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Goldman Sachs Is Making Your Beer More Expensive

Photo courtesy Carrie Sloan

Goldman Sachs is making your beer more expensive. Why are they doing it? According to the investment bank, the reason is "economics." According to actual economics, the reason is "profits." The Washington Post explains how it works.

The U.S. produces less aluminum than is used for beer and soda cans and other products. Most of the other aluminum we use is obtained through futures contracts on the London Metal Exchange. Part of the cost of aluminum is based on market price, but the companies that use the metal in their products also have to pay the "premium," which is the cost of getting aluminum to their processing plants. The London Metal Exchange must approve the warehouses where aluminum is shipped to, sets a maximum amount that can be shipped per day and sets the maximum rent that warehouses are allowed to charge the owners of the metal.

Goldman Sachs bought up a number of warehouses near Detroit three years ago and started paying traders more to store aluminum in their warehouses. Goldman then charges the beer and soda companies (and other users of the metal) rent as the metal stays in the warehouses. A surplus of aluminum in the warehouses means the metal stays longer and Goldman can charge more rent. The beer companies then pass on the increased premium to consumers, making end prices rise. Even if companies bypass the warehouses, the market price for aluminum has already been increased by Goldman's manipulation of the market.

The Post concludes:

The bottom line: Banks have lots of money and have leveraged that buying power to control enough of the aluminum market to generate extra revenue, which—the [New York] Times calculates—has cost consumers $5 billion over three years.* So even if prices are lower than they were during economic boom times, they’re still higher than they would be under fairer market conditions. 

The Federal Reserve could end the practice by refusing to renew the exemption that allows banks to own warehouses where such commodities are stored.

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