Monday, July 11, 2011

Sleazy I-Banks and the End of Nationalism Among Elites

The Wall Street Journal is reporting (link through financialbin, WSJ behind the paywall) in their dead tree July 5th edition, that big Wall Street Investment banks and commodity firms are snapping up metals warehouses. In turn, their business practices are driving up indirectly consumer prices. More evidence of the utter corruption of the elites, and the vast social distance and disconnect between elites and ordinary Americans.

The Journal reports that about 25% of London Metal Exchange stocks of Aluminum, are sitting in Goldman-Sachs and other big Investment bank-controlled warehouses. The total rental income is about $171 million (for all the owners, combined). The warehouses in New Orleans, contain about 59% of LME supplies of zinc, netting the owners a rental income of $70 million. Also in New Orleans, about 25% of LME copper nets annual rental income of about $16 million, and 73% of LME nickel supplies nets owners about $13.4 million.

These warehouses used to be independent, until Investment banks like Goldman-Sachs, and commodities firms like Glencore, bought them up in the past few years. Users of the warehouses like Coca-Cola, complain that they were lured in by cheap rental rates, but when they asked to pull their stocks out, were told they had to wait seven months, in some cases. Goldman releases only 1,500 metric tons a day (the minimum requirement by LME) of their stocks. Obviously a short-term play designed to drive up the prices of metals on the spot market (by restricting supply from warehouses) and possibly on the futures market as well.

Further, critics like can-maker Novelis, and Coca-Cola, charge that the I-banks and big commodities firms are using a "birds eye view" of what clients put in and request to be pulled out, to spot trends and trade off customer information in the commodities markets. You might recall, it was exactly this "trading off the customer's information" that was one of the more damning things to come out of the sub-prime meltdown financial crisis investigations, largely bearing out the charges made by Michael Lewis in "the Big Short" and various other critics. Historically Goldman-Sachs has been suspected of using customers as ways to gather an information advantage, and screw everyone in the market. The preponderance of Goldman-Sachs executives in the first Bush Administration, the Clinton Administration, the Bush II Administration, and the Obama Administration only furthers that accusation.

That accusation seems spot-on with the purchase of the metals warehouses. Formerly a "backwater" the warehouses don't earn much profit. Capital expenses are large (warehouses, guards, security, people to move the metal in and out, contracts with barges and trucking firms, it is no accident these warehouses are located in major ports or on industrial traffic rivers). The expertise in running large warehouses and synergy with what amounts to trading firms are nil. But ... the information to be gathered on what customers are doing with metals (storing them, or asking to take them out) can provide a key edge in trading the metals. With deals like sub-prime a thing of the past, basically Goldman-Sachs is looking for new people to screw over.

The ABCD firms that dominate basic commodity trading (Archer-Daniels Midland, Bunge, Cargill, and Dreyfuss) do so by having a huge network of spotters, counters, and other information/intelligence operatives in places like say, Abidjan, Ivory Coast, counting how much cocoa is actually being loaded into warehouses or shipped abroad. In many cases these networks providing intelligence took decades to construct (and are often highly illegal in the countries they operate in, many of them providing basic economic/commodity information that are state secrets). Agriculture is a tricky business, because sudden weather events can change almost every prediction, and often in the Third World expected harvests come in radically different due to rampant cheating one way or another.

For now, the big I-banks are seeking profits by ... well blatant manipulation of the metals spot and likely futures markets. Naturally this benefits metals producers, basically big mining companies like Xstrata or BHP Billiton. They get higher prices by restricting the supply sitting in warehouses. Of course, eventually the major users of metals will simply build warehouses themselves. And keep their data (what they put in and pull out) as private as possible. But if Coca-Cola or Novelis must build and staff their own warehouses (and nothing of course prevents them from doing so) their overhead becomes larger. Thus the prices they charge the customer in the end becomes higher.

What should have remained a staid, sedate business serving the specialized needs of big metals consumers in the US and elsewhere, has been turned upside down by what amounts to a set of elites with no boundaries or national feelings. Even Gilded Age Robber Barons had some sense of propriety, a shared nationalism that moderated the urge to gouge every last penny out of the average person. Even Standard Oil's John D. Rockefeller had limits:

 In spite of the formation of the trust and its perceived immunity from all competition, by the 1880s Standard Oil had passed its peak of power over the world oil market. Rockefeller finally gave up his dream of controlling all the world’s oil refining, he admitted later, “We realized that public sentiment would be against us if we actually refined all the oil.”

What we can expect is far higher prices, for consumers, in almost every product using metals: every can of soda, every bit of consumer goods containing copper (such as blue jeans with copper rivets or a laptop), or zinc, or nickel, will cost more. Eventually, trust-busting such as brought Standard Oil to heel will be needed. But laws themselves will not be enough. The "smart guys" at Goldman-Sachs will always be searching for a new customer to screw, with the end "screwee" being the average American. The same is true of the other I-banks: JP Morgan, in particular, comes to mind. So too the massive firms like Glencore, incorporated outside the US (and trivia time, formed by a buyout of Marc Rich, yes THAT Marc Rich).

The US has always had people trying to say, corner the silver market. These individuals usually came a cropper because there was always the possibility of new supply over the horizon. Mining companies could mine more silver. Politicians could bust up trusts and force supply onto the market. No one individual no matter how wealthy could stand up to the government that had to act at least sometimes to avoid massive pain on the part of voters. But the problem today has gone far beyond individuals into institutions, with the institutions themselves becoming rotten to the core.

The rot is the result of an elite that fundamentally lacks any identification with, or even understanding, of the ordinary people in the nations in which they live and work. The folks at Goldman-Sachs are not only from all over the world, the ones born in the US feel little loyalty to their fellow citizens. In a word, they lack nationalism. A tie that binds the highest of the elite, the King or the Prime Minister or the President, and the lowly private, janitor, and factory worker.

While an excess of nationalism in its worst form can result in folks goose-stepping down the Champs Elysee, that's akin to saying since food can make some people grossly obese, no one should ever, ever eat anything. That strategy is only viable for supermodels (who have apparently the super power of not eating anything, ever, and existing on cocaine and smokes). For everyone else, eating is essential. So too for nations, nationalism is essential. Like everything good in life, all is well as long as no one goes overboard.

The modern globalized world is very very good at putting some of the smartest people, and some of the most privileged and hereditary privileged people, in powerful groups and letting them run amok in screwing over their ordinary peers in nations powerful and weak alike. Blogger Half Sigma has done outstanding work noting the privileged, rich background of most of the New York Times reporters and editors. The same people essentially make up Goldman-Sachs, or Glencore, or JP Morgan's executives. Plus of course elites from India, China, and other places. Their loyalty is to themselves, their own institutions, and their own hereditary interests. Like mini-royal families in Medieval Europe, they lack even the notion of a nation-state, and national interests, and shared ties with fellow countrymen. They deny even the notion of a country, instead seeing peasants, serfs, a few middling tradesmen, all interchangeable with others in other places. The modern, international corporate world is very good at producing people like this.

Indra Nooyi may be CEO of Pepsico, but how much loyalty does she possess towards Pepsi's American workers? To Americans as a whole? Her career encapsulates the modern elites lack of nationalism. Positions at Johnson and Johnson in India, then a textile firm, then consulting with Boston Consulting Group and strategy positions with Motorola and Asea Brown Boveri. Although a naturalized US Citizen, her main appeal as CEO is her extensive ties to India's elite. I am quite sure Nooyi is a fine person, but Pepsico could not find a more qualified CEO? The results of her leadership have not been good, with Pepsi sliding to #3 among US sodas, trailing both Coke and Diet Coke. Nooyi is quoted as saying she took steps to push "healthy foods" like Quaker Oats and Gatorade and such, and not sell "flavored sugar water." Pepsi has been neglected, lacking promotion compared to Coke, and the stuff Nooyi likes (an elite taste) account for only 20% of the US Pepsico revenues.

PC makes you stupid. So does pushing trans-national elites at a company where most revenues come from US sales. An Indian born Hindu understands US consumer tastes? When her entire career has been from one "strategy" posting to another? Nothing selling, well flavored and colored sugar water? That is what Pepsico is. But the pressure and power of the elites is frightening. [Trivia time, in the CW show "Gossip Girl," one of the characters, herself a "rich girl" plans to get an internship under Nooyi.] Reasoned Sceptic notes that the business press has been light on Nooyi despite her failures to match Coca-Cola because she is both Indian and a woman. Muhtar Kent, Coke's CEO, is of course also foreign born (a Turk) but is a Coke lifer, having started selling Coke out of trucks across the US. If I wanted someone to sell flavored colored sugar water, I'd pick Kent over Nooyi. The former seems to understand (having spent most of his life doing it) how to sell that stuff, and the other doesn't. Both are elites of course, having spoken at Davos (one is always an elite if one speaks at Davos).

Any nation can withstand some corruption and greed on the part of its elites. Those flaws are part of human nature, and can at best be only curbed, not eliminated. But in the end, it is not laws (nearly always evaded in one form or another) that curbs the greed, ambition, and power of the elites. It is, or at least has been since the late 1500s and the rise of the nation-state, nationalism that has curbed the worst excesses. By instilling among even the most greedy, ruthless, and powerful of the elites, a sense that there are lines better left uncrossed. That squeezing every spare penny out of the populace was a bad job, and better go across the ocean and squeeze it out of some other poor person from another country. Nationalism, and nationalism alone, promises a small shelter, perhaps poor, but the only one the ordinary person has got, from greed and cruelty and abuse by the elites.

Goldman-Sachs, JP Morgan, and Glencore will always seek advantage. They will always be looking for an edge. As long as there remain limits to what they will do, limits instilled by national feeling and solidarity, then while not perfect, the situation is tolerable for most people, most of the time. Good enough. But without those internal limits, no laws, no regulatory agency, no "perfect administration by perfect people" (not the least because no human being yet born has been perfect) will suffice. Making the urgent task not regulatory reform but the return of ...


Only that promises to restrain the otherwise un-alloyed greed and shadiness of institutions run by elites like Goldman-Sachs.


johnsal said...

Interesting post. It's good to have you back.

The category of person you are describing here is the "non-American U.S. citizen." And, as we proceed further into the globalized post-modern world, there will be more of them.

The real threat, however, to any concept of "U.S. national interest" is an offshoot of the above, that is, the "anti-American U.S. citizen." The shining star of this sub-group is, of course, George Soros. He makes Nooyi look like an annoying house fly.

Apparently, his vision of the perfect polity for the unruly U.S. is eventually to duplicate here the undemocratic rule of unelected super-bureaucrats which is the European Union. I suppose he believes that eventually we'll (even if he's long gone) live under the benighted leadership of the One World Government ruling elite.

You are correct that both are chipping away at the beliefs and values which have held a polyglot nation of immigrants and refugees together for 230 years. However, while one is using a hammer and chisel the other is wielding a jackhammer.

no mo uro said...

"The modern globalized world is very very good at putting some of the smartest people, and some of the most privileged and hereditary privileged people, in powerful groups and letting them run amok in screwing over their ordinary peers in nations powerful and weak alike. Blogger Half Sigma has done outstanding work noting the privileged, rich background of most of the New York Times reporters and editors. The same people essentially make up Goldman-Sachs, or Glencore, or JP Morgan's executives. Plus of course elites from India, China, and other places. Their loyalty is to themselves, their own institutions, and their own hereditary interests. Like mini-royal families in Medieval Europe, they lack even the notion of a nation-state, and national interests, and shared ties with fellow countrymen. They deny even the notion of a country, instead seeing peasants, serfs, a few middling tradesmen, all interchangeable with others in other places. The modern, international corporate world is very good at producing people like this."

Good to have you back, Whiskey.

In order for the above list of villains to do their thing one requires two key elements which you left out in your post. First, the public sector hacks and politicians whose loyalty is to guaranteed income and power gotten by cultivating relationships with certain large industries, and secondly, the NPR-listening wannabes who see the elite not as a cautionary tale but as something towards which they can aspire.

Without these two groups of mercenaries and foot soldiers, the ruling class you describe would be able to do nothing. Yes, nationalism is vital, but remove the worker bees and the throat slitters and human doorstops and the elites lose, as well.

Anonymous said...

OT, but, the geniuses at Netflix just shot themselves in the foot by separating out streaming video from DVDs. Before, I was paying $19.99 a month for 3 DVDs at a time plus unlimited streaming. I really thought this was too much, but I had been lazy about changing my plan. They just sent out a letter which made it very easy for me to drop to 1 DVD per month with no streaming -- price $11.99 per month. I wonder how many others did something similar.

Anonymous said...

Oops, it is now $7.99 per month. I imagine they'll recover their income eventually, as steaming becomes more popular, but in the short term (like next month, LOL!), they're going to take a hit.

Anonymous said...

That's the spirit

Anonymous said...

BARMAN: that's the spitit!

Rollory said...

Absolutely agreed.

Also agree with your comments at Mangan's recently - for some reason my comments to that effect are not showing up there. Nationalism and a certain degree of national self-criticism and mental purification are essential traits for getting western societies back on track.

I do think the Jewish cultural influence has been on balance negative, but it wouldn't have had the effect it did if the national societies weren't already weak enough to swallow it. A healthy society would have rejected it outright. But it seems to be a pattern in world history that dying cultures go through this phase, and the only thing for it is to somehow build a new one from the pieces of the old.

Westie said...

Terrific report! Thanks Whiskey & glad to see you back....Mises had a great piece called "Ode to the Warehouse" by Jeffrey A. Tucker on July 11, 2011.
Warehousing/Distribution & Hedging is an amazingly complex and interesting aspect of Global Transactions and naturally allows mucho hidden $$ flows much like currency derivatives. Yet the irony is that w/o a lot of Oil/Gas the whole Global Commerce schtick fails but the idiot Elite Globalist still think that if only they can control energy via the AGW meme all will be great!
Either I'm too ignorant to understand, the real goal is obscured or the GE plan on the ultimate population reduction by 90%.

Whiskey said...

Johnsal good points. I agree that Soros is the main threat. His whole system won't work -- Europe is falling apart in the worst way, as the North African states themselves collapse and Barbarian invasions from the South appear like the end of the Roman Empire. With the sea a highway.

Anon -- Yes I will also dump Netflix streaming and go with DVD only. The streaming offerings are small anyway, and bandwidth charges here on ATT Universe make it a non-starter anyway. I would like to see the Good Guys on DVD, but Netflix does not have it yet. So'll just Amazon Prime it with per-episode buys. It was a stupid move by Netflix, I can only imagine that Hollywood is holding them up for content on streaming, or they really want to dump DVDs. If the former, Netflix should fund original content, if the latter -- well most consumers just don't have the cheap bandwidth like in Japan to consume streaming video. The US duh is not Japan -- far more spread out, less connectivity.

Anonymous said...

Your job as a future mother is to learn the god's ways and to help your child understand despite the negative reinforcement and conditioning of today's society. Without consciousous parents the child will have no hope, and may even exaserbate their disfavor by becoming corrupted in today's environment.
Your ultimate goal is to fix your relationship wiith the gods and move on. You don't want to be comfortable here, and the changes in Western society in the last 100 years has achieved just that.
1000 years with Jesus is the consolation prize. Don't be deceived into thinking that is the goal.

Much like the other prophets Mohhamed (polygamy/superiority over women/misogyny) and Jesus (forgiveness/savior), the gods use me for temptation as well. In today's modern society they feel people are most weak for popular culture/sensationalism, and the clues date back to WorldWarII and Unit731:TSUSHOGO, the Chinese Holocaust. They used this Situation to bury Japanese atrocities.
It has been discussed that, similar to the Matrix concept, the gods will offer a REAL "Second Coming of Christ", while the "fake" Second Coming will come at the end and follow New Testiment scripture and their xtian positioning. I may be that real Second Coming.
What I teach is the god's true way. It is what is expected of people, and only those who follow this truth will be eligible to ascend into heaven as children in a future life. They offered this event because the masses have just enough time to work on and fix their relationship with the gods and ascend, to move and grow past Planet Earth, before the obligatory xtian "consolation prize" of "1000 years with Jesus on Earth" begins.

The Prince of Darkness, battling the gods over the souls of the Damned.
It is the gods who have created this environment and led people into Damnation with temptation. The god's positioning proves they work to prevent people's understanding.
How often is xtian dogma wrong? Expect it is about the Lucifer issue as well.
The fallen god, fighting for justice for the disfavored, banished to Earth as the fallen angel?
I believe much as the Noah's Flood event, the end of the world will be initiated by revelry among the people. It will be positioned to be sanctioned by the gods and led for "1000 years with Jesus on Earth".
In light of modern developments this can entail many pleasures:::Medicine "cures" aging, the "manufacture" of incredible beauty via cloning as sex slaves, free (synthetic) cocaine, etc.
Somewhere during the 1000 years the party will start to "die off", literally. Only those who maintain chaste, pure lifestyles, resisting these temptations, will survive the 1000 years. Condemned to experience another epoch of planet's history for their ignorant pursuit of xtianity, they will be the candidates used to (re)colonize (the next) Planet Earth, condemned to relive the misery experienced by the peasantry during history due to their failure to ascend into heaven before the Apocalypse.
Never forget:::It is not a house of Jesus.
If this concept of Lucifer is true another role of this individual may be to initiate disfavor and temptation among this new poulation, the proverbial "apple" of this Garden of Eden. A crucial figure in the history of any planet, he begins the process of deterioration and decay that leads civilizations to where Planet Earth remains today.
Which one is it?:
One transitions into the other, allowing the gods to wash their hands of obligation to their Chosen One. My personal "consolation prize".
And since the gods never committed despite tens of billions in mass media, product development and natural disasters/tragedy they will employ the freedom they positioned into the Situation and CHEAT me out of everything.
Fuck their commandments and prophets left stranded to die.