By now, everyone knows that the Financial Services Modernization Act of 1999 – also known as the Gramm-Leach-Bliley Act repealed the famed
Glass-Steagall Act separating bankers and brokers, which had been passed
in 1933 to prevent conflicts of interest within the finance sector that
had led to the Great Depression.
But a tiny provision in the
bill also permitted commercial banks to delve into any activity that is
"complementary to a financial activity and does not pose a substantial
risk to the safety or soundness of depository institutions or the
financial system generally."
Complementary to a financial activity. What the hell did that mean?
"From the perspective of the banks," says Saule Omarova, a law professor
at the University of North Carolina, "pretty much everything is
considered complementary to a financial activity."
Today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs
own oil tankers, run airports and control huge quantities of coal,
natural gas, heating oil, electric power and precious metals, as well as food products, metals like zinc,
copper, tin, nickel and, most infamously thanks to a recent
high-profile scandal, aluminum.
And they're doing it not just here but
abroad as well.
In just the past few years we've seen an explosion of scandals –
from the multitrillion-dollar Libor saga (major international banks
gaming world interest rates), to the more recent
foreign-currency-exchange fiasco (many of the same banks suspected of
rigging prices in the $5.3-trillion-a-day currency markets), to lesser
scandals involving manipulation of interest-rate swaps, and gold and
But those are purely financial schemes. In these new, even scarier
kinds of manipulations, banks that own whole chains of physical business
interests have been caught rigging prices in those industries. For
instance, in just the past two years, fines in excess of $400 million
have been levied against both JPMorgan Chase and Barclays for allegedly
manipulating the delivery of electricity in several states, including
California. In the case of Barclays, which is contesting the fine,
regulators claim prices were manipulated to help the bank win financial
bets it had made on those same energy markets. And last summer, The New York Times described how Goldman
Sachs was caught systematically delaying the delivery of metals out of a
network of warehouses it owned in order to jack up rents and
artificially boost prices.