"The Vampire Squid Strikes Again"- Matt Taibbi Takes On Blythe Masters And The Banker Commodity Cartel

Tyler Durden's picture

The story of how JPMorgan, Goldman and the rest of the Too Big To Fails and Prosecutes, cornered, monopolized and became a full-blown cartel - with the Fed's explicit blessing - in the physical commodity market is nothing new to regular readers: to those new to this story, we suggest reading of our story from June 2011 (over two and a half years ago),  "Goldman, JP Morgan Have Now Become A Commodity Cartel As They Slowly Recreate De Beers' Diamond Monopoly." That, or Matt Taibbi's latest article written in his usual florid and accessible style, in which he explains how the "Vampire Squid strikes again" courtesy of the "loophole that destroyed the world" to wit: "it would take half a generation – till now, basically – to understand the most explosive part of the bill, which additionally legalized new forms of monopoly, allowing banks to merge with heavy industry. A tiny provision in the bill also permitted commercial banks to delve into any activity that is "complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally." Complementary to a financial activity. What the hell did that mean?... Fifteen years later, in fact, it now looks like Wall Street and its lawyers took the term to be a synonym for ruthless campaigns of world domination."

Some key excerpts:

Today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs own oil tankers, run airports and control huge quantities of coal, natural gas, heating oil, electric power and precious metals. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to metals like zinc, copper, tin, nickel and, most infamously thanks to a recent high-profile scandal, aluminum. And they're doing it not just here but abroad as well: In Denmark, thousands took to the streets in protest in recent weeks, vampire-squid banners in hand, when news came out that Goldman Sachs was about to buy a 19 percent stake in Dong Energy, a national electric provider. The furor inspired mass resignations of ministers from the government's ruling coalition, as the Danish public wondered how an American investment bank could possibly hold so much influence over the state energy grid.


The motive for the Kochs, or anyone else, to hoard a commodity like oil can be almost beautiful in its simplicity. Basically, a bank or a trading company wants to buy commodities cheap in the present and sell them for a premium as futures. This trade, sometimes called "arbitraging the contango," works best if the cost of storing your oil or metals or whatever you're dealing with is negligible – you make more money off the futures trade if you don't have to pay rent while you wait to deliver.


So when financial firms suddenly start buying oil tankers or warehouses, they could be doing so to make bets pay off, as part of a speculative strategy – which is why the banks' sudden acquisitions of metals-storage companies in 2010 is so noteworthy.


These were not minor projects. The firms put high-ranking executives in charge of these operations. Goldman's acquisition of Metro was the project of Isabelle Ealet, the bank's then-global commodities chief. (In a curious coincidence commented upon by several sources for this story, many of Goldman's most senior officials, including CEO Lloyd Blankfein and president Gary Cohn, started their careers in Goldman's commodities division.)

Then there are the political connections:

In 2010, a decade after the Rich pardon, Holder was attorney general, but under Barack Obama, and two Rich-created firms, along with two banks that have been major donors to the Democratic Party, all made moves to buy up metals warehouses. In near simultaneous fashion, Goldman, Chase, Glencore and Trafigura bought companies that control warehouses all over the world for the LME, or London Metals Exchange. The LME is a privately owned exchange for world metals trading. It's the world's primary hub for determining metals prices and also for trading metals-based futures, options, swaps and other instruments.


"If they were just interested in collecting rent for metals storage, they'd have bought all kinds of warehouses," says Manal Mehta, the founder of Sunesis Capital, a hedge fund that has done extensive research on the banks' forays into the commodities markets. "But they seemed to focus on these official LME facilities."


The JPMorgan deal seemed to be in direct violation of an order sent to the bank by the Fed in 2005, which declared the bank was not authorized to "own, operate, or invest in facilities for the extraction, transportation, storage, or distribution of commodities." The way the Fed later explained this to the Senate was that the purchase of Henry Bath was OK because it considered the acquisition of this commodities company kosher within the context of a larger sale that the Fed was cool with – "If the bulk of the acquisition is a permissible activity, they're allowed to include a small amount of impermissible activities."


What's more, according to LME regulations, no warehouse company can also own metal or make trades on the exchange. While they may have been following the letter of the law, they were certainly violating the spirit: Goldman preposterously seems to have engaged in all three activities simultaneously, changing a hat every time it wanted to switch roles. It conducted its metal trades through its commodities subsidiary J. Aron, and then put Metro, its warehouse company, in charge of the storage, and according to industry experts, Goldman most likely owned some metal, though the company has remained vague on the subject.


If you're wondering why the LME would permit a seemingly blatant violation of its own rules, a good place to start would be to look at who owned the LME at the time. Although it eventual­ly sold itself to a Hong Kong company in 2012, in 2010 the LME was owned by a consortium of banks and financial companies. The two largest shareholders? Goldman and JPMorgan Chase.


Humorously, another was Koch Metals (2.32 percent), a commodities concern that's part of the Koch brothers' empire. The Kochs have been caught up in their own commodity-manipulation schemes, including an episode in 2008, in which they rented out huge tankers and sed them to store excess oil offshore essentially as floating warehouses, taking cheap oil out of available supply and thereby helping to drive up energy prices. Additionally, some banks have been accused of similar oil-hoarding schemes.

And then there is of course Blythe, who is now looking for a new job precisely as a result of the cartel story:

Chase's own head of commodities operations, Blythe Masters – an even more famed Wall Street figure, sometimes described as the inventor of the credit default swap – admitted that her company's warehouse interests weren't just a casual thing. "Just being able to trade financial commodities is a serious limitation because financial commodities represent only a tiny fraction of the reality of the real commodity exposure picture," she said in 2010.


Loosely translated, Masters was saying that there was a limited amount of money to be made simply trading commodities in the traditional legal manner. The solution? "We need to be active in the underlying physical commodity markets," she said, "in order to understand and make prices."


We need to make prices. The head of Chase's commodities division actually said this, out loud, and it speaks to both the general unlikelihood of God's existence and the consistently low level of competence of America's regulators that she was not immediately zapped between the eyebrows with a thunderbolt upon doing so. Instead, the government sat by and watched as a curious phenomenon developed at all of these new bank-owned warehouses, in the aluminum markets in particular.

Finally, the big picture:

[T]he potential for wide-scale manipulation and/or new financial disasters is only part of the nightmare that this new merger of banking and industry has created. The other, perhaps even darker problem involves the new existential dangers both to the environment and to the stability of the financial system. Long before Goldman and Chase started buying up metals warehouses, for instance, Morgan Stanley had already bought up a substantial empire of physical businesses – electricity plants in a number of states, a firm that trades in heating oil, jet fuels, fertilizers, asphalt, chemicals, pipelines and a global operator of oil tankers.


How long before one of these fully loaded monster ships capsizes, and Morgan Stanley becomes the next BP, not only killing a gazillion birds and sea mammals off some unlucky country's shores but also taking the financial system down with them, as lawsuits plunge the company into bankruptcy with Lehman-style repercussions? Morgan Stanley's CEO, James Gorman, even admitted how risky his firm's new acquisitions were last year, when he reportedly told staff that a hypothetical oil spill was "a risk we just can't take."


The regulators are almost worse. Remember the 2008 collapse happened when government bodies like the Fed, the Office of the Comptroller of the Currency and the Office of Thrift Supervision – whose entire expertise supposedly revolves around monitoring the safety and soundness of financial companies – somehow missed that half of Wall Street was functionally bankrupt.


Now that many of those financial companies have been bailed out, those same regulators who couldn't or wouldn't smell smoke in a raging fire last time around are suddenly in charge of deciding if companies like Morgan Stanley are taking out enough insurance on their oil tankers, or if banks like Goldman Sachs are properly handling their uranium deposits.


"The Fed isn't the most enthusiastic regulator in the best of times," says Brown. "And now we're asking them to take this on?"

Read the full story here (Rolling Stone link), or alternatively for those curious, here is a presentation highlighting all the key aspects of the aluminum price manipulation story by the big banks.

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quasimodo's picture

Always refreshing to see a little guy telling a big guy to fuck off.

Beam Me Up Scotty's picture

How much of the run up in LP gas was due to winter and how much was due to JP Morgue?  In other words, how much paper did they trade to run the price up?  I bet they bought all kinds of contracts and never used an ounce of the LP they bought.

nope-1004's picture

Nice thumbnail of Blythe, Tyler.


These banks are all 100% insolvent.  To continue to operate, criminality and falsified records are what they've become.

Bernocchio quit knowing full well what's coming.


Beam Me Up Scotty's picture

If our politicians had any brains or balls, they would make banks a place where people keep their money for safekeeping. They shouldn't be allowed to invest in all kinda of shit with someone else's money. If that means banker bonuses go away, so be it.

James_Cole's picture

 "If the bulk of the acquisition is a permissible activity, they're allowed to include a small amount of impermissible activities."

Gotta love it.

(In a curious coincidence commented upon by several sources for this story, many of Goldman's most senior officials, including CEO Lloyd Blankfein and president Gary Cohn, started their careers in Goldman's commodities division.)

Tis' curious indeed!

BaBaBouy's picture

G..G..G.. GOLD Bitchez...

max2205's picture

Where's the next Teddy Roosevelt to bust up the monopolies...airline credit cards cars eggs big box stores banks pet stores burrito shops....I could go on forever

NoDebt's picture

Somebody (or several somebodys) on this board often say "Until the supply lines break" (paraphrasing).

I now know they are right.  I also know that when they do, it will be anything but accidental or unplanned.

Lore's picture

Case in point: short positions pre-911.

When the reckoning comes, it will be epic.

Pegasus Muse's picture

"The Fed isn't the most enthusiastic regulator in the best of times," says Brown. "And now we're asking them to take this on?"

There's a solution to all of this corruption and cronyism.  Hang the bastards.  Or guillotine 'em. 

Arius's picture

that is NOT manipulation.


if the market will decide on the price it will be wild west, everyone with a gun trying to kill each other ... like it???

did not think so.

this way, the big banks provide stability for the companies, the market and the society.

Ignatius J Reilly's picture

My sarcasm meter is broke. That was sarcastic, right? Otherwise I am about to have an aneurism .

Arius's picture

why isnt it the truth?

you believe the market does the price discovery and all that?

GetZeeGold's picture




Crap....did I forget the regulators payment this month?

Wahooo's picture

I think the point of the article is that the trading of commodities is no longer a market. You have to get past the writer's breathless prose to understand that. I don't know why this guy writes like some local weather reporter breaking news, but he does.

NOTaREALmerican's picture

Would Teddy Roosevelt have survived the Tea Party?

Well, he did like to kick brown butt,  so they'd like his manliness.

But, breaking up the trusts of the job creators and risk takers who make this great-n-glorous country great-n-glorious.

No, I think he'd thought of as one of them commy liberals who hates free-enterprise, and the troops.

economics9698's picture

Teddy was a soft money elitist.  His laws protected the rich but were sold as antitrust.  Sometimes 
I teach this but not today. 

Ask yourself did medical insurance cost go up or down after the affordable care act was passed?

Did big bank market share go up or down after Dodd-Frank?

WTF would make you think Teddy and his antitrust shit was different?

Bunders's picture

An F-35 weighs 13,300kg. How much of that is aluminium?

NOTaREALmerican's picture

Re;  If our politicians had any brains

Well, our politicians have allot of brains.    The wouldn't be part of the top 10% if they didn't.

Radical Marijuana's picture

The deeper realities, Beam Me Up Scotty, are that practically the only successful and surviving politicians are banksters' puppets, performing for the masses of muppets, because the banksters have been applying the methods of organized crime to the political processes persistently. Their basic methods of organized crime were bribery, intimidation and assassination of those who could not be bribed or intimidated. After doing that systematically long enough, there are almost no politicians left who are not the banksters' puppets. Almost all of the successful and surviving politicians have already been, metaphorically speaking, lobotomized and castrated.

Beam Me Up Scotty's picture

Oh I get that.  I just wish there were some politicians who didn't give a damn about winning the next election and started telling people the TRUTH.  Instead they just tell people what they want to hear so they can get their vote because nothing is more important to them than winning the next election.  And I know thats all real old news to you and everyone else on ZH.

Radical Marijuana's picture

"I just wish there were some politicians who didn't give a damn about winning the next election and started telling people the TRUTH."

Me too! However, as you know, no politicians that do that have a fair chance against the almost 90% domination of the "news" by a handful of huge corporations. (One only has to look at Ron Paul to see that!)

Basically, every politician who is "practical" compromises so much with the Huge Lies, because that is what works for them. As I am sure you already know, Beam Me Up Scotty, "telling people the Truth" is the least successful political strategy, while telling people the lies that they want to hear is the most successful political strategy.

The way that professional politicians work today is that they discover the lies that people want to hear, and then that is what they say. After all, those politicians are under no obligation to do what they said they would do, but rather, typically do the opposite to whatever they said while campaigning (other than keeping promises which are sufficiently trivial that the Truth about them makes no significant difference.)

Beam Me Up Scotty's picture

So win an election and then start telling the truth.  Quit worrying about winning the next election.  Ron Paul was one of the few who spoke alot to truth, we need alot more of people like him.

Henry Chinaski's picture

I would take more stock in some of the conspiracy theories if they suicided Matt Tabbai rather than banking executives...

jimmytorpedo's picture

I hope Matt doesn't drive a Mercedes or do any home reno's with a nail gun.

RSloane's picture

There's only one thing that needs  to be understood: Obama has praised Dimon several times and referred to him as the "banker's banker". Dimon has been given card blanche to behave in whatever manner he wishes. The same is true for all the large banks. This is fascism at its worst.

alfred b.'s picture


...that's because JPMorgue is the acting US Treasurer!!


Boxed Merlot's picture

Obama has praised Dimon several times and referred to him as the "banker's banker"...



He and his sidekick also referred to the Honorable Jon Corzine as the architect of our stellar recovery too.  Just in time for him to take control of MF and gut it in his spare time.  The taper will end only when thescribes and pharisees have no more equities to consume with their "reserve status" scrip.


End the fed and void all t-bills in their possession.



Arius's picture

what is wrong with Mr. Corzine?

in my opinion he should be in charge of Treasury!  to paraphrase Truman "Corzine would be our son of a bitch"!

this political correctness and pretending to be righteous is what is doing this country.  let the chips fall where they belong and be honest with the people.

in final analysis, it is in the interest of the society at large to have in charge someone who is a crook because he knows the crooks rather than someone who just pretends to be honest. 

The bottom line: that is how this country was built and that is the only way it can survive!

Rafferty's picture

I think Arius is taking the piss.

skipjack's picture

I think Arius is channeling MDB.

rayduh4life's picture

"Corruption"  Any one remembr the "corruption"  scene from the movie Syrianna?  Corruption is what keeps people in too big houses and cars ........

Theosebes Goodfellow's picture

It is important to remember that it is Eric Holder who is chums with all these Wall Street banksters. There will be no prosecutions whilst he's in office. The fact that Masters was blocked from getting into the henhouse is a miracle in itself.

DaveyJones's picture

"complementary to a financial activity"


this clearly does not refer to the type of business the industry can complement

but refers instead to the type of complement the citizen is allowed to give the industry 

Crawdaddy's picture

From her admirers over at the bankster cartel HQ, a new music video dedicated to Blythe Masters


MsCreant's picture

I have been {Rick Rolled} Icejjfished.

Johnny Cocknballs's picture

fuck you very much for making me know that exists.

Johnny Cocknballs's picture

These banks are all 100% insolvent

A key point.  We live in a post moral-hazard world.  These banks are essentially recreating the conditions of 2006/2007 in new and interesting ways, and like the debt ceiling debate, not a thing is done to fix the underlying...

But we'll get to crisis point, and there will be another "prevent tanks on the street moment" and more bailouts and t bill issues and printing.


And when that happens, if the American people don't march by the millions, this country deserves to burn to the fucking ground,

Groundhog Day's picture

wonder when Goldman bankers will start getting whacked

rayduh4life's picture

Beam me up Scotty, remember this one - Walter Luken testifying to congress on 9/11/2008

"There is no evidenc that Speculation played a part in the run up of oil prices"

I'm sure there are plenty of readers here on ZH that have followed oil prices for a long time.  In the lead up to the Iraqi invasion (read foreplay for the masses) it was the Iraqi oil that was supposed to pay for the inconvenience of bombing their country.  Once the conquest began, oil prices actually went down - Supply & Demand as the spigot was about to be opened.  Howver once we got a piece of the action, it's been game on ever since.  YMMV.

Antifaschistische's picture

...but Goliath fell (happy ending)     

...in my book, I'm still waiting for David

TeamDepends's picture

Your wait is over.  We are all David.  We are the ones we have been waiting for.