“I do believe that big money does organize itself somewhat like feral hogs.  If they detect a weakness or a bad scent, they’ll go after it,” said Richard Fisher, president of the Dallas Federal Reserve, on June 24.  Shortly thereafter, we started finding that our banks were engaged in all kinds of nonbank business—aluminum, electricity, oil, pipelines.  The public thinks banks are prohibited from engaging in ordinary commerce, but that is no longer true.  The public thinks that the banks’ business is to take deposits and make loans, but that is no longer true, either.  The big banks, unbeknownst to the rest of us, have transformed themselves into powerful global commodity and electricity traders.  Moreover, the banks are misbehaving in all those nonbanking businesses they are not supposed to be in.  The Department of Justice told the banks they were Too Big to Jail—that is, immune from criminal prosecution—and what kind of behavior would you expect to follow?  If you guessed “bad,” you’re right: The banks are now engaged in a scheme to place a tax on every transaction in the world.

Goldman Sachs, for example, has added one tenth of a cent to the cost of every can of beer or Coke.  Goldman Sachs describes its business as

production, storage, transporting, marketing and trading of numerous commodities including crude oil, oil products, natural gas, electric power, agricultural products, metals, minerals, including uranium emission credits, coal, freight, liquefied natural gas and related products.

JPMorgan has launched an exchange-traded fund (ETF) backed by physical copper.

Morgan Stanley describes itself as a

leading global commodity trader involved in proprietary and counterparty-driven trading in numerous commodities markets including crude oil and refined products, natural gas and natural gas liquids, coal, electric power, base and precious metals and others.

The firm has a 49-percent stake in a corporation that owns a fleet of 100 double-hull oil tankers.

The complexity created by joining ordinary commerce to banking is daunting.  Indeed, the six largest U.S. bank-holding companies own—if you can believe it—14,420 subsidiaries, only 19 of which are traditional banks.

The banks compete unfairly with ordinary businesses because they get money more cheaply.  The government provides them with a public safety net—they have deposit insurance, access to the Fed’s discount window, and the implied taxpayer guarantee accruing to Too Big to Fail banks.

In August, JPMorgan paid the Federal Energy Regulatory Commission (FERC) $410 million to settle charges that the bank engaged in illegal trading in the Michigan and California electricity markets.  JPMorgan, as part of taking over Bear Stearns in 2008, acquired a string of California power plants built in the 1950’s and 60’s, which used more fuel to generate their power than the power produced.  JPMorgan, according to a FERC staff memorandum leaked to the New York Times, turned these turkeys into profit centers by rigging the market.  The bank engaged in eight separate “schemes calculated to falsely [sic] appear attractive” to state energy authorities.  California and Michigan paid $83 million in “excessive” payments to JPMorgan.  FERC, however, failed to pursue individual liability against Blythe Masters, Morgan’s chief of commodities, although the staff memorandum found that she had made “false and misleading statements under oath.”

FERC similarly collected $487.9 million from Barclays for manipulating electricity markets in the Western United States from November 2006 to December 2008.  FERC concluded the evidence

demonstrates that the international amassing of positions and trading to influence price were not based on normal supply and demand fundamentals, but rather on the intent to effect a scheme to manipulate the physical markets in order to benefit the financial swaps.

Tim Weiner, the “global risk manager of commodities” for MillerCoors, testified to the Senate Banking Committee on July 23 that “U.S. Bank holding companies have effective control of the LME [London Metal Exchange] and they have created a bottleneck which limits the supply of aluminum.”  Indeed, Goldman Sachs owns 29 of 37 warehouse locations at the LME-approved warehouse site in Detroit.  The site houses over 70 percent of the aluminum available in North America.  “When we buy barley,” Mr. Weiner notes, “we receive prompt delivery, the same with corn, natural gas and other commodities.”  It is only with aluminum purchased through the LME that “our property is held for an extraordinary period of time with the penalty of paying additional rent and premiums to the warehouse owners until we get access to the metal we have purchased.”  When supplies rise while demand is flat, prices should fall, but in the aluminum market, because of Goldman Sachs’ corner, prices “have remained inflated relative to the massive oversupply and record production.”  MillerCoors and Coca-Cola can, of course, buy elsewhere, but, according to a New York Times report (July 21), because of industry pricing practices, they still pay the higher price.  The warehouses, according to industry rules, can’t charge rent if the aluminum just sits there, so Goldman, to get around that, sets up an industrial dance each day with a fleet of trucks moving around the aluminum bars: “Two or three times a day, sometimes more, the drivers make the same circuit.  They load in one warehouse.  They unload in another.  And then they do it again.”

Anthony Stuart, a forklift team leader at the Mount Clemens warehouse until 2012, said he and his nephew—who worked at a Metro warehouse about six miles away in Chesterfield Township—occasionally asked drivers to pass messages back and forth between them.

“Sometimes I’d talk to my nephew on the weekend, and we’d joke about it,” Mr. Stuart said.  “I’d ask him ‘Did you get all that metal we sent you?’  And he’d tell me ‘Yep.  Did you get all that stuff we sent you?’”

The artificially inflated cost of aluminum is passed along in the price of cans, cars, airplanes, and so on.  The banks—Goldman Sachs, JPMorgan Chase, and Morgan Stanley—have also manipulated markets in electricity, oil, wheat, cotton, and coffee.

Manipulation aside, what are our banks doing in all these nonbank businesses?  “One of the core principles underlying and shaping the elaborate regime of U.S. banking regulation is the principle of separation of banking and commerce,” writes Prof. Saule T. Omarova of the University of North Carolina Law School.  In 1999, however, Congress enacted the Gramm-Leach-Bliley Act, which repealed the 1933 Glass-Steagall Act and authorized bank-holding companies to engage in “merchant banking” and activities “complementary” to a financial activity as determined by the Federal Reserve.  The financial crisis of 2008 greatly increased the mixing of banking and commerce because of the emergency conversion of Morgan Stanley and Goldman Sachs into bank-holding companies (to give them access to borrowing from the Fed) and JPMorgan’s acquisition of Bear Stearns and parts of the Royal Bank of Scotland.  The regulatory authorities have consistently given the banks whatever they have wanted.  For example, the Office of the Comptroller of the Currency authorized Bank of America to build and own a luxury hotel.  Congress, in the Commodity Futures Modernization Act of 2000, authorized banks to deal in derivatives, allowing banks to engage in what is, for all purposes, the casino business.

The trouble with mixing business and banking, as then Federal Reserve Chairman Paul Volcker said in 1987, is that

Widespread affiliation of commercial firms and banks carry the ultimate risk of concentrating banking resources into a very few hands, with decisions affecting these resources influenced by the commercial ownership links, resulting in inevitable conflicts of interest and impairment of impartial lending judgment.

There is no good reason for our banks to be involved in other businesses.  And there are plenty of reasons why they should not be.  Does anyone think Goldman Sachs deserves to get a tenth of a cent on every can of beer or Coke?