A Shuffle of Aluminum, but to Banks, Pure Gold

In your first sentence you admit you don't know what's going on, then in your second sentence you claim that "it caused exactly the opposite of the desired consequence." The point being, this could be an old rule that's worked well until just recently, as far as you know. It's possible it's done more good than ill.

In any case, it's described as an "industry rule," not a government regulation, as your quote makes clear. It's the result of industry "self-regulation." The article mentions this.

The shuffle of stock is an end-run around that rule, but it's not the cause of the higher prices. The delay-to-raise-prices scam would be easier to run and more profitable if the rule that makes the shuffle necessary didn't exist.

The key question is whether the LME is free to change these rules and/or purchasers are free to use another exchange in response to Goldman's attempt to increase prices. If they are not so free - if, say, the LME's rule here is imposed to be compliant with some CFTC or SEC or equivalent provision - then we are back to where we started.

Conversely, if the participants are free to use another exchange or start a competing one, then this issue is on the level of Zynga spamming Facebook - a dispute between two powerful private parties that will be worked out via LME countermeasures/competition rather than federal regulation.

[1] http://www.reuters.com/article/2011/07/29/us-lme-warehousing...

  Goldman's warehouse business relies on a lucrative 
  opportunity enabled by the LME regulations. Those rules 
  allow warehouses to release only a fraction of their 
  inventories per day, much less than the metal that is 
  regularly taken in for storage.

  The Exchange provides the environment for trading and 
  regulates the operation of the market. It has a statutory 
  requirement to ensure that business on its markets is 
  conducted in an orderly manner, providing proper protection 
  to investors.

  Approved as a recognised investment exchange (RIE) and 
  conforming with UK and other international regulatory 
  requirements, the LME offers, through price and volume 
  transparency and audit trails, a legally safe forum for 
  metals trading. As an RIE, the Exchange comes under the 
  direct jurisdiction of the UK Financial Conduct Authority 
  (FCA).

  Regulation of the market is largely carried out by the LME, 
  while the FCA is responsible for regulating the financial 
  soundness and conduct of LME members' business.

  Beyond this, both the Exchange and its members are subject 
  to regulatory controls and input from various UK bodies and 
  government offices, as well as EU directives. In 
  international trading, rules applied by overseas regulatory 
  bodies such as the US Commodity Futures Trading Commission  
  (CFTC) also have to be taken into account. 

  To ensure the observance of these regulations, the LME has 
  a compliance department under the supervision of the 
  Executive Director of Regulation & Compliance.  

  The Commodity Futures Trading Commission approved new 
  limits on commodities traders. Now analysts want to know 
  what will happen next.

  FORTUNE -- Is the cure for speculation in the energy 
  markets worse than the illness? Futures industry 
  professionals are up in arms over a vote by regulators 
  Tuesday to introduce position limits on hedge funds and 
  other traders, saying it will lead to commodity hoarding 
  and large price spikes in the futures.

  The CFTC decision (the full text is here) places various 
  limits on how much a speculative trader, like a hedge fund 
  or ETF manager, can hold in any of 28 commodity contracts, 
  including energy. The aim is to prevent a run-up like June 
  2008 when oil hit $140 a barrel which ultimately introduced  
  $4 a gallon gasoline at the pumps. The problem is, 
  according to futures analysts, if speculators aren't 
  allowed to buy the futures, they'll buy the physical 
  commodity instead.

  "Eventually you're going to see a shortage, I think it's 
  going to create a disruption in the marketplace. We might 
  get away with it for some time, but if there's a crisis 
  like 2008 you'll see one," Phil Flynn, the energy analyst 
  at PFG Best, a Chicago brokerage, told me this morning (he 
  also lets loose on his morning market commentary). 
 
  Similarly, if less ominously, CME Group (CME) chairman 
  Terry Duffy told CNBC yesterday ahead of the CFTC vote that 
  passage would "encourage manipulation" of the markets.

They did change them, that's where the 3,000 number came from, did you even read this story?

...if the participants are free to use another exchange or start a competing one...

I don't see how that's likely to help. First of all, the metal suppliers have an incentive to use Goldman's warehouses and thus the Goldman-controlled exchange, since Goldman's paying them a kickback. Secondly, if enough metal is going through the LME, that sets the de-facto market price and you'd be daft to sell your Al for less than that, wouldn't you?

http://www.reuters.com/article/2011/07/29/us-lme-warehousing...

Did you even read the article?

There are no problems in locating and moving any specific load of metal within a day. A quarter-billion in profit a year and you think they just can't keep track of some metal? This is just another scheme set up by commodity players designed to skim bits of profit off of massive numbers of activities and to play each move in the game for a nice little benefit.

This is the vertical integration of the commodities market. They are playing a game based around skimming profits out of everyday business activities where there is any surface area that investors and speculators might be playing. In "lubricating" the trading (where they pay kickbacks to maintain their leases), they are just finding a way to make a cut on action they aren't likely directly playing in. Speculators and investors end up sitting on their "chips" so JP is saying, "hey, we'll give you some cash so you are liquid and OK while you wait to get your bigger gains..." Thing is... it's that 1/10th of a cent per can that consumers pay which is fronting the waiting game for the speculator so they can cash in. Once again, we capitalize the schemes that make douche-bags rich.

JP makes money no matter which way aluminum goes, but can net more the higher it goes since their primary partners and customers are traders. The more action in the market, the more need there is to hold chips.

A warehouse makes money by staying full. Their incentive is to hold it as long as they can. They are not commodity suppliers. They are middle-men. They don't need to maintain an inventory in case prices rise and they want to cash in. They need owners to be stuck holding massive amounts that have to sit somewhere or find a bunch of traders who are shuffling paper representing the metal that basically just sits there. The warehouse would profit more without the regulation as they wouldn't have to pay to shuffle it around.

In free market terms, the industrial consumers ARE going directly to sources instead of using the distribution network because the network is playing games and costing them a fortune. The problem is the drag in supply by the warehouse game increases costs overall.

There are people playing games with different commodities and your interests are in protecting the game instead of making efficient markets. Regulations and subsidies are important and effective for managing commodity markets. You are a historically ignorant fool if you think your Libertarian hard-on for anti-regulation and anti-media zeal makes sense here.