have misjudged.

In particular, he seems to have alienated Merkel, the Western leader with whom Putin, a German speaker who was once a KGB spy in East Germany, has had the closest relationship.

Merkel was initially more cautious than other Western leaders on the Crimean crisis, but in recent days she has pushed the European Union to match U.S. sanctions. EU action is critical because Europe does 10 times as much trade with Russia as the United States, buying most of its gas and oil exports.

The prospect that EU measures could be implemented as soon as Monday has weighed down the Russian economy.

Goldman Sachs revised its prediction for Russian economic growth this year down to 1 percent from 3 percent, blaming the tension over Ukraine for capital flight that would cripple investment. It said $45 billion had already left Russia this year, mostly Russians stashing money abroad.

The Russian stock market hit a 4-1/2-year low on Thursday and is down 20 percent since mid-February. The cost of insuring Moscow’s debt against default rose to its highest level in nearly two years.

The crisis has already forced several Russian firms to put plans on hold for public offerings to raise cash abroad.

Yet none of that appears to have slowed down Putin, who told officials of the Winter Paralympic Games he is hosting in Sochi that Russia was “not the initiator” of the crisis.

The Russian Defense Ministry said 8,500 troops were taking part in new military exercises near the Ukrainian border, testing artillery and rocket launchers.

It was the second big exercise Moscow has ordered since the crisis began; the first, involving 150,000 troops, started a few days before Russian forces seized Crimea.

In a gesture of support for NATO’s eastern members, U.S. F-16 fighter jets landed at Poland’s Lask air base on Thursday.

Among efforts by the West to isolate Russia politically, the Organization for Economic Cooperation and Development, a 34-member rich nations’ club, announced it was suspending membership talks with Russia, under way since 2007.

Moscow has pledged to respond in kind to any Western sanctions. The prime minister of Lithuania, a former Soviet republic that is now an EU member state, said Russia had suspended food product imports through its port of Klaipeda.

But European leaders appear to be calculating that the damage to Russia would be far worse than to Europe. EU-Russian trade makes up 15 percent of Russia’s economy and just 1 percent of Europe’s. Although EU countries depend on Russian gas imports, storage tanks are full after a mild winter.

Diplomatic lines have been open between Russia and the West throughout the crisis: Kerry and Russian Foreign Minister Sergei Lavrov spoke on Thursday, as they have nearly every day. They are due to meet in London on Friday.

Russia’s top general discussed Ukraine with the chairman of NATO’s Military Committee by telephone on Thursday, the Interfax news agency said.

The crisis over Crimea began after Yanukovich fled Kiev and pro-European politicians took charge, following three months of demonstrations.

© 2014 Thomson/Reuters. All rights reserved.
Source: Newsmax.com

Nigeria’s New “MINTed” Hope By Okey Ndibe.


 

Columnist:

Okey Ndibe

During a brief trip to London last week, I was intrigued to realize that part of the news buzz pertained to Nigeria’s inclusion in a list of countries with prospects of becoming four of the world’s biggest emergent economies. The so-called MINT countries are Mexico, Indonesia, Nigeria and Turkey. Jim O’Neill, an economist at the international investment firm, Goldman Sachs, popularized the acronym. He earlier coined the term BRICS countries, denoting Brazil, Russia, India, China and South Africa, which he rated a few years ago as some of the globe’s emerging economic giants.
On Thursday, Peter Okwoche of the British Broadcasting Corporation (BBC) ended a short interview on my new novel, Foreign Gods, Inc., by asking what I thought about Mr. O’Neill’s rosy prediction for Nigeria.

Lacking the time to offer a detailed and nuanced response, I stated that Nigeria is endowed with extremely bright people, that the country is full of energetic and industrious men and women. By contrast, I added, the country has never been lucky in the department of leadership. To sum up, I invoked Chinua Achebe’s dire—but hardly contestable—conclusion that Nigeria has an amazing facility for snatching defeat from the jaws of victory.

Nigeria’s economic policy makers are understandably giddy about Mr. O’Neill’s flattering prognosis. I’d caution the infusion of a high dose of chastening realism into the premature celebration. A sense of history demands nothing less than a sober—and sobering—confrontation of the facts. Achebe was no economist, but the central fact of Nigeria’s journey, as far as economic development is concerned, bears out the late writer’s dim take on his country. In a sense, we could say that Achebe was the sounder economist and Mr. O’Neill, in inflating Nigeria’s odds, the fiction-maker.

This is not the first time Nigeria has been mentioned enthusiastically in prognoses of dramatic economic growth. Again and again, experts, foreign and homebred, had foretold that Nigeria was on the cusp of becoming a stupendous economic miracle. Each new prediction or declaration would trigger its own surge of elation. Nigeria’s policy makers and their sometimes over-pampered partners in the private sector would go into a spree of premature celebration, as if the word potential was interchangeable with reality, as if promise were the equal of performance. Each time, in the end, the outcome was embarrassing. Rather than rise to its potential, Nigeria always somehow found a way to stay stuck in the mud of failure and mediocrity, continuing to romance its worst nightmares.

Nigerians are all-too aware of their country’s missed opportunities. Many years have been lost to wasteful, visionless squander mania. Rampant, unchecked corruption has smothered many a promising grand idea. For many discerning people, Nigeria has become a huge graveyard: a cemetery littered with betrayed dreams, dashed hopes, and asphyxiated aspirations. We’re all too familiar with many dud promissory notes that came with such flamboyant names or phrases as “Green Revolution,” “Consolidating the Gains of SAP,” “Vision 2020-10,” “NEEDS,” “Dividends of Democracy,” and “Transformational Leadership.”

Read Nigerian newspapers or watch any Nigerian television station and you’re bound to realize that there’s zero discussion of the things that matter. It’s all about one empty-headed politician decamping from one political party to another; one squabble or another between two politicians or two political parties; one hireling or another warning that presidential power must stay where it is, or must be transferred to a person from a different geo-ethnic sector, or it’s hell-in-Nigeria; some pastor or imam declaiming that God whispered into his/her ears that Nigerians must fast and pray more (even though most of the populace is already on poverty-enforced fasting). Much of Nigeria’s public discourse is taken up by a tizzy of political rants and faux piety.

Greatness never comes by accident, nor is it imposed by divinity on an unwilling people. A country, like a person, must prepare—be prepared—for greatness. It starts with dreaming greatness, imagining it, contemplating what it must take, and deciding that the venture is worth the risk, that we’re willing to invest the time, intellect and material resources to translate the dreamed into reality.

Do Nigerians dream big? In words, they do, but not in deed. In the 1960s through the 1980s, Nigerian “leaders” used to speak of “this great nation of ours.” But even they have abandoned that species of bad joke! Now, they speak of “moving the nation forward” or “delivering the dividends of democracy.” But the rickety molue they claim to be moving forward is in reverse gear, headed, any moment, for a jagged gorge. Ask any Nigerian official what “dividends” they have delivered and you’re bound to hear such fatuous lines as, “I purchased 100 tractors to mechanize agriculture,” “I don’t owe civil servants any arrears of salaries,” “I bought chalks for all elementary schools in my state,” “I have commissioned 500 water boreholes,” etc, etc.

It’s the 21st century, but very little of the language of those who run (that is, ruin) Nigeria suggests that they are aware of what time it is. They’re conscious of the world, of course, but only in a slavish, opportunistic way. They, their relatives and cronies are at their best when they travel in style to the world’s most dazzling cities: New York, Paris, Dubai, Tokyo, Hong Kong, London, Amsterdam, Brussels, Beijing, etc. Once in these cities, they unleash their rank consumerist impulse, eager to bask in the most garish of each city’s sensual offerings. But it never occurs to them that the goods that make them swoon, the services they lust after are products of other thinking people’s imagination and work.

Meanwhile, back home, the masses are steeped in grim lives, trapped by ignorance and disease. Last week in London, a friend showed me a Youtube video of a brackish lake in Nigeria swarmed by thousands of sick, desperate Nigerians who believe that the stagnant body of water has healing powers. I was incensed by the spectacle, the hysteria of ignorance. Then it dawned on me: this is what can happen—what happens—in a country bereft of any healthcare system.

I’d like to hear Mr. O’Neill stipulate a recipe for Nigeria’s emergence into economic greatness. Nigeria has a high supply of thinkers, of experts in every field, including economic policy. But the hordes of unthinking, grub-obsessed politicians who dominate the political sphere are consistently threatened by expertise.

I don’t know of any country that rose to economic powers via fasting and prayers. And yet that’s the formula most treasured by Nigerian politicians who exhort their victims to fast and pray. Luck can only carry a person or a nation so far. And Nigeria has long exhausted its stock of luck, even if it somehow keeps borrowing some more.

The “N” in Mr. O’Neill’s MINT will become yet another mirage unless Nigerians find a way to reverse the toxic culture that validates corruption and venerates mediocrity.

Please follow me on twitter @ okeyndibe

(okeyndibe@gmail.com)

Source: SAHARA REPORTERS.

UK Court Hands Goldman Sachs Banker Four Years In Jail For Helping Ibori Launder Loot.


By Saharareporters, New York

A British court has sentenced Ellias Preko, a former Goldman Sachs investment banker who helped former Governor James Ibori of Delta State to launder millions of dollars, to four and a half years in jail.

Mr. Preko, 54, is originally from Ghana.

Our correspondent reported that Mr. Preko remained impassive as Judge Anthony Pitts announced his sentence. Earlier, the disgraced banker had thanked the judge as he was taken into custody following guilty verdicts returned by the jury on two counts of money laundering.

“His world has very much fallen apart,” defense barrister Richard Horwell told the court in a plea for leniency before sentence was passed.

Mr. Preko was arrested five years ago as the net closed in around former Delta State governor, James Ibori. Mr. Ibori himself was last year sentenced to 13 years imprisonment by the same judge after he plead guilty to charges of money laundering.

The jury heard evidence that between 2000 and 2003, Mr. Preko took $5 million stolen by Ibori, his wife and mistress, and made it appear to be clean money so that the loot could be lodged in trusts held in the British tax haven of Guernsey.

The cash came from inflated contracts awarded by Mr. Ibori’s administration to three companies held in the names of Ibori’s wife and mistress.

Email evidence seen by the jury showed that Mr. Preko instructed the Iboris on how to fill out forms for businesses so that they could pass the Guernsey bank’s due diligence investigations.

With the benefit of Mr. Preko’s expert help, the rogue companies, named Sagicom, Zircon, Zeta and Onyx, appeared to be legitimate. But investigations by the Metropolitan Police revealed that the address of the companies’ head office was in fact an off-license on Awolowo Road, Lagos, prosecutor Sasha Wass told the court.

The money laundering scheme was the “first of many” future transactions Mr. Ibori promised to execute in email correspondence shown to the jury.

Mr. Preko’s defense team had argued that their client had never been paid for his help, and said the banker was unaware that the money was the proceeds of crime. The other members of the fraud syndicate, Mr. Ibori, his family and mistress as well as Mr. Ibori’s UK solicitor, Bhadresh Gohil, bore much more responsibility for the criminal activity, Mr. Horwell argued before Judge Pitts and the jury.

“Mr Preko was toward the bottom of the hierarchy,” the defendant’s attorney argued. But that line of defense was mostly swept away and discountenanced by the judge.

“You were a professional man, not under the pressures of a family member,” said Judge Pitts to Mr. Preko, adding that the defendant “had the ability to walk away.”

Judge Pitts however acknowledged that Mr. Preko had a limited role in the theft in comparison to Ibori’s wife, Theresa Ibori, and his mistress, Udoamaka Okoronkwo. Both women were each sentenced to five years in 2009. They have finished serving their sentence and been released.

Confiscation hearings are due to be held next year, where any of Mr. Preko’s ill-gotten gains identified by investigators will be liable to seizure by the court.

The court granted the prosecution four months to complete fresh investigations in Nigeria regarding the location and nature of illicitly acquired assets.

Morici: Obama Targeted JPMorgan – Why?.


JPMorgan Chase’s record $13 billion tentative settlement with the Justice Department concerning misrepresented residential mortgage-backed securities does not absolve from criminal charges senior bank officials or the bank as an institution.

JPMorgan could be dismembered if several senior officers are found guilty of criminal charges or the bank as an institution engaged in fraud or other criminal activities. The resulting crippling or breakup of JPMorgan would have grave consequences for major corporations and the broader economy that rely on the institution as their primary banker, and those firms’ CFOs would do well to start shopping their business elsewhere.

Also, other Wall Street institutions, such as Goldman Sachs, marketed similarly shaky securities. It must be asked: Why has all this taken five years? Why was JPMorgan singled out for such harsh treatment? Does this episode have parallels to the federal suit against Standard & Poor’s, which downgraded U.S. debt in 2011 and then was singled out among bond rating agencies by the Administration?

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Much of JPMorgan’s legal problems stem from its acquisitions of Bear Stearns and Washington Mutual, whereas Goldman Sachs’ mortgage securities problems were manufactured within its own confines.

Again why is JPMorgan treated so much more harshly, and without regard for the broader macroeconomic effects?

Much of Wall Street backed Barack Obama’s bid for the presidency in 2008, and subsequently maintained distance for the 2012 campaign. Goldman Sachs has continued close ties to the administration and the Federal Reserve.

All this raises serious questions about the exercise of prosecutorial discretion by Eric Holder‘s Justice Department.

© 2013 Newsmax. All rights reserved.

By Peter Morici Twitter @pmorici1

S&P 500 Reaches All-Time High After Debt Deal.


Image: S&P 500 Reaches All-Time High After Debt Deal

The stock market hit an all-time high Thursday as investors put the government shutdown and debt ceiling crisis behind them and focused on corporate earnings.

The Standard & Poor’s 500 index rose 11.61 points, or 0.7 percent, to close at 1,733.15 — a record close.

The market rose throughout the day as investors got back to focusing on corporate earnings and economic data. American Express and Verizon rose the most in the Dow Jones Industrial Average after reporting earnings that beat expectations from financial analysts.

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The Dow ended the day down two points, or 0.01 percent, to 15,371.65. The index of 30 big U.S. companies was held back by declines in IBM, Goldman Sachs and UnitedHealth.

IBM’s third-quarter revenue fell and missed Wall Street’s forecast by more than $1 billion. The stock closed down $11.90, or 6 percent, to $174.80. Earlier, it had touched its lowest level of the past year — $172.57

Goldman Sachs also weighed down the index. The investment bank’s revenue fell sharply as trading in bonds and other securities slowed. Goldman fell $3.93, or 2.4 percent, to $158.32.

The focus on earnings is a change of pace for Wall Street, which had been absorbed in Washington’s political drama over the last month.

Now that the U.S. has avoided the possibility of default, at least for a few months, earnings news is expected to dominate trading for the next couple weeks. So far, only 79 companies in the S&P 500 have reported third-quarter results, according to S&P Capital IQ. Analysts expect earnings at those companies to increase 3.3 percent over the same period a year ago.

“I don’t think we can completely close the door on the debt ceiling chapter just yet, but we can get back to the stuff that really matters,” said Jonathan Corpina, who manages trading on the floor of the New York Stock Exchange for Meridian Equity Partners.

Other indexes also posted big gains. The Nasdaq composite closed up 23.71 points, or 0.6 percent, to 3,863.15.

The Russell 2000 index, which is made up of primarily smaller, riskier companies, also hit an all-time high. It closed up 9.85 points, or 0.9 percent, to 1,102.27 and has risen nearly 30 percent this year.

Market analysts think the 16-day partial shutdown of the government caused billions of dollars of damage to the economy. Government employees were furloughed, contracts were delayed, and tourism declined at national parks.

Analysts at Wells Fargo said the shutdown likely lowered economic growth by 0.5 percentage point.

There remain broader concerns that Democrats and Republicans won’t be able to draw up a longer-term budget. The deal approved late Wednesday only permits the Treasury Department to borrow through Feb. 7 and fund the government through Jan. 15.

“The agreement represents another temporary fix that pushes fiscal uncertainty into the early months of next year,” Wells Fargo analysts said.

Despite the worries, signs of normalcy returned to financial markets Thursday.

The one-month Treasury bill was back to trading at a yield of 0.01 percent, about where it was a month ago, and down sharply from 0.35 percent on Tuesday.

Usually a staid, conservative security, the one-month T-bill was subjected to a wave of selling at the beginning of the month. Investors feared the T-bill would be the first piece of government debt to be affected by a U.S. default if the debt ceiling was breached and the federal government could no longer pay its obligations.

The yield on the more closely-watched 10-year Treasury note fell to 2.60 percent from 2.67 percent Wednesday.

Among other stock moves:

— Verizon rose $1.65, or 4 percent, to $48.90. The telecommunications company earned an adjusted 77 cents per share for the recent quarter, beating expectations of financial analysts.

— UnitedHealth Group dropped $3.82, or 5 percent, to $71.37. The health insurance giant narrowed its 2013 profit forecast, instead of raising it, giving some analysts pause.

Editor’s Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See If You Qualify) 

© Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Source: NEWSmax.com

Twitter Files for $1B IPO.


Twitter Inc. didn’t need more than 140 characters to tell the world it was going public. With today’s regulatory filing, it became an #openbook.

In what is the most anticipated technology company offering since Facebook Inc., San Francisco-based Twitter made public its S-1 prospectus today and said it is seeking to raise $1 billion in its initial share sale. The company didn’t specify the number or price of shares it will offer, using the $1 billion as a placeholder to calculate registration fees.

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The document also showed Twitter is more than doubling revenue annually, even as it remains unprofitable. Goldman Sachs Group Inc. was listed as the lead underwriter, along with Morgan Stanley, JP Morgan Chase & Co., Bank of America Corp. Deutsche Bank AG, Allen & Co. and Code Advisors.

The prospectus removes the veil of secrecy that surrounded Twitter’s financials since the company said on Sept. 12 it had filed confidentially for an initial public offering. It underlines how the microblogging service, founded in 2006, has evolved from a simple site for 140-character updates to a booming online-advertising business that generated more than $253.6 million in the first six months of this year.

“It’s a hot area,” said Francis Gaskins, president of IPOdesktop.com, who added that Twitter’s broad appeal will make the share sale one of the most watched in recent history. “People understand this and they use it.”

Roadshow Soon

With Twitter taking the wraps off its S-1, the company will soon embark on a roadshow to market to investors. The IPO will test a market that has been burned in recent years by the offerings of Internet companies such as Facebook, Groupon Inc. and Zynga Inc., all of which plunged below their offering prices within six months of going public. While Facebook shares have since climbed back, Groupon and Zynga are still trading below their IPO prices.

The offering will be pivotal for Chief Executive Officer Dick Costolo, who in 2010 became Twitter’s third CEO in as many years. He is credited with bringing management discipline, rapid hiring and a business plan to a company that was bogged down by a lack of focus and frequent technical outages.

Twitter’s S-1 showed that revenue in the first six months of the year was $253.6 million, up from $122.4 million in the first six months of 2012. It said advertising revenue per timeline view in the three months ending in June was 80 cents, up 26 percent from the same period a year ago.

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Twitter posted a net loss of $69.3 million in the first six months of 2013, compared with a net loss of $49.1 million in the same period a year ago.

“The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and enable access to the public equity markets for us and our stockholders,” Twitter said in its prospectus.

 

© Copyright 2013 Bloomberg News. All rights reserved.
Source: NEWSmax.com

Ira Stoll: NY Times’ Assault on Goldman Sachs Misguided.


Democrats in Congress and their allies at the New York Times are preparing for another assault on Goldman Sachs, this one based on the claim that an aluminum warehouse owned by Goldman is increasing the prices of canned beverages.

A Democratic Senator from Ohio, Sherrod Brown, plans a hearing Tuesday and wants the Federal Reserve to get banks out of the warehouse business. The New York Times previewed the hearing with a 3,600-word article that ran at the top of its Sunday front page and that blamed Goldman for costing American consumers more than $5 billion over three years in higher costs for canned soda, beer, and other products.

The Times followed up with a series of staff Twitter posts telling readers what to think about the news: “Don’t miss: damning story on how Goldman Sachs manipulates aluminum market . . . This story will fuel notion that Goldman is a ‘giant vampire squid,'” one post read.

There you have it: left-wing hypocrisy in a nutshell. When a government official like New York mayor Michael Bloomberg tries to reduce the public consumption of sugary beverages with a tax that makes the drinks more expensive, he’s a public health hero. But when it’s a profit-generating company that stands accused of increasing beverage costs, it’s a greedy manipulative Wall Street blood-sucker.

In Goldman’s case, it’s not even clear that the firm has increased the price of beverages or of other aluminum products. In February 2010, when Goldman announced it was buying the metal warehouse Metro International Trade Services, a metric ton of aluminum cost about $2,053. Last month, it cost about $1,815.

And if Goldman were increasing the cost of aluminum cans, it’s not clear that the practices are in any way related to its status as a bank. Some non-bank firm could also buy an aluminum warehouse and try to jack up rent to customers.

The best way to deal with the problem of aluminum can prices — if that is a problem at all — is not for the government to decide who can or can’t buy an aluminum warehouse. It’s allowing the market to address the issue, either through new entrants — competition — or vertical integration.

Slate’s Matthew Yglesias noted the Times article failed to explain why someone else doesn’t just open up an aluminum warehouse that moves faster than the one Goldman runs, or charges lower rent. It’s not like the warehouse business has such high barriers to entry or is so capital intensive that no one else can compete.

Another possibility is that the aluminum end-users, such as the beverage or aluminum foil companies or Boeing, can own and operate their own warehouses. If they think they can do it cheaper or better than Goldman, nothing is stopping them from trying.

For the Federal Reserve, or Congress, to tell banks they can’t be in the warehouse business, though, is a risky proposition. The flip side of it is the regulators telling the bankers that they can only invest in certain government-approved things, such as bonds that are AAA rated by a nationally recognized rating agency, or mortgage debt backed by Fannie Mae or Freddie Mac. And we all know how thatended up.

Sure, if bank deposits are going to be backed by Federal Deposit Insurance or the institutions themselves are going to be subsidized or backstopped by the taxpayers, then there needs to be some oversight of how the banks invest capital. But there what regulators need to be watchful for is bank investments that lose too much money, not investments that make too much money, as the Goldman aluminum warehouse is accused of doing.

The best public policy outcome would be to take a hard look at the subsidies and the taxpayer backstops, so that a bank owning an aluminum warehouse wouldn’t be any different from any other company owning one.

Ira Stoll is editor of FutureOfCapitalism.com and of Smartertimes.com.

 

© 2013 Newsmax. All rights reserved.

 

By Ira Stoll

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