Taking the Gold Out of Goldman Sachs

The main thing about big banks’ commodity trading businesses is not that they’re particularly risky, or use a lot of capital, or create unusual conflicts of interest between the bank and its clients. What makes the commodity business special is that, if you really dedicate yourself to commodity trading, you end up owning a fleet of oil tankers. Or a network of mysterious aluminum warehouses. A big bank that wants to be a serious player in commodities will find itself drawn to trading “physical commodities,” rather than just contenting itself with derivatives, and physical commodities trading requires a certain physical commitment. You can trade stocks or bonds or loans or currencies or interest-rate swaps or exotic equity options or Bitcoins on a computer in your office, but if you are trading metals at some point you are going to want a forklift.

Maybe there is nothing strange about a bank owning a forklift, or a fleet of oil tankers, though there are some historical and legal debates about whether these are non-banking activities that banks should not do. But if you’re a person who is generally suspicious of the pervasive and secretive power of the big investment banks — as a lot of people have been in recent years — then this just feels like a good thing to be suspicious about, a dark emanation of banks’ nefarious power out into the real world. If for instance you think of one particular bank as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” then the fact that that bank runs a “sprawling logistics network that handles the transport and storage of physical commodities” will make you nervous. Lotta places to stick the blood funnel.