[hristov]

This is pretty awful, but it seems like one of these problems that could and should be solved by the free market.

Somebody should just start a new metals exchange that caters to the needs of its clients rather than trying to squeeze them. There is no reason why America has to do its metals trading in some ancient London exchange.

[gwright]

It wouldn't surprise me to find out that it is next to impossible to create a new metals exchange due to onerous government regulations that effectively keep out new competitors.

I don't completely understand what is going on in the original story but it also wouldn't surprise to find out that it is only via the existance of various regulations that this scheme is viable.

[lawnchair_larry]

Actually Goldman tends to exploit a lack of regulations, and will lobby to get regulations removed in order for them to exploit markets further.

Interestingly, the propaganda used to win public support for these moves is that "big government is bad, and we should let the market decide".

Your opinion of regulations needs to take a 180, in my opinion :)

"The date was November 4, 1999. Senator Byron Dorgan was captured only by the cameras of CSPAN2.

"I want to sound a warning call today about this legislation," he declared, "I think this legislation is just fundamentally terrible."

The legislation was the repeal of the Glass-Steagall Act (alternatively known as Gramm Leach Bliley), which allowed banks to merge with insurance companies and investment houses.

The title of the bill was 'The Financial Modernization Act.' And so if you don't want to modernize, I guess you're considered hopelessly old fashioned."

Ten years later, Dorgan has been vindicated. His warning that banks would become "too big to fail" has proven basically true in the wake of the current financial crisis. He seems eerily prescient for claiming then that Congress would "look back ten years time and say we should not have done this."

http://www.huffingtonpost.com/2009/05/11/glass-steagall-act-...

Even the titles of bills in this country are propaganda. It's frustrating.

People like Christopher Dodd should definitely be in prison. Take a look at his role and support in the article linked above, and then take a look at this:

https://secure.wikimedia.org/wikipedia/en/wiki/Chris_Dodd#Co...

[gwright]

Arguing about 'regulation' with no context or means to evaluate them doesn't get us very far.

Regulations that enhance and encourage fair competition should be supported. Regulations that reduce competition or hinder commerce should not be supported.

There is always concern for negative externalities and this is an area where regulations can have a role.

[Jd]

And it wouldn't surprise me that the same companies that talk about the free market solving its own problems lobby against any change in onerous government regulations.

[andor]

This is pretty awful, but it seems like one of these problems that could and should be solved by the free market.

If prices rise due to increased demand, the free market usually solves it by increasing supply. In this case, Goldman doesn't actually use the aluminium. I guess that suppliers don't ramp up production because Goldman slowly sells the aluminium back to the market. The purpose is probably to influence the price at specific times, and to make it more volatile in general. Which counters the purpose of exchanges and futures contracts.

Somebody should just start a new metals exchange that caters to the needs of its clients rather than trying to squeeze them.

The clients of the exchange are aluminium consumers and suppliers, and they have different needs: while the consumers prefer low prices, suppliers want them high, to get a better margin. If prices were lower at one exchange (good for consumers), two things would happen:

1: Suppliers would sell their products at another exchange for a better price. Lower supply at the cheap exchange means that prices rise.

2: Arbitrageurs would buy at the cheap exchange and sell at other exchanges. Increased demand also leads to rising prices.

There is no reason why America has to do its metals trading in some ancient London exchange.

True, but "America" chose to trade in Olde Europe: aluminium was available at the New York Mercantile Exchange until 2009.