Philip McBride Johnson examines the debate over banks' ownership of commodity infrastructure.
Alas, it turns out that large banks own commodity storage
facilities! The Federal Reserve evidently blessed this practice
some years ago. Now, large users of aluminum claim that those
facilities horde that metal and make it time-consuming to
remove it from storage.
With talk of similar warehouses for copper and perhaps other
commodities, questions (and accusations) have emerged whether
the banks are "squeezing" supplies in order to inflate prices,
a no-no under federal law.
But why would they do so? The banks make copious profits simply
for storing the stuff. And yet, what if they are also active
traders in those commodities or their derivatives? Then, they
could enjoy the two-fer of rents and market profits.
The solution seems obvious to me. Warehouses storing other
people's traded commodities should agree not to buy or sell in
those markets. The relevant exchanges, most notably the London
Metal Exchange, should certify only those storage facilities
that agree to this restriction. That would disqualify certain
firms that have no bank status as well, but fair is fair.
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