Writing to the bank’s board of directors, an
executive at Goldman Sachs wrote that the bank’s commodities division would
achieve higher value “if the business was able to grow physical activities,
unconstrained by regulation and integrated with the financial activities.”[1]
According to Sen. Carl Levin, Goldman’s goal here is “to profit in its
financial activities using the information it gains in the physical commodities
business.”[2]
The integration could be achieved in part by using the bank’s access to
nonpublic information from the banking or trading operations to manipulate the
price of a commodity by artificially restricting or adding to supplies through ownership
at the production or storage stages. This structure contains a conflict of
interest. Because resisting the temptation to exploit the conflict would put
the Goldman bankers at odds with the bank’s financial interest, I contend that reliance
by the public on intra-bank firewalls (i.e., policies) separating the commodity
businesses from the bank’s trading operations is too weak to protect the
public, including buyers of the commodity.
The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.
1, Sen. Carl Levin, “Opening
Statement,” Wall Street Bank Involvement in Physical Commodities Hearing, Permanent
Subcommittee on Investigations, U.S. Senate, November 20, 2014 (accessed November
21, 2014)
2. Ibid.
