JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc (GS): How Big Banks Are Driving Up the Prices of Practically Everything

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Goldman is an expert at the commodities game, having dipped its toes in the food commodity market back in 1991 by bundling wheat, hogs, coffee, and other popular consumables into a financial product named the Goldman Sachs Commodity Index. An article by Frederick Kaufman describes how the price of wheat eventually skyrocketed, as other bankers copied the magic formula cooked up by Goldman.

By 2008, market-induced scarcity created global food riots as millions became unable to afford food. Though the wheat market returned to some semblance of normalcy by the end of that year, the legacy of this phenomenon kept food prices higher all over the world as consumers were forced to make up for losses incurred by the food industry.

Regulators need to step in
This whole scenario smells of scam and is a perversion of the way free markets are supposed to work. Thanks to the Bank Holding Company Act, those entities had been kept from active participation in the commodity markets for decades, which explains how Goldman was able to get such a head start — Goldman and Morgan Stanley (NYSE:MS) were made into bank holding companies in 2008, during the financial crisis.

Now, their federally bestowed, five-year extension is under scrutiny, as is JPMorgan Chase & Co. (NYSE:JPM)’s role in the commodities markets. Though Goldman insists it observes the rules set out by the London Metal Exchange, which regulates how metals are stored and released, it appears that they have managed to get around those requirements with their on-site ferrying system. As the Times points out, the LME also takes 1% of the rents from warehouses under its purview, which likely hasn’t spurred any protests on its part.

It is outrageous that these banking behemoths are allowed to squeeze profits out of the rest of the world, as they control the pricing and availability of precious metals, oil, and food. Regulators have been stepping up their oversight of banks in a big way since the financial crisis, and if there was ever an issue that needed to be addressed, it is this one. If something isn’t done soon, JPMorgan and Goldman will be buying up copper next year, with the blessing of the Securities and Exchange Commission.

So, the next time you think about how high prices are, and how long it is taking the economy to bounce back from the Great Recession, don’t forget to thank the big banks for their contributions. You can be sure they are thanking you, every single day.

The article How Big Banks Are Driving Up the Prices of Practically Everything originally appeared on Fool.com and is written by Amanda Alix.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase.

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