July 22, 2017

The House Edge: A Shuffle of Aluminum, but to Banks, Pure Gold

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.

The inflated aluminum pricing is just one way that Wall Street is flexing its financial muscle and capitalizing on loosened federal regulations to sway a variety of commodities markets, according to financial records, regulatory documents and interviews with people involved in the activities.

The maneuvering in markets for oil, wheat, cotton, coffee and more have brought billions in profits to investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more every time they fill up a gas tank, flick on a light switch, open a beer or buy a cellphone. In the last year, federal authorities have accused three banks, including JPMorgan, of rigging electricity prices, and last week JPMorgan was trying to reach a settlement that could cost it $500 million.

Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to companies that control operations at major ports like Oakland, Calif., and Seattle.

In the case of aluminum, Goldman bought Metro International Trade Services, one of the country’s biggest storers of the metal. More than a quarter of the supply of aluminum available on the market is kept in the company’s Detroit-area warehouses.

Before Goldman bought Metro International three years ago, warehouse customers used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold — to more than 16 months, according to industry records.

Longer waits might be written off as an aggravation, but they also make aluminum more expensive nearly everywhere in the country because of the arcane formula used to determine the cost of the metal on the spot market. The delays are so acute that Coca-Cola and many other manufacturers avoid buying aluminum stored here. Nonetheless, they still pay the higher price.

Goldman Sachs says it complies with all industry standards, which are set by the London Metal Exchange, and there is no suggestion that these activities violate any laws or regulations. Metro International, which declined to comment for this article, in the past has attributed the delays to logistical problems, including a shortage of trucks and forklift drivers, and the administrative complications of tracking so much metal. But interviews with several current and former Metro employees, as well as someone with direct knowledge of the company’s business plan, suggest the longer waiting times are part of the company’s strategy and help Goldman increase its profits from the warehouses.

Gretchen Morgenson contributed reporting from New York. Alain Delaquérière contributed research from New York.

This article has been revised to reflect the following correction:

Correction: July 20, 2013

A previous version of this article misstated one of the financial institutions that received approval to buy up to 80 percent of the copper available on the market. It is BlackRock, not the Blackstone Group.

Article source: http://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?partner=rss&emc=rss

Economix Blog: Immigration and Social Security

The Social Security Administration says that the immigration bill passed by the Senate would help its coffers, adding $276 billion in revenue over the next 10 years while costing only $33 billion.

Immigration Divide

Weighing the economic claims in the Congressional debate.

But 10 years is a short time when you consider that a vast majority of the new and newly legalized immigrants would be paying into the system during that period and drawing out their Social Security benefits later. That is the problem with attempts to determine the effect of immigration on Social Security in the long haul — every study is going to have some sort of end point, after which people who have paid in are going to start drawing out.

The Social Security Administration’s chief actuary, Stephen C. Goss, says he believes that even 75 years out, there will be a net gain from immigrants, as he wrote in May. That is because their withdrawals will be offset by their children’s contributions.

Such estimates are based on a lot of assumptions, says Paul N. Van de Water, a senior fellow at the Center on Budget and Policy Priorities, like how many children the newcomers are likely to have (higher birth rates among immigrants taper off with time), how many are low-skilled versus high-skilled (low-skilled workers tend to cost the system more, while high-skilled workers pay in more than they get out) and just how many new immigrants are admitted under the bill, all of which are open questions.

“It’s amazing that the actuaries have said it would be positive in the long run,” Mr. Van de Water said. “It’s a lot of moving parts.”

Economists who have studied the issue tend to agree that more immigration is better, but that the effect is small. “There are other better reasons to be for or against more immigration, besides its effect on Social Security,” Mr. Van de Water said.

James P. Smith, an expert on labor markets at the RAND Corporation, added that it was misleading to consider the effect of immigration on Social Security alone. “Immigrants contribute on net to Social Security and health care,” he said. “They’re a drain on state and local budgets, largely because of education. So isolating one program is always a mistake.” (Again, it is hard to estimate the long-term effects even of a drain on education budgets because having more educated workers helps the economy.)

There are also two separate pools to consider — unauthorized immigrants who are here already, about a third of whom pay Social Security taxes, according to government estimates, and the additional immigrants who will arrive through new legal channels. The Center for American Progress, a supporter of immigration reform, says if 70 percent of illegal immigrants are eligible for legal status under the bill, they will contribute $500 billion on net in 36 years — the period that the baby boomers will put a strain on the system.

It does not include the period in which those immigrants themselves begin to draw more heavily on the system. But Adriana Kugler, a former chief economist at the Labor Department and the lead author of that study, said it did not take into account projections that an influx of immigrants would result in higher wages for everyone, nor did it calculate the contributions of offspring. “You could look at a longer horizon, but then the benefit is even greater,” she said.

Republicans have tried to clamp down on the amount that illegal immigrants who paid into the system will be able to withdraw. The Social Security Administration estimates that in 2010 illegal immigrants paid a net contribution of $12 billion, either by working under a fraudulent Social Security number or by using a legitimate Social Security number after overstaying a visa or otherwise losing permission to work. Currently, if such immigrants obtain legal status and can prove their earnings with pay stubs or W-2 forms, they can get credit for those contributions. But the Corker-Hoeven amendment to the Senate bill, which paved the way for passage, would bar them from getting credit for the previous decade’s worth of payments even if they obtain legal status.

“To some extent, it’s a taking by the federal government,” said Marielena Hincapié, the executive director of the National Immigration Law Center. “The people who are going to be most severely impacted by this are going to be low-income immigrants.”

A version of this article appeared in print on 07/03/2013, on page A17 of the NewYork edition with the headline: Calculating the Effect On Social Security.

Article source: http://economix.blogs.nytimes.com/2013/07/02/immigration-and-social-security/?partner=rss&emc=rss