Goldman Sachs is artificially jacking up the the price of aluminum, thereby receiving soaring profits from its commodities trading. Economists call this kind of activities “the charging of rent", in which an entity generates excess returns by exploiting or creating market distortions. In plain English, it is simply called looting.
The scheme works because Goldman Sachs owns a large chunk of the warehouses that store the commodity and participates in the trade of the futures of aluminum. Goldman Sachs creates major delays and bottlenecks by shipping aluminum from warehouses to warehouses in a merry-go-round fashion, which creates the illusion of aluminum shortage and drives the price up. The price increase will be reflected in the commodity market, where Goldman Sachs is all set up to make the killing move.
In other words, what Goldman Sachs is engaging in is plain old insider trading. Nevertheless, The London Metal Exchange (now a subsidiary of Hong Kong Exchanges and Clearing) rules do allow such practice, making the move “legal" in the eyes of the Exchange’s regulators. In the eyes of consumers, however, Goldman Sachs is worse than highway robbers. Let’s not forget, exchange houses stand to gain with higher prices and trade volume as well. This is a case in point showing that self-regulation simply does not work the way it claims to be.
At this point, we are not sure whether anti-competition regulators will step in to clear the mess. If I have to venture a guess, I would say no. Two other questions also go unanswered: Why am I not surprised that this is not reported in the HK media, at all? How come I fully expected the economics professors of HK would choose not to write anything about the danger of lax regulation and the market fundamentalism?