Goldman Sachs – praag.org

Brazil and Russia may exit BRICS warns phrasemaker

Brazil and Russia’s membership of the BRICs may expire by the end of this decade if they fail to revive their flagging economies, according to Jim O’Neill, the former Goldman Sachs Group Inc. chief economist who coined the acronym.

Asked if he would still group Brazil, Russia, India and China together as emerging market powerhouses as he did in 2001, O’Neill said in an e-mail “I might be tempted to call it just ’IC’ or if the next three years are the same as the last for Brazil and Russia I might in 2019!!”

The BRIC grouping will be dragged down by a 1.8 percent contraction in Russia and less than 1 percent expansion in Brazil, according to the median estimate of economists surveyed by Bloomberg News. China is seen growing 7 percent and India 5.5 percent.

The BRICs were still booming as recently as 2007 with Russia expanding 8.5 percent and Brazil in excess of 6 percent that year. The bull market in commodities that helped propel growth in those nations has since ended, while Russia has been battered by sanctions linked to the crisis in Ukraine and Brazil has grappled with an unprecedented corruption scandal involving its state-owned oil company.

“It is tough for the BRIC countries to all repeat their remarkable growth rates” of the first decade of this century, said O’Neill, a Bloomberg View columnist and former chairman of Goldman Sachs Asset Management International. (GSGEPPA) “There was a lot of very powerful and fortuitous forces taking place, some of which have now gone.”

The growth slump this year isn’t a new normal though and O’Neill sees expansion in Brazil and Russia partially recovering, helping the BRICs average about 6 percent growth per annum this decade — still more than double the average for the Group of Seven nations.

Their share of global gross domestic product will “rise sharply,” he said.

O’Neill had previously estimated average annual growth of 6.6 percent for the BRICs this decade, a pace it was close to achieving through last year mainly because China exceeded the 7.5 percent annual average growth he estimated for the first three years, he said.

Unlike Brazil and Russia, China is embracing economic change while India, after the election of Narendra Modi as prime minister and benefiting from low oil prices and a young labor pool, may have brighter prospects this decade than last, O’Neill said.

With China and India spurring growth, the BRICs will remain the most dominant and positive force in the world economy “easily,” said O’Neill.

China growing at 7 percent will add about $1 trillion nominally to global output every year, O’Neill said. When measured by purchasing power parity, China’s growth adds twice as much as the U.S.’s, he said. India expanding at 6 percent will add twice as much as the U.K. in those terms, he said.

Source: Bloomberg

Goldman Sachs sued for selling worthless trades to Libya

Goldman Sachs, the Wall Street investment bank, is being sued in London for selling Libya worthless derivatives trades in 2008 that the country’s financial managers did not understand. Libya says it lost approximately $1.2 billion on the deals, while Goldman made $350 million.

At the time, the Libyan Investment Authority (LIA), which invests profits from the country’s oil and gas exports, had assets worth $60 billion under former dictator Muammar Gaddafi. Goldman Sachs convinced LIA to buy long-term call options on six companies: Allianz, a German insurance and investment company; Banco Santander, a Spanish bank; Citbank, a U.S. bank; Électricité de France, a French state utility; ENI, an Italian oil company; and UniCredit, an Italian bank.

What the Libyans did not understand was that if the stocks in these six companies did not rise, their investments would become worthless. Instead the LIA executives were taken in by a trip to Morocco as well as “small gifts, such as aftershaves and chocolates” and an offer of an internship for Mustafa Mohamed Zarti, the brother of the Libyan fund’s deputy executive director, in Dubai and London.

“The unique circumstances allowed Goldman Sachs to take advantage of the LIA’s extremely limited financial and legal experience to deliberately exploit its position of influence and to take advantage in a way that generated colossal losses for the LIA but substantial profits for Goldman Sachs,” said LIA Chairman AbdulMagid Breish in a statement.

For example, LIA paid $200 million to gamble on the value of 22.3 million Citigroup shares. At the time, these shares were worth $5.7 billion and so long as they rose in value by at least $200 million, LIA stood to get its money back and the full value of the shares. But since Citigroup’s shares did not rise by at least $200 million, LIA lost its wager.

The timing of the bets was particularly bad. Since the deals were struck in early 2008, just before the last financial crisis when most share prices tumbled, the Libyans lost their wagers.

“We think the claims are without merit, and will defend them,” Fiona Laffan, a Goldman Sachs spokeswoman in London, told Bloomberg news service.

However, the bank recently claimed that it had retrained its staff to ensure that customers are no longer blind sided by sales pitches for complex products. “For all of our employees, the experience of initiating, approving and executing a transaction for a client at Goldman Sachs is now fundamentally different,” Goldman claimed at its annual meeting last year.

Goldman Sachs is not the first Wall Street bank to be accused of taking advantage of naive foreign investors. Morgan Stanley was sued for selling bundled sub-prime mortgages to China Development Industrial Bank (CDIB) from Taiwan that they knew would fail. Even Standard & Poors (S&P), Wall Street’s top ratings agency, has been accused of helping banks to sell “collateralized debt obligations” that they knew were likely to go sour.

But this is not the first time that Goldman Sachs has been happy to help governments carry out dodgy deals. Back in 2001, Goldman reportedly charged Greece $300 million to engage on “‘blatant balance sheet cosmetics” to help the country join the European Monetary Union.

Members of the union were required to have government debt under 60 percent of gross domestic product and a budget deficit to gross domestic product ratio of under 3 percent. Unfortunately, Greece debt exceeded 100 percent and deficits were at 3.7 percent

Goldman Sachs took advantage of a loophole that allowed countries to enter the EMU if they could demonstrate that they were lowering their debt and their budget deficit. To do this, Goldman Sachs sold Greece a “cross-currency swap” that gave the government cash up front in return for a big payment at the end of the loan period. The beauty of the arrangement was that since such currency swaps were permitted by the European Statistical Agency (Eurostat), the debt and deficit appeared to shrink.

Source: Corpwatch

South African productivity

By Johann Theron

Recent commentary by international (financial) companies such as IHS Global and Goldman Sachs stated as follows respectively;

“South African crime at lowest levels in 15 years” (Wall Street Journal)

“Education/healthcare and public sector productivity remain a challenge” (Two Decades of Freedom Report)

That South Africa is a convenient investor destination is obvious, but that investors are getting nervous to the point where they analyze South Africa free of charge is less obvious. The basic tenet of both reports indicates that SA is a great country to invest in, if they could only address the persistent employment issue where crime may have dropped, but poverty remained. The Goldman Sachs report states quite categorically that “labor productivity” improved while poverty remained – because there are fewer jobs with the same/more output. This means however, that labor productivity actually did not improve. This ambivalence requires further investigation.

The CEO of Productivity SA is Mr. Bongani Coka. He recently promoted the growing of South Africa’s economic competitiveness during the yearly productivity month in October. Seen together with the almost co-incidental establishment of a competitive Economic Freedom Fighter political party (against the reigning ANC political party), one can only wonder at the unusually large newspaper splash accorded to this “economic” issue in Business Times of October 27, 2013 p 19.

It is almost as if the ANC wants to say: Look, we really know about economic competitiveness! However, apart from admitting to the (unfortunate) drop in WEF rankings, Coka continues to correctly define Productivity = output/input where this include labor, capital and materials productivity factors. However, he states as follows; “[These factors] are used in their conversion into outputs as efficiently and effectively as possible, thus improving living standards.” It is clear that his focus is on output (in this case living standards) – and not input optimization. For example; Productivity SA issues awards based on the following performance criteria;

Industry productivity

Productivity awareness

Outcome-based solutions

South Africa’s competitiveness

The result of the above approach appears to emulate the Department of Education’s outcomes-based curriculum, where according to the Global Competitiveness Index of 2013, South Africa’s education is the worst in the world (or there abouts). It follows then that South Africa’s competitiveness must also be worse off. The facts seem to support this.

It is clear that Mr. Coka’s version of productivity, which could have been derived from Mr. Asmal’s education strategy, is incorrect in its western context – thereby negatively affecting the entire country. Over the last 10 years his organization has been issuing awards for shiny productive performance but it was all in vain. The blunder is not that he apparently followed the footsteps of his esteemed partner in freedom of speech. He was simply blinded by those promising shiny outputs instead of focusing on the hard work of input management. To explain as follows:

Mr. Coka admitted not having statistics on the national labor hours worked and thus the efficiency of the work executed in those hours. Is this not the basic input required in a country competing with highly productive BRIC partners?

Mr. Coka admitted not servicing the Government sector at all. The fact that the entire local government sector is inefficient and ineffective (according to Goldman Sachs), seemed to have escaped him and his boss in its entirety. (To be fair – he works with public enterprises such as South African Airways [sic])

Mr. Coka correctly identified capital productivity as an important factor but failed to implement/measure proper physical asset management processes as required by financial statements. This essentially means that the country’s infrastructure is in reverse mode, however, it benefits the politically attractive option to procure billions of rand’s worth of re-capitalization “solutions” – using never-ending financial bonds followed by the associated clever re-distribution of “capital”.

The competitive deduction in the African context however, is that the more South Africa’s infrastructure reverses, the more efficient the redistribution of shiny capital and so it will continue with the planned massive national transport and electricity supply projects, followed by the great Inga dam project in the Democratic Republic of the Congo.

It follows then that the South African version of productivity = bond value/infrastructure value, which means that productivity of capital redistribution is measured instead of labor. The end-game is foreign investors losing money to the South African elite over the long term. This might also help to explain why South African poverty has been on a plateau for the last two decades.

Goldman Sachs profits double on investment gains, lower tax rate

Goldman Sachs Group Inc (GS.N) said quarterly profit doubled, boosted by investment gains and a lower tax rate.

Goldman’s investing and lending segment, which tracks its investments in private equity deals, publicly traded stocks, loans and bonds, produced nearly seven times as much revenue in the second quarter as in the same period last year, much more than analysts expected.

Investors questioned how much revenue growth the bank can generate by investing its own capital under new regulations. The Volcker rule, part of the 2010 Dodd-Frank financial reform law, limits banks’ market wagers with their own money. But the industry has years to comply with the law, and Goldman believes most of its investing and lending activities already do.

Goldman’s effective tax rate dropped to 27 percent from 32 percent in part because the bank is electing to keep more of its international income permanently offshore, and because it earned more money overseas. Chief Financial Officer Harvey Schwartz told analysts on a conference call that the lower tax rate was not likely to be repeated.

“It’s tough to get too excited about these numbers because they’re potentially unsustainable,” said Tom Jalics, senior research analyst at Key Private Bank, whose clients own bank shares.

The results underscore the difficulties Goldman and its rivals face in navigating the post-crisis world. With regulators pressing banks to boost capital levels, many of Goldman’s most profitable businesses are earning less. The bank’s return on equity, a measure of how effectively it wrings profit from shareholders’ money, was just 10.5 percent in the second quarter, a hair above what it would pay for equity funding.

Overall, Goldman’s net income rose to $1.86 billion, or $3.70 per share, in the quarter, from $927 million, or $1.78 per share, a year earlier.

Analysts on average had expected $2.82 per share, according to Thomson Reuters I/B/E/S.

Net revenue rose 30 percent to $8.61 billion.

The biggest contributor to revenue was fixed income, currency and commodities (FICC) trading, which reflects trading with clients. Revenue there rose 12 percent to $2.46 billion.

Goldman’s results echoed similar trends in the investment banking units of JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N), whose fixed-income trading businesses also benefited from improvements in trading and underwriting revenue in the second quarter. – Reuters

Greece hires Goldman Sachs, Rothschild to ‘help economy’

Who better to help Greece escape financial turmoil than Wall Street mafia head Goldman Sachs and the international banking elite family known as the Rothschilds?

According to an official statement as reported by Reuters, Greece’s bank rescue fund has turned to the banking mafia duo in order to sell off two Greek banks (Proton and Hellenic Postbank) that were all but decimated by the economic turmoil in the nation. And who better to help sell these banks and help Greece to get back to a stable economic than Goldman Sachs, who actually was very helpful in helping to wage financial warfare on the Greek people through hiding Greece’s debt.

But that, of course, is just seasoning on top of the ironic yet horrific dish cooked up by this rescue fund in choosing the very origin of the modern banking mafia through turning to the notorious Rothschild family. From funding mega wars to originally making their massive wealth through outright deception following the Battle of Waterloo, electing any Rothschild to act as a Greek adviser is a choice that goes against the interests of the Greek people.

But then again, that is the way of the international banking cartel.

As we saw with the Cyprus incident, the wealthy bankers and connected corporate moguls pulled their voluminous amounts of cash from their accounts within the nation before the government went in and took finances from the savings of the people in order to pay for the country’s mega bailout. Even Cyprus President Nikos Anastasiadis was found to be on the list of individuals who withdrew their finances before the government-backed theft began.

According to Reuters on the partnership between the Greek bank rescue fund and the corrupt banking tag team Goldman and Rothschild in an article that has received virtually zero attention:

“Greece’s bank rescue fund has hired Rothschild and Goldman Sachs as advisers on the sale of lenders Proton and Hellenic Postbank (TT), which are most likely to be bought by bigger Greek banks, officials told Reuters on Friday.”

Back in April 2012 Zero Hedge – to loud jeers by the “pundits” who were convinced there is no chance in hell of it happening – that Goldman’s take over of the world’s central bank triumvirate: the NY Fed (Bill Dudley), the ECB (Mario Draghi) and the Bank of England, would soon be completed with Mark Carney taking over the world’s oldest central bank located on Threadneedle street.

This process has now been concluded and we have photographic evidence. – Anthony Gucciardi/Zero Hedge

Attack on gold continues

The orchestrated attack on bullion in the paper gold market took the spot prices of gold and silver down on Friday and Monday, but actual physical purchases rose during this period. The sales were of paper claims, not of real metal.

The demand for physical possession of bullion rose so strongly that large wholesalers such as www.tulving.com and large retailers such as Gainesville Coins reported sold out items. Also, dealers raised the premiums above the spot price that is charged for coins. From Friday to Monday the premium on Silver Eagles at the large online retailer, Gainesville Coins, rose from $3.75 to $5.99 above the spot price of silver. The percentage increase in premium was larger than the percentage decline in the silver price. Thus, the price of a silver one Troy ounce coin did not drop despite the drop in the spot price. Today (April 16) the price of a silver eagle purchased with a credit card from retailer Gainesville Coins is $30.36. You would never know that the market had fallen out.

Today (Tuesday, April 16) Tulving reported 29% of its bar and coin bullion categories sold out and had almost no silver coin stock. The premium over spot on new gold eagles was $63.95. At large online retailers the premium was $71. Gainesville Coins has no silver Buffalos and lists shipment of orders to commence when coins are available, estimated to be May 10.

What I am reporting are facts, not a theory. We have just had two days of massive sales of paper claims on bullion, but during these days when the price of gold and silver collapsed under short sales, it was difficult to get your hands on the metal itself. On telephone orders you wait in long queues to place an order and are told that delivery awaits availability.

Listening to the media and to academic economists such as Paul Krugman, you would think no one any longer wants gold and silver. But try getting your hands on some.

The physical bullion market, gold especially, is dominated by Asians. Americans are a minor player. Most Americans still believe in the almighty dollar, but few Asians do. The Chinese tomorrow would dump their two trillion of US dollar-denominated assets and purchase gold, except that the action would drive down the dollar and drive up the gold price. So, unlike the orchestrated attack on gold, China plays a slow hand, using the orchestrated attack on gold to acquire the metal at lower prices.

As I understand it, the open interest or future contracts on COMEX greatly exceed the bullion available for delivery. This is a paper market mainly settled in cash, not by taking delivery. If the contracts had to be settled in bullion instead of cash, the COMEX would fail.

One advantage of growing old is that one gains perspective. I remember when gold was $35 an ounce and silver $1 an ounce. If memory serves, until sometimes in the 1960s, a person could still take a paper dollar to a bank and be given a silver dollar. There were $1 dollar and $5 dollar silver certificates (paper money) that circulated along with Federal Reserve currency. At that time banks did not differentiate. A dollar was a dollar. Silver certificates today have collectors’s value, but the Federal Reserve currency does not.

If memory serves, sometimes after 1966 if a person presented a silver certificate to a Federal Reserve Bank, he received one or five ounces or raw silver in return depending on the denomination of the certificate, which looked like a Federal Reserve note except it said Silver Certificate. I have some of these envelopes of little pieces of silver.

When silver was taken out of US coins in the 1960s and copper was taken out of the US penny in the early 1980s, despite my opposition as Assistant Secretary of the US Treasury for Economic Policy, all real constraints on fiat money were removed.

Today we see the Fed protecting its protection of “banks too big to fail” with low interest rates by creating enormous sums of money in order to purchase both Treasury bonds and mortgage backed derivatives.

These Fed purchasers are at the expense of savers and CD and bond purchasers who receive a negative real rate of interest.

Now, to protect its bank rescue policy, the Fed is attempting to drive down the price of bullion, thus depriving Americans of any way of protecting their life savings from the inflation that the Fed’s money printing will ultimately cause.

Save a handful of corrupt banks, screw the American public–that is the Fed’s policy.
Like almost every other American institution, the Fed represents the mega-rich.

Anyone with open eyes can see that it is impossible for the US dollar to maintain its current exchange value and role as world money when its supply is being increased by $1,000 billion per year while the world is ceasing to use the dollar for international payments.

The attack on gold is a desperate attempt to protect the US dollar from the Fed’s policy of quantitative easing. But the attack on bullion has apparently failed. The price was driven down, but the demand for physical possession has hit new highs.

What is it that we really know? What have we learned since the Clinton regime?

We have learned that integrity is rare in the US government, in the justice system, and in the financial sector. Whatever integrity one can find in these arenas wouldn’t amount to one ounce of gold.

Americans live in a rigged system in which propaganda determines the public’s awareness and consciousness. Americans, or most of them, live in the Matrix.

Since the end of WWII, most foreign governments have been in the habit of going along with Washington. Only in the aftermath of Washington’s phony wars based on lies and phony economy based on rigged statistics is the rest of the world beginning to realize that Washington is a destabilizing force.

Chavez, the recently deceased leader of Venezuela made the point most powerfully when he spoke at the UN. Standing at the podium in the General Assembly, he said that “Satan himself stood here yesterday speaking as if he owned the world. You can still smell the sulfur.” He was speaking of George W. Bush, and the entire assembly knew it.

The Russian leader, Putin, speaking of Washington, has declared that we know what comrade wolf is up to.

The Chinese can see the new military bases that stupid Washington is building in the Chinese area of influence.

A country whose currency is being abandoned as the means of international settlement, not only by the BRICS but also by puppet states such as Australia and Japan, has reached the point of absurdity when it tries to eliminate bullion as a refuge against the depreciating dollar.

The Federal Reserve and the US Treasury using their dependent bullion banks, every one of which would be busted if interest rates were not rigged by the Federal Reserve, have used leverage in the paper market to drive down the prices of gold and silver; yet, purchases of physical bullion are outrunning supplies.

What we are witnessing is the failure of a policy of financial corruption.

Integrity is a scarce commodity in the US government. Try to find much of it. Demonstrating a rare example of integrity, Brooksley Born resigned as head of the Federal Commodity Futures Trading Commission, because the Federal Reserve chairman, the US Treasury secretary, and the SEC chairman prevented her from during her statutory duty and regulating over the counter derivatives. The three morons who prevented her from doing her duty caused the financial collapse.

Integrity is almost non-existent in the US justice system.

Integrity is totally non-existent in the US financial system. As Michael Hudson has proven, the financialization of the economy has destroyed the economy.

With dollars, and now with Washington’s demand Japanese yen and European euros being printed in profusion, where can people put their money, at least those who still have some?

Can they put it in bonds when the Federal Reserve is monetizing debt at $1,000 billion annually and real interest rates are negative?

Can they put it in stocks that are pumped up by banks speculating with the Fed’s money while retail sales, labor force participation, and consumer incomes fall?

Safety can only be found in gold and silver, traditional, historical money that cannot be inflated.This is why bullion is under attack by Washington.

Readers ask me what they can do to protect themselves and where can they go to make gold and silver purchases.

I am not a registered financial advisor. I do not provide financial advice.

Every person must make their own decision. All I can do is to provide information, which is not guaranteed to be correct.

There are various simple options in contrast with the more demanding options of the professional trader. A person can accumulate gold and silver coins and keep them in a home safe or bury them on the property. A person can purchase shares of the Central Fund of Canada which convey ownership in a company that owns gold and silver bullion in a vault in Canada. A person can put money under management with companies that have a strong component of gold, such as Golden Returns Capital LLC whose gold depository is in the US.

Or you can decide to go with William S. Kaye (wskaye@pacgrp.com) whose depository is in Hong Kong.

There is GoldMoney, a Channel Islands based depository firm with storage vaults in London, Switzerland and Asia, and there is GoldSwitzerland, a Swiss company with its storage vault in Switzerland.

If you want a reading on whether physical gold is being sold or merely paper shorts, subscribe to John Brimelow brimelowgoldjottings@gmail.com

This list is not exhaustive. Protecting wealth can be harder than acquiring wealth. This is especially true for the middle class. The super rich can lose hundreds of millions of dollars and still be rich.

Gold and silver investments are not my speciality. I am an economist. I am aware that the US media is a propaganda organization, not a purveyor of truth. Currently the US is creating 1,000 billion dollars annually, but the demand for dollars is not growing with the supply.

Therefore, the exchange value of the dollar is at risk. A high and rising dollar price of bullion is an indication that the exchange value of the dollar with regard to other currencies is too high.

To protect the dollar from its money printing practice, the Fed has used naked shorts, its bullion bank dependents, and the presstitute media to drive down the gold price in the paper market, essentially an unreal market not inhabited by purchasers of physical metal. If the dollar’s exchange value takes a visible hit, import prices will rise, and the Fed will lose control over interest rates.

Meanwhile the demand for bullion possession rises.

The latest disinformation being put out is that bullion dealers, faced with the collapse of bullion prices, are afraid of the risk of purchasing bullion to sell to the public. They are going out of business and not replenishing their stocks. Gold and silver bullion is not available, because bullion dealers are afraid to stock the metals.

Little doubt that Americans who believe every fairy tale “their” government tells them will believe this one too. But those who don’t will observe the long lines waiting to purchase physical metal, not paper claims, and continue to load up on bullion. – Paul Craig Roberts

Banks make millions out of breaking metals storage rules

LONDON, Feb 6 (Reuters) – Banks and trading houses have found a way to beat the ravages of economic downturn, storing millions of tonnes of metal with a business model that outsmarts new rules put in place following widespread concern about their practices.

As of April 1 this year, new London Metal Exchange regulations mandate that warehouses which hold over 900,000 tonnes of metal must release a minimum 3,000 tonnes a day, up from 1,500 previously.

On that date, however, investment bank Goldman Sachs and commodity trader Glencore plan to hike rents for storing aluminium at their respective warehouses in Detroit and Vlissingen, Netherlands by around 10 percent, according to an LME announcement in December.

Detroit, and more recently Vlissingen, have long incited anger from clients forced to pay daily rent for metal stuck in queues of around a year, while the warehouses drip feed their stock out at the lowest possible rate.

The new rules were expected to dent queues. But with warehouses able to hike rents in response, it is little wonder players like JP Morgan want to expand their storage hubs in Rotterdam and Chicago.

“From April you will see there will be a lot more (metal) coming out, this is now compulsory. The compensation for that is a very nice one, because the outcharges and the rents are so much higher,” said a warehouse source.

Both Goldman and Glencore declined to comment, or give the latest profit forecast for their warehousing units, though Glencore previously revealed its warehousing unit made a $31 million profit in 2010.

That was in a year when the company had only owned its lucrative LME-listed Vlissingen warehouses for three months, and some industry participants believe warehousing will be a money spinner this year again, despite new LME rules.

“It seems as though the warehousing companies are saying to the LME if you want metal out more quickly you are damaging our business model and we’ll have to take action to compensate for that,” said Natixis analyst Nic Brown.

Chris Evans, LME head of business development said: “When the discussions of the load out rate were underway last year we said that if we increase the rate there is likely to be an increase in costs and this is what we seeing now.”

LME data shows that as of Feb. 2, Detroit warehouses – 80 percent Goldman-owned – held 1.36 million tonnes of aluminium. At a new rent of 45 cents per tonne per day, the warehouses could generate $612,000 a day in rental revenue alone.

An exact figure cannot be calculated because many clients negotiate lower rental rates, but banks remain hungry for more business, with commodities heavywieght Barclays having recently bought a stake in UK-based warehouse Erus Metals.

“Don’t feel sorry for the warehouses, they’re making huge money and will make even more money now rents have gone up. Doubling the load out rate to 3,000 tonnes a day was woefully inadequate,” said an industry source.

CONSUMER LOSS

Such views regularly receive cheer from aluminium consumers, the big losers in warehousing, who find themselves being out-bid by bankers and trading houses when trying to buy metal from producers.

Because the business models of bank-owned warehouses are built on getting in as much metal as they can for as long as possible, they have to pay incentives to attract metal in.

This incentive in turn pushes up the premium a consumer must pay a producer in order for them not to deliver metal to a warehouse. The bizarre market dynamic has prompted some to question the LME’s purported role as a market of last resort.

“It’s a market of first resort and its brought the LME into disrepute,” said the industry source. “What’s the point of having a prompt date when you can’t get the metal out till 2013?”

Premiums for western duty-paid aluminium on the spot market in Rotterdam are at around $165-190 a tonne , almost triple the $40-60 premium for Grade A copper – a metal which unlike aluminium, is in chronic short supply and which should, all things being equal, be drawing in a much higher premium.

All things are not equal, however, not in the aluminium market. Global consumption might be less than production, but global demand from banks and trading houses more than makes up the difference.

“There’s a real supply chain threat to the business, metal is available (it’s) just not accessible,” said Nick Madden, chief procurement officer for Atlanta-based Novelis, the world’s biggest maker of rolled aluminium products.

“The warehouses continue to offer incentives, which we firmly believe props up the premium.”

But the last word from Britain’s Office of Fair Trading was that it will not investigate activities of large dealers in LME warehouses, while the LME for its part holds it cannot intervene in a free marketplace.

At a recent briefing, LME Chief Executive Martin Abbott said: “It’s not our job to change the market, it’s our job to reflect the market and fact that there are queues is an accurate reflection of too much cheap money chasing hard commodities.”