More Anti-Capitalist Hypocrisy from the Left

Liberals want to force Goldman Sachs out of warehouse business.

Democrats in Congress and their allies at The New York Times are preparing for another assault on Goldman Sachs, this one based on the claim that an aluminum warehouse owned by Goldman is increasing the prices of canned beverages.

A Democratic Senator from Ohio, Sherrod Brown, plans a hearing Tuesday and wants the Federal Reserve to get banks out of the warehouse business. The New York Times previewed the hearing with a 3,600-word article that ran at the top of its Sunday front page and that blamed Goldman for costing American consumers more than $5 billion over three years in higher costs for canned soda, beer, and other products.

The Times followed up with a series of staff Twitter posts telling readers what to think about the news: "Don't miss: damning story on how Goldman Sachs manipulates aluminum market….This story will fuel notion that Goldman is a 'giant vampire squid.'"

There you have left-wing hypocrisy in a nutshell. When a government official like New York mayor Michael Bloomberg tries to reduce the public consumption of sugary beverages with a tax that makes the drinks more expensive, he's a public health hero. But when it's a profit-generating company that stands accused of increasing beverage costs, it's a greedy manipulative Wall Street blood-sucker.

In Goldman's case, it's not even clear that the firm has increased the price of beverages or of other aluminum products. In February 2010, when Goldman announced it was buying the metal warehouse Metro International Trade Services, a metric ton of aluminum cost about $2,053. Last month, it cost about $1,815.

And if Goldman were increasing the cost of aluminum cans, it's not clear that the practices are in any way related to its status as a bank. Some non-bank firm could also buy an aluminum warehouse and try to jack up rent to customers.

The best way to deal with the problem of aluminum can prices — if that is a problem at all — is not for the government to decide who can or can't buy an aluminum warehouse. It's allowing the market to address the issue, either through new entrants — competition — or vertical integration.

Slate's Matthew Yglesias noted the Times article failed to explain why someone else doesn't just open up an aluminum warehouse that moves faster than the one Goldman runs, or charges lower rent. It's not like the warehouse business has such high barriers to entry or is so capital intensive that no one else can compete.

Another possibility is that the aluminum end-users, such as the beverage or aluminum foil companies or Boeing, can own and operate their own warehouses. If they think they can do it cheaper or better than Goldman, nothing is stopping them from trying.

For the Federal Reserve, or Congress, to tell banks they can't be in the warehouse business, though, is a risky proposition. The flip side of it is the regulators telling the bankers that they can only invest in certain government-approved things, such as bonds that are AAA rated by a nationally recognized rating agency, or mortgage debt backed by Fannie Mae or Freddie Mac. And we all know how that ended up.

Sure, if bank deposits are going to be backed by Federal Deposit Insurance or the institutions themselves are going to be subsidized or backstopped by the taxpayers, then there needs to be some oversight of how the banks invest capital. But there what regulators need to be watchful for is bank investments that lose too much money, not investments that make too much money, as the Goldman aluminum warehouse is accused of doing.

The best public policy outcome would be to take a hard look at the subsidies and the taxpayer backstops, so that a bank owning an aluminum warehouse wouldn't be any different from any other company owning one.