Anyone listening to the US Senate hearings on the involvement of banks in physical commodities might have thought Johnny Depp was about to swing into sight in full pirate regalia.
Goldman Sachs became Captain Jack Sparrow, thriving on a treasure trove of riches created by the rental income from the Detroit warehouses operated by its subsidiary Metro International Trade Services.
“The money that Goldman Sachs was making in Detroit, the bounty”, the hearing chairman, Senator Brown, said.
If the hearing at times appeared to edge towards an agenda to hang, draw and quarter the US banks (and with it a pesky foreign exchange), the line of questioning it pursued to get there was often slightly bizarre.
Lawyer Randall Guynn, who represented a knowledgeable voice of reason in the debate, was asked to tell the hearing whether banks were active in physical commodities because it was profitable for them.
Errr, yes, that would be correct.
MillerCoors’ Tim Weiner, who told the hearing that the brewer had been forced to wait 18 months for its metal in Detroit, was asked whether that meant Metro gave the company’s material “secondary status”. Weiner tried to explain the warrant system, but the conclusion of Senator Brown was that Metro obviously did not give MillerCoors’ material a high priority.
Goldman Sachs wasn’t the only “pirate” being made to walk the plank; the London Metal Exchange was also on trial. “They are a self-regulating exchange with no real government-with-teeth oversight,” Brown said.
The LME has a “peculiar” pricing structure with rules that are “arcane, hard to understand”, he added.
That was what many participants felt of the senators’ hearing.
“I’m just a beer guy – that buys critical materials for our business”, MillerCoors’ risk manager Tim Weiner told the Senate hearing, before launching into an analogy that likened his company, and other US consumers, to a voting constituent of the US Senate buying a case of beer in Trenton, Ohio.
“I buy a case of Coors Light, I pay in full, but as I reach for my beer the cashier grabs the case and tells me I need to go around the back and pick it up from the warehouse.
“‘Not a worry,’ says the cashier, ‘just present your receipt and you can get your beer in a timely manner.’ So I go around the back and the warehouse owner tells me that because of warehouse constraints I need to come back in 16 months.
“He then tells me that my beer will be kept safe in storage, but that I will have to pay for storage every day that the beer is in the warehouse.”
“Can you imagine the uproar that would cause, and what that congressional hearing would be like?” he asked.
Those that see the queues and attendant premiums as a consequence of the market, not a cause of it, might extend the analogy and suggest that the Trenton beer drinker could call the brewery and ask it to deliver a case or two – which it surely would.
Arr, lad! It makes Hotline thirsty just thinking about it. Pass me a pint of London Pride!