The NYT has a nice piece on how Goldman Sachs has gotten into the aluminum business in a big way in recent years. The discussion of how it uses its control over inventories to jack up prices is fascinating. There are several interesting take-aways.
First, the piece suggests that the impact on price is limited (7 percent, if their estimates are right), but worth a huge amount given the volumes involved. This is what I had always assumed about the extent to which this sort of speculation can affect the price of products. Speculation might add 20-30 cents to the price of gas, but it can't explain why we are paying $4.00 a gallon rather than $1.50 a gallon.
Second, there is nothing unique to financial firms that allow them to speculate in this way. Yes, Goldman Sachs has lots of money, but so does Alcoa and many other non-financial companies. If a company can corner the market in major commodities then it indicates a failure first and foremost of anti-trust regulation.
Third, this should reinforce the argument for a new Glass-Steagall. The guarantees provided by the FDIC and Fed to commercial banks reflect their unique importance in maintaining the system of payments in the economy. There is no reason that banks should be able to exploit these guarantees to assist themselves in raising the money needed to corner the aluminum market. If Goldman wants to speculate in aluminum then it should not be a bank holding company. That one should be a no-brainer, except for the corruption of the political system.