Banking used to be a boring business in America.
It’s an infrastructure business necessary to facilitate commerce. For example, without the infrastructure of a highway, you can’t transport goods from Chicago to New York; similarly without the infrastructure of a bank, the company in New York can’t pay for the goods that were shipped from Chicago.
Because banking is essential infrastructure, the banking system was set up to be profitable but not too profitable.
For the last 80 years, banking was a nice boring business that allowed business to operate in America.
But then everything began to change.
When Reagan came to Washington, he ushered in an unprecedented age of financial deregulation and banking consolidation.
In 1988, there were around 12,500 banks in America with less than $300 million in deposits, and about 900 with more than $300 million in deposits.
By 2012, there were only 4,200 banks with less than $300 million in deposits in America, and over 1,800 banks with more than $300 million.
During the Clinton administration, particularly during the administration’s last two years, there was a huge push to deregulate banks, and take away the rules and policies that had made banking a nice boring part of America’s business infrastructure.
Then came a push to move them away from an infrastructure role of facilitating commerce, to a role of being actual participants in American commerce.
In the waning months of the Clinton presidency, Phil Gramm’s Commodities Futures Modernization Act became law. That act allowed banks for the first time to participate in commodities markets, and to even create for themselves completely unregulated commodities markets that had never before existed.
In November of 1999, just months before the Commodities Futures Modernization Act became law, the Gramm-Leach-Bliley Act became the law of the land.
Gramm-Leach-Bliley essentially gutted the Glass-Steagall Act of 1933, by removing barriers in the banking business that had previously prevented a traditional checking and savings commercial bank from acting as a stock-brokering investments bank and vice versa.
Commercial banks were allowed to merge with investment banks to form the massive “too big to fail” banks that dominate Wall Street today and that have dealt blow after blow to our national economy today.
Banks also began to leverage depositor’s money, using it to play the stocks and commodities markets.
The result of all of this was the crash of 2008.
In an attempt to undo some of the disastrous effects of Gramm-Leach-Bliley and the Commodities Futures Modernization Act, Congress passed and President Obama signed into law the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010.
But while Dodd-Frank was passed to help reform Wall Street and to reign in the power of financial institutions, Congress was taken over by Republicans in 2010 and has since refused to fund many of the parts of Dodd-Frank.
As a result, banksters are still getting away with gambling with your money, and are making themselves mind-boggling rich.
That’s where ethanol comes in.
Back in 2005, the Bush administration, along with Democrats in Congress, passed an energy reform bill that mandated new renewable fuel standards.
Two years later, that law was expanded to include requirements for the amount of biofuel, including ethanol, to be added into gasoline every year through 2022.
The law also created ethanol credits.
Each time an energy company mixes ethanol into gasoline, or imports fuel that already has ethanol mixed into it, that company gets a credit from the U.S. government, which can be sold to other companies that don’t blend ethanol to help them meet the federal requirements.
If an energy company fails to meet its required targets of mixing ethanol with gasoline, they can face fines of up to $32,500 per day, so having access to those ethanol credits is pretty important for oil companies.
When the ethanol credits market was first established, the government didn’t realize that Wall Street would turn it into a profit-making money machine like it had with other commodities markets. The government was wrong.
This year, because the banksters cornered the market, the price of ethanol credits increased 20-fold over a period of just six months.
As The New York Times brilliantly details, according to analysis of regulatory documents and interviews with more than 40 people involved in the ethanol credits market, Wall Street banksters hoarded millions of the credits just as refiners needed to buy more of them to meet energy and biofuel regulations.
Those familiar with Wall Street’s booming ethanol credits market told The New York Times that big bank JPMorgan Chase for example recently offered to sell industry executives hundreds of millions of the credits over the summer.
When asked how JPMorgan had acquired so many of the credits, the bank reportedly said that it had stockpiled the credits.
Obviously, JPMorgan and other banks have denied hoarding ethanol credits, and maintain that they’re doing nothing wrong.
And while that legally may be the case, Wall Street’s new found affection for ethanol is hurting Americans at the pump.
The costs of ethanol credits get added onto the price of a gallon of gas, so as the price of a credit increases, so does what you pay at the pump.
Back in January of this year, an ethanol credit cost just 7 cents. By July, after the banksters got into the act, it cost $1.43 and today costs around 60 cents.
And energy refining companies are being pretty blunt about the added costs to consumers.
The Valero Energy Corporation, which owns gas stations all across America, says that the increased costs of ethanol credits could cost the company nearly $800 million, all of which will be passed right along to the consumer.
It’s pretty clear that Wall Street is exploiting the ethanol credits market just like it did with other commodities markets, from mortgage-backed derivatives to precious metals and even coffee.
As a result, we are all paying massively higher gas prices, with much of what we pay going right back into the already bulging wallets of Wall Street executives.
The solution to stopping this non-sense and to stopping Wall Street from further manipulating the ethanol credits market is clear.
Congress needs to fully fund and implement Dodd-Frank and go a step further, by bringing back the sensible regulations of the Glass-Steagall Act.
It’s time to break up America’s “too big to fail” banks, and to make banking a nice boring mildly-profitable part of the American business infrastructure once again.