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Taibbi: The Vampire Squid Strikes Again: The Mega Banks' Most Devious Scam Yet
Banks are no longer just financing heavy industry. They are actually buying it up and inventing bigger, bolder and scarier scams than ever
By Matt Taibbi
February 12, 2014
(special thanks to basserdan)
Call it the loophole that destroyed the world. It's 1999, the tail end of the Clinton years. While the rest of America obsesses over Monica Lewinsky, Columbine and Mark McGwire's biceps, Congress is feverishly crafting what could yet prove to be one of the most transformative laws in the history of our economy – a law that would make possible a broader concentration of financial and industrial power than we've seen in more than a century.
But the crazy thing is, nobody at the time quite knew it. Most observers on the Hill thought the Financial Services Modernization Act of 1999 – also known as the Gramm-Leach-Bliley Act – was just the latest and boldest in a long line of deregulatory handouts to Wall Street that had begun in the Reagan years.
Wall Street had spent much of that era arguing that America's banks needed to become bigger and badder, in order to compete globally with the German and Japanese-style financial giants, which were supposedly about to swallow up all the world's banking business. So through legislative lackeys like red-faced Republican deregulatory enthusiast Phil Gramm, bank lobbyists were pushing a new law designed to wipe out 60-plus years of bedrock financial regulation. The key was repealing – or "modifying," as bill proponents put it – 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. Now, commercial banks would be allowed to merge with investment banks and insurance companies, creating financial megafirms potentially far more powerful than had ever existed in America.
All of this was big enough news in itself. But it would take half a generation – till now, basically – to understand the most explosive part of the bill, which additionally legalized new forms of monopoly, allowing banks to merge with heavy industry. 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."
Fifteen years later, in fact, it now looks like Wall Street and its lawyers took the term to be a synonym for ruthless campaigns of world domination. "Nobody knew the reach it would have into the real economy," says Ohio Sen. Sherrod Brown. Now a leading voice on the Hill against the hidden provisions, Brown actually voted for Gramm-Leach-Bliley as a congressman, along with all but 72 other House members. "I bet even some of the people who were the bill's advocates had no idea."
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. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to 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 Denmark, thousands took to the streets in protest in recent weeks, vampire-squid banners in hand, when news came out that Goldman Sachs was about to buy a 19 percent stake in Dong Energy, a national electric provider. The furor inspired mass resignations of ministers from the government's ruling coalition, as the Danish public wondered how an American investment bank could possibly hold so much influence over the state energy grid.
There are more eclectic interests, too. After 9/11, we found it worrisome when foreigners started to get into the business of running ports, but there's been little controversy as banks have done the same, or even started dabbling in other activities with national-security implications – Goldman Sachs, for instance, is apparently now in the uranium business, a piece of news that attracted few headlines.
But banks aren't just buying stuff, they're buying whole industrial processes. They're buying oil that's still in the ground, the tankers that move it across the sea, the refineries that turn it into fuel, and the pipelines that bring it to your home. Then, just for kicks, they're also betting on the timing and efficiency of these same industrial processes in the financial markets – buying and selling oil stocks on the stock exchange, oil futures on the futures market, swaps on the swaps market, etc.
Allowing one company to control the supply of crucial physical commodities, and also trade in the financial products that might be related to those markets, is an open invitation to commit mass manipulation. It's something akin to letting casino owners who take book on NFL games during the week also coach all the teams on Sundays. (my bolding for emphasis)
The situation has opened a Pandora's box of horrifying new corruption possibilities, but it's been hard for the public to notice, since regulators have struggled to put even the slightest dent in Wall Street's older, more familiar scams. 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 silver prices.
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.
You might not have been surprised that Goldman got caught scamming the world again, but it was certainly news to a lot of people that an investment bank with no industrial expertise, just five years removed from a federal bailout, stores and controls enough of America's aluminum supply to affect world prices.
How was all of this possible? And who signed off on it?
By exploiting loopholes in a dense, decade-and-a-half-old piece of financial legislation, Wall Street has effected a revolutionary change that American citizens never discussed, debated or prepared for, and certainly never explicitly permitted in any meaningful way: the wholesale merger of high finance with heavy industry. This blitzkrieg reorganization of our economy has left millions of Americans facing a smorgasbord of frightfully unexpected new problems. Do we even have a regulatory structure in place to look out for these new forms of manipulation? (Answer: We don't.) And given that the banking sector that came so close to ruining the world economy five years ago has now vastly expanded its footprint, who's in charge of preventing the next crash?
In this Brave New World, nobody knows. Moreover, whatever we've done, it's too late to have a referendum on it. Garrett Wotkyns, an Arizona-based class-action attorney who has spent more than a year investigating the banks' involvement in the metals markets and is suing Goldman and others over the aluminum case on behalf of two major manufacturers, puts it this way: "It's like that line in The Dark Knight Rises," he says. "'The storm isn't coming. The storm is already here.'"
To this day, the provenance of the "complementary activities" loophole that set much of this mess in motion remains something of a mystery. We know from congressional records that a vice chairman of JPMorgan, Michael Patterson, was one of the first to push the idea in House testimony in February 1999 and that, later that year, an early version of the bill put forward in the Senate by Phil Gramm also contained the provision.
But even one of the final bill's eventual authors, Republican congressman Jim Leach, can't remember exactly whose idea adding the "complementary activities" line was. "I know of no legislative history of the provision," he says. "It probably came from the Senate side."
Moreover, Leach was shocked to hear that regulators had pointed to this section of a bill bearing his name as the legal authority allowing banks to gain control over physical-commodities markets. "That's news to me," says the mortified ex-congressman, now a law professor at the University of Iowa. "I assume no one at the time would have thought it would apply to commodities brokering of a nature that has recently been reported."
One thing that is clear in the public record is that nobody was talking, at least publicly, about banks someday owning oil tankers or controlling the supply of industrial metals.
The JPMorgan witness, Michael Patterson, told the House Financial Services Committee at the 1999 hearing that his idea of "complementary activities" was, say, a credit-card company putting out a restaurant guide. "One example is American Express, which publishes magazines," he testified. "Travel + Leisure magazine is complementary to the travel business. Food & Wine promotes dining out?.?.?.?which might lead to greater use of the American Express card."
"That's how insignificant this was supposed to be," says Omarova. "They were talking about being allowed to put out magazines."
Even apart from the "complementary" provision, Gramm quietly added another time bomb to the law, a grandfather clause, which said that any company that became a bank holding company after the passage of Gramm-Leach-Bliley in 1999 could engage in (or control shares of a company engaged in) commodities trading – but only if it was already doing so before a seemingly arbitrary date in September 1997.
This meant that if you were a bank holding company at the time the law was passed and you wanted to get into the commodities business, you were out of luck, because the federal law prohibited banks from being involved in physical commodities or any other forms of heavy industry. But if you were already a commodities dealer in 1997 and then somehow became a bank holding company, you could get into whatever you pleased.
This was nuts. It was a little like passing a law that ordered you to leave the Army if you were gay in November 1999 – but if you were a heterosexual soldier as of September 1997 and then somehow became gay after 1999, you could stay in the Army.
To this day, nobody is exactly clear on what the grandfather clause means. If a company traded in tin before 1997 and then became a bank holding company in 2015, would it have to stick with tin? Or did the fact that it traded tin in 1997 mean the company could buy oil tankers and pipelines in 2020?
In 2012, the Federal Reserve Bank of New York – the most powerful branch of the Fed, the primary regulator of bank holding companies and the final authority on these things – put out a paper saying it had no clue about the exact meaning of the provision. "The legal scope of the exemption," a trio of New York Fed officials wrote in July that year, "is widely seen as ambiguous." Just a few weeks ago, the Fed's director of banking supervision, Michael Gibson, told the Senate, "I'm not a lawyer," and that it's "under review."
It almost didn't matter. For nearly a decade, this obscure provision of Gramm-Leach-Bliley effectively applied to nobody. Then, in the third week of September 2008, while the economy was imploding after the collapses of Lehman and AIG, two of America's biggest investment banks, Goldman Sachs and Morgan Stanley, found themselves in desperate need of emergency financing. So late on a Sunday night, on September 21st, to be exact, the two banks announced they had applied to the Federal Reserve to become bank holding companies, which would give them lifesaving access to emergency cash from the Fed's discount window.
The Fed granted the requests overnight. The move saved the bacon of both firms, and it had one additional benefit: It made Goldman and Morgan Stanley, which both had significant commodity-trading operations prior to 1997, the first and last two companies to qualify for the grandfather exemption of the Gramm-Leach-Bliley Act. "Kind of convenient, isn't it?" says one congressional aide. "It's almost like the law was written specifically for them."
The irony was incredible. After fucking up so badly that the government had to give them federal bank charters and bottomless wells of free cash to save their necks, the feds gave Goldman Sachs and Morgan Stanley hall passes to become cross-species monopolistic powers with almost limitless reach into any sectors of the economy.
And they weren't the only accidental beneficiaries of the crisis. JPMorgan Chase acquired the commodity-trading operations of Bear Stearns in early 2008, after the Fed pledged billions in guarantees to help Chase rescue the doomed investment bank. Within the next two years, Chase also acquired the commodities operations of another failing bank, the newly nationalized Royal Bank of Scotland, which included Henry Bath, a U.K.-based company that owns a large network of warehouses throughout Europe.
As a result, entering 2010, these three companies were newly empowered to go out and start doubling down on investments in physical industry. Through a fortuitous circumstance, the cost of financing for bank holding companies had also dropped like a stone by the end of 2009, as the Fed slashed interest rates almost to zero in a desperate attempt to stimulate the economy out of its post-crash doldrums.
The sudden turning on of this huge faucet of free money seems to have been a factor in an ensuing commodities shopping spree undertaken by all three firms. Morgan Stanley, for instance, claimed to have just $2.5 billion in commodity assets in March 2009. By September 2011, those holdings had nearly quadrupled, to $10.3 billion.
Goldman and Chase – along with Glencore and Trafigura, a pair of giant Swiss-based conglomerates that were offshoots of a firm founded by notorious deceased commodities trader and known market manipulator Marc Rich – all made notably coincidental purchases of metals-warehousing companies in 2010.
The presence of these Marc Rich entities is particularly noteworthy. According to famed Forbes reporter Paul Klebnikov, who was assassinated in 2004 after years of reports on Russian corruption, Rich made a fortune in the early Nineties striking crooked deals with the Soviet bosses who controlled the U.S.S.R.'s supplies of raw materials – in particular commodities like zinc and aluminum. These deals helped create a fledgling class of profiteers among the bosses of the crumbling Soviet empire, a class that would go on years later to help push Russia out of its communist past into its kleptocratic present.
"He'd strike a deal with the local party boss, or the director of a state-owned company," Klebnikov said back in 2001. "He'd say, 'OK, you will sell me the [commodity] at five to 10 percent of the world-market price?.?.?.?and in return, I will deposit some of the profit I make by reselling it 10 times higher on the world market, and put the kickback in a Swiss bank account.'"
Rich made these reported deals while in exile from the United States, which he fled in 1983 after the U.S. government charged him with tax evasion, wire fraud, racketeering and trading with the enemy after being caught trading with rogue states like Iran, among other things. The state filed enough counts to put him away for life, and he remained a fugitive until January 2001, when a little-known Clinton administration Justice Department official named Eric Holder recommended Rich be pardoned. A report by the House Committee on Government Reform later concluded that Holder had not provided a credible explanation for supporting Rich's pardon and that he must have had "other motivations" that he didn't share with Congress. Among other things, the committee speculated that Holder had designs on the attorney general's office in a potential Al Gore administration.
In any case, in 2010, a decade after the Rich pardon, Holder was attorney general, but under Barack Obama, and two Rich-created firms, along with two banks that have been major donors to the Democratic Party, all made moves to buy up metals warehouses. In near simultaneous fashion, Goldman, Chase, Glencore and Trafigura bought companies that control warehouses all over the world for the LME, or London Metals Exchange. The LME is a privately owned exchange for world metals trading. It's the world's primary hub for determining metals prices and also for trading metals-based futures, options, swaps and other instruments.
"If they were just interested in collecting rent for metals storage, they'd have bought all kinds of warehouses," says Manal Mehta, the founder of Sunesis Capital, a hedge fund that has done extensive research on the banks' forays into the commodities markets. "But they seemed to focus on these official LME facilities."
The JPMorgan deal seemed to be in direct violation of an order sent to the bank by the Fed in 2005, which declared the bank was not authorized to "own, operate, or invest in facilities for the extraction, transportation, storage, or distribution of commodities." The way the Fed later explained this to the Senate was that the purchase of Henry Bath was OK because it considered the acquisition of this commodities company kosher within the context of a larger sale that the Fed was cool with – "If the bulk of the acquisition is a permissible activity, they're allowed to include a small amount of impermissible activities."
What's more, according to LME regulations, no warehouse company can also own metal or make trades on the exchange. While they may have been following the letter of the law, they were certainly violating the spirit: Goldman preposterously seems to have engaged in all three activities simultaneously, changing a hat every time it wanted to switch roles. It conducted its metal trades through its commodities subsidiary J. Aron, and then put Metro, its warehouse company, in charge of the storage, and according to industry experts, Goldman most likely owned some metal, though the company has remained vague on the subject.
If you're wondering why the LME would permit a seemingly blatant violation of its own rules, a good place to start would be to look at who owned the LME at the time. Although it eventually sold itself to a Hong Kong company in 2012, in 2010 the LME was owned by a consortium of banks and financial companies. The two largest shareholders? Goldman and JPMorgan Chase.
Humorously, another was Koch Metals (2.32 percent), a commodities concern that's part of the Koch brothers' empire. The Kochs have been caught up in their own commodity-manipulation schemes, including an episode in 2008, in which they rented out huge tankers and used them to store excess oil offshore essentially as floating warehouses, taking cheap oil out of available supply and thereby helping to drive up energy prices. Additionally, some banks have been accused of similar oil-hoarding schemes.
The motive for the Kochs, or anyone else, to hoard a commodity like oil can be almost beautiful in its simplicity. Basically, a bank or a trading company wants to buy commodities cheap in the present and sell them for a premium as futures. This trade, sometimes called "arbitraging the contango," works best if the cost of storing your oil or metals or whatever you're dealing with is negligible – you make more money off the futures trade if you don't have to pay rent while you wait to deliver.
So when financial firms suddenly start buying oil tankers or warehouses, they could be doing so to make bets pay off, as part of a speculative strategy – which is why the banks' sudden acquisitions of metals-storage companies in 2010 is so noteworthy.
These were not minor projects. The firms put high-ranking executives in charge of these operations. Goldman's acquisition of Metro was the project of Isabelle Ealet, the bank's then-global commodities chief. (In a curious coincidence commented upon by several sources for this story, many of Goldman's most senior officials, including CEO Lloyd Blankfein and president Gary Cohn, started their careers in Goldman's commodities division.)
Meanwhile, Chase's own head of commodities operations, Blythe Masters – an even more famed Wall Street figure, sometimes described as the inventor of the credit default swap – admitted that her company's warehouse interests weren't just a casual thing. "Just being able to trade financial commodities is a serious limitation because financial commodities represent only a tiny fraction of the reality of the real commodity exposure picture," she said in 2010.
Loosely translated, Masters was saying that there was a limited amount of money to be made simply trading commodities in the traditional legal manner. The solution? "We need to be active in the underlying physical commodity markets," she said, "in order to understand and make prices."
We need to make prices. The head of Chase's commodities division actually said this, out loud, and it speaks to both the general unlikelihood of God's existence and the consistently low level of competence of America's regulators that she was not immediately zapped between the eyebrows with a thunderbolt upon doing so. Instead, the government sat by and watched as a curious phenomenon developed at all of these new bank-owned warehouses, in the aluminum markets in particular.
As detailed by New York Times reporter David Kocieniewski last July, Goldman had bought into these warehouses and soon began pointlessly shuttling stocks of aluminum from one warehouse to another. It was a "merry-go-round of metal," as one former forklift operator called it, a scheme of delays apparently designed to drive up prices of the metal used to make the stuff we all buy – like beer cans, flashlights and car parts.
When Goldman bought Metro in February 2010, the average delivery time for an aluminum order was six weeks. Under Goldman ownership, Metro's delivery times soon ballooned by a factor of 10, to an average of 16 months, leading in part to the explosive growth of a surcharge called the Midwest premium, which represented not the cost of aluminum itself but the cost of its storage and delivery, a thing easily manipulated when you control the supply. So despite the fact that the overall LME price of aluminum fell during this time, the Midwest premium conspicuously surged in the other direction. In 2008, it represented about three percent of the LME price of aluminum. By 2013, it was a whopping 15 percent of the benchmark (it has since spiked to 25 percent).
"In layman's terms, they were artificially jacking up the shipping and handling costs," says Mehta.
The intentional warehouse delays were just one part of the anti-capitalist game the banks were playing. As an incentive to get metal under their control, they actually paid the industrial producers of aluminum extra cash to store the metal in their warehouses, fees reportedly as much as $230 a metric ton.
Both Goldman and Glencore reportedly offered such incentives, which not only allowed the companies to collect more rent (Goldman was charging a daily rate of 48 cents a metric ton) but also served to discourage industrial producers like Alcoa or the Russian industrial giant Rusal (which has Glencore CEO Ivan Glasenberg on its board of directors) from selling directly to manufacturers.
The result of all this was a bottlenecking of aluminum supplies. A crucial industrial material that was plentiful and even in oversupply was now stuck in the speculative merry-go-round of the bank finance trade.
Every time you bought a can of soda in 2011 and 2012, you paid a little tax thanks to firms like Goldman. Mehta, whose fund has a financial stake in the issue, insists there's an irony here that should infuriate everyone. "Banks used taxpayer-backed subsidies," he says, "to drive up prices for the very same taxpayers that bailed them out in the first place."
Dave Smith, Coca-Cola's strategic procurement manager, told reporters as early as the summer of 2011 that "the situation has been organized to artificially drive up premiums." Nick Madden, the chief procurement officer of Novelis, a leading can-maker, said at roughly the same time that the delays in Detroit were adding $20 to $40 a metric ton to the price of aluminum.
Coca-Cola was the first to file a complaint against Goldman over the warehouse issue, doing so in mid-2011, and many people in and around the industry weren't surprised that it was the world's biggest and most powerful corporate consumer of aluminum that came forward first. Other manufacturers, many believe, kept their mouths shut out of fear the banks would punish them. "It's very likely that commercial companies deliberately avoided an open confrontation with Goldman because it was a Wall Street powerhouse with which they had – or hoped to establish – important credit and financial-advisory relationships," says Omarova. One government official who has investigated the issue for Congress said even some of the country's largest aluminum users have been reluctant to come forward. "When some of these huge transnationals don't want to talk about it, it makes you wonder," the aide noted.
SStill, a few days after the Times published its aluminum-storage exposé in late July 2013, Sen. Brown held hearings to investigate the causes of the alleged manipulation. (One executive, Tim Weiner of MillerCoors, would testify that global aluminum costs for manufacturers had been inflated by $3 billion in just the past year.) After those hearings, and after word leaked out that regulatory agencies had launched investigations, Goldman curtly announced new plans to reduce the delivery times of its aluminum stocks. The bank has consistently maintained that its interest in the warehouse company Metro is not "strategic," that it only bought the firm "as an investment," and will sell it within 10 years. JPMorgan Chase and other banks announced that it might be getting out of the physical commodities business altogether. The LME, meanwhile, had already come up with plans to force its member warehouses to increase their output of aluminum.
A few weeks later, on August 9th, 2013, a company called CME Group – one of the world's leading derivatives dealers – announced that it would henceforth be selling a new kind of aluminum swap futures contract. The new instrument, the firm said, would be "the first Exchange product that enables the aluminum Midwest premium to be managed."
What this signaled was that before that moment, no one in the financial sector wanted to get within a hundred miles of selling price insurance against the Midwest premium, because it was so obviously corrupt. But then the Times let the cat out of the bag, and next thing you knew, now that everyone was watching, a major derivatives purveyor suddenly felt confident enough to sell a hedging insurance against the Midwest premium, given that it was now presumed, once again, to be free from manipulation and subject to market forces.
"That should tell you a lot about how completely people in the business understood that the metals market was broken," says Wotkyns.
One other bizarre footnote to the aluminum scandal: According to the Bank Holding Company Act of 1956, any company that becomes a bank holding company must divest itself of certain commercial holdings it may own within two years. To that two-year grace period, the Fed may add up to three additional years. This was done for both Goldman and Morgan Stanley. The aluminum scandal broke, coincidentally, just a few months before Goldman's five-year grace period was scheduled to end. There was some expectation that the Fed might order the banks to divest some of their commercial holdings.
But there was a catch. "Congress in its infinite wisdom left an ambiguity," says Omarova. Although the Bank Holding Company Act mandated that the companies had to be compliant at the end of the review period, it didn't actually specify what the Fed had to do if they weren't. When Goldman's review period passed, "the Fed took the position that nothing had to happen," says Omarova. "So nothing happened."
The aluminum delays were not just an isolated incident of banks scheming to boost rent revenue. Recently, evidence has surfaced that the same kinds of behavior may be going on across the LME. In order for a parcel of metal to be traded on the LME, it has to be what's called "on warrant." If you are the owner of a metal that you no longer want to be traded, you can "cancel the warrant" – essentially taking it out of the system. It's still in the warehouse, but in a kind of administrative limbo.
When the world LME supply of a metal features high percentages of canceled stock, that typically means someone is moving metals around a lot even after they've been put into storage – perhaps in a Goldman-style "merry-go-round," perhaps for some other reason, but historically it has not been something seen often in functioning, healthy metals markets.
In January 2009, before the American too-big-to-fail banks and the shady Swiss commodities giants bought into all of these warehouses, less than one percent of the total global supply of LME aluminum was "canceled warrant." Today, with world supplies of aluminum about double what they were then, 45.2 percent of the total stock is classified as canceled. In Detroit, where Goldman is supposedly cleaning things up, the percentage is even crazier: 76.9 percent of the aluminum stock has canceled warrants.
You can see hints of the phenomenon in other LME metals. Five years ago, just 1.3 percent of the LME's copper stocks had canceled warrants. Today, 59 percent of it does. In January 2009, just 2.3 percent of zinc stocks were canceled; it's at 32 percent today. Zinc incidentally has something else in common with aluminum – a shipping-and-handling-like premium, called the U.S. zinc premium in the United States, which has skyrocketed in recent years, increasing by 400 percent between the summer of 2012 and the summer of 2013, when the price plateaued just as the aluminum scandal broke.
Then there's nickel. Thirty-seven percent of the global stock is now classified as canceled. Five years ago, 0.5 percent was. One industry insider, who is very familiar with and utilizes the nickel market, says that despite the fact that there is a massive global oversupply of the metal, prices are being artificially propped up as much as 20 to 30 percent.
He blames the banks' speculative weigh stations, saying that nickel producers, despite low global demand, are cheerfully selling their stocks to bank-run warehouses, which are paying above-market prices to put raw materials into the merry-go-round. "They are happy to sell to the banks and to the warehouse supply, while they pray for demand to pick up," the insider said.
This leads to the next potentially disastrous aspect of this story: What happens if the Fed suddenly raises interest rates, and the banks, their access to free money cut off, can no longer afford to sit on piles of metal for 16 months at a time?
"Look at nickel," says Eric Salzman, a financial analyst who has done research on metals manipulation for several law firms. "You could see the price drop 20 to 30 percent in no time. It'd be a classic bursting of a bubble."
But the potential for wide-scale manipulation and/or new financial disasters is only part of the nightmare that this new merger of banking and industry has created. The other, perhaps even darker problem involves the new existential dangers both to the environment and to the stability of the financial system. Long before Goldman and Chase started buying up metals warehouses, for instance, Morgan Stanley had already bought up a substantial empire of physical businesses – electricity plants in a number of states, a firm that trades in heating oil, jet fuels, fertilizers, asphalt, chemicals, pipelines and a global operator of oil tankers.
How long before one of these fully loaded monster ships capsizes, and Morgan Stanley becomes the next BP, not only killing a gazillion birds and sea mammals off some unlucky country's shores but also taking the financial system down with them, as lawsuits plunge the company into bankruptcy with Lehman-style repercussions? Morgan Stanley's CEO, James Gorman, even admitted how risky his firm's new acquisitions were last year, when he reportedly told staff that a hypothetical oil spill was "a risk we just can't take."
The regulators are almost worse. Remember the 2008 collapse happened when government bodies like the Fed, the Office of the Comptroller of the Currency and the Office of Thrift Supervision – whose entire expertise supposedly revolves around monitoring the safety and soundness of financial companies – somehow missed that half of Wall Street was functionally bankrupt.
Now that many of those financial companies have been bailed out, those same regulators who couldn't or wouldn't smell smoke in a raging fire last time around are suddenly in charge of deciding if companies like Morgan Stanley are taking out enough insurance on their oil tankers, or if banks like Goldman Sachs are properly handling their uranium deposits.
"The Fed isn't the most enthusiastic regulator in the best of times," says Brown. "And now we're asking them to take this on?"
Banks in America were never meant to own industries. This principle has been part of our culture practically from the beginning of our history. The original restrictions on banks getting involved with commerce were rooted in the classically American fear of overweening government power – citizens in the early 1800s were concerned about the potential for monopolistic abuses posed by state-sponsored banks.
Later, however, Americans also found themselves forced to beat back a movement of private monopolies, in particular the great railroad and energy cartels built by robber barons of the Rockefeller type who, by the late 1800s, were on the precipice of swallowing markets whole and dictating to the public the prices of everything from products to labor. It took a long period of upheaval and prolonged fights over new laws like the Sherman and Clayton anti-trust acts before those monopolies were reined in.
Banks, however, were never really regulated under those laws. Only the Great Depression and years of brutal legislative trench warfare finally brought them to heel under the same kinds of anti-trust concepts that stopped the robber barons, through acts like Glass-Steagall and the Bank Holding Company Act of 1956. Then, with a few throwaway lines in a 1999 law that nobody ever heard of until now, that whole struggle went up in smoke, and here we are, in Hobbes' jungle, waiting for the next fully legal catastrophe to unfold.
When does the fun part start?
This story is from the February 27th, 2014 issue of Rolling Stone.
http://www.rollingstone.com/politics/news/the-vampire-squid-strikes-again-the-mega-banks-most-devious-scam-yet-20140212
The Smog of Fraud
James Howard Kunstler
February 10, 2014
(special thanks to basserdan)
Team Obama pulled a cute one last week nominating Blythe Masters, JP Morgan’s commodity chief, to an advisory committee of the Commodity Futures Trading Commission (CFTC) which supposedly regulates activities on the paper trades in corn, pork bellies, cocoa, coffee, wheat, corn — oh, and gold, too, by the way, in which JP Morgan has been suspected of massive gold (and silver) market manipulations and other misconduct lately. That would include the 2011 MF Global Fiasco in which nearly a billion dollars from “segregated” customer accounts somehow ended up parked over at JP Morgan as a result of bad derivative bets on tanking Eurozone bonds. MF Global, primarily a commodities trading brokerage, was liquidated in 2011. The CFTC never issued referrals for prosecution to the Department of Justice in the matter and, of course, MF Global’s notorious CEO, Jon Corzine remains at large, enjoying caramel flan lattes in the Hamptons to this day. Such are the Teflon transactions of the Obama years: nothing sticks.
There was such a Twitter storm over Blythe Masters that she withdrew from consideration for the committee before the day was out.
JP Morgan is one of the specially privileged “primary dealer” banks said to be systemically indispensible to world finance. Supposedly, if one of them is allowed to flop, the whole global matrix of global debt obligations — and, hence, global money — would dissolve in a misty cloud of broken promises. They are primary dealers to their shadow partner, the Federal Reserve, and their main job in that relationship is buying treasury bonds, bills, and notes from the US government and then “selling” them to the Fed (earning commissions on the sales, of course). The Fed, in turn, “lends” billions of dollars at zero interest back to the primary dealers who then park the “borrowed” money in accounts at the Fed at a higher interest rate. This is, of course, money for nothing, and even small interest rate differentials add up to tidy profits when the volumes on deposit are so massive.
This “carry trade” was started because the primary dealer banks were functionally insolvent after 2008 and needed to build “reserves” up to some level that would putatively render them sound. But that was a sketchy concept anyway since accounting standards had been officially abandoned in 2009 when the Financial Accounting Standards Board (FASB) declared that banks could report the stuff on their books at any value they felt like. In short, the soundness of the biggest banks in the USA could no longer be determined, period. They were beyond accounting as they were beyond the law. At the same time, the banks began the operations of shifting all the janky debt paper, mostly mortgages and derivative instruments (i.e. made-up shit like “CDOs squared”), value unknown, from their vaults to the a vaults of the Federal Reserve, where it resides to this day, rotting away like so much forgotten ground round in the sub-basement of an abandoned warehouse of a bankrupt burger chain.
All of these nearly incomprehensible shenanigans have been going on because debt all over the world can’t be repaid. The world’s economy, as constructed emergently over the decades, can’t function without repayable debt, which is the essence of “credit” — the fundamental trust implicit in banking. You have “credit” because other persons or parties believe in your ability to repay. After a while, this becomes a mere convention in millions of transactions. What’s happened is that the conventions remain in place but the trust is gone. It’s gone in particular among the parties deemed too big to fail.
Everybody knows this now and everybody is trying desperately to work around it, led by the Federal Reserve. Trust is gone and credit is going and debt is sitting between a rock and a hard place with its grubby hands pressed together, praying that it will be forgiven, forgotten, or overlooked a little while longer. By the way, the reason trust and credit are gone is because oil is no longer cheap and world economies can’t grow anymore. They can’t afford to run the day-to-day operations of a techno-industrial society. They can only pretend to afford it. The stock markets are mere scorecards for players who can only lie and cheat now to keep the game going. Somewhere beyond all the legerdemain and fraud, however, there remains a real world that is not going away. We just don’t know what it will look like when the smog of fraud clears.
http://kunstler.com/clusterfuck-nation/the-smog-of-fraud/
Prepare Now for When the New MyRA Becomes "TheirRA"
By PETER KRAUTH, Resource Specialist,
Money Morning
February 10, 2014
In his recent State of the Union Address, President Obama unveiled something new: a retirement savings account to "help" Americans build a nest egg, coining it the "MyRA."
Something immediately felt wrong about the proposal... but I couldn't put my finger on it.
So I researched the new MyRA and found details to help you understand just how it works.
But I also saw some potential dangers there that you need to prepare for now...
What MyRA Really Means
Like most government programs, getting to their essence can take some sifting. So I've distilled here what I think are the principal components of MyRA.
- Individuals earning up to $129,000 and couples earning up to $191,000 are eligible if their employers offer the account;
The minimum initial contribution is $25, then at least $5 through payroll deductions;
- The maximum contribution is $5,500 per year ($6,500 if over 50 years of age);
- Once the balance reaches $15,000 or has existed 30 years, it must be rolled into a Roth IRA;
- Total contributions to a person's IRAs cannot exceed $5,500 annually;
- Like a Roth IRA, withdrawals will grow and be redeemable tax-free;
- Principal can be redeemed any time, but earnings withdrawn before age 59 ½ are taxable and subject to 10% penalty; and
- Only one investment available: Treasury bonds paying variable interest-rate return
MyRA Is Set to Lose the Inflation Battle
Essentially, the MyRA is like a Roth IRA that your employer opens for you, allowing for low individual contribution requirements.
But if that's what you want, you can already set up your own Roth IRA with a no-fee, no-minimum account requirement at discount brokers like TD Ameritrade or E*Trade. And then your investment options are practically limitless.
In his speech, Obama said that "MyRA guarantees a decent return with no risk of losing what you put in." So let's look at the underlying investment a little more closely.
Your MyRA contributions would go into a variable interest rate bond investment, comparable to the Government Securities Fund in the Thrift Savings Plan (TSP) for federal employees.
That fund's recently been paying 2.5%, which admittedly is way better than the 1% you can get from the highest yielding savings accounts. And that looks OK, until you consider... inflation.
Consumer InflationRight now official U.S. inflation has been 1.5% through the 12 months ended December 2013. If instead we look at a truer inflation rate, like the more realistic one calculated by ShadowStats, the emerging picture is altogether different.
Shadowstats finds inflation running at 5%, rather than the more benign "official" 1.5%. At 5% inflation, MyRA investors will be losing 2.5% annually.
With interest rates near all-time historic lows, odds are rates will go higher, not lower. And as interest rates rise, the MyRA could find it increasingly challenging to offer an attractive return to investors.
You've Just Become the Government's New Lender
It's no secret that the United States is running out of buyers for its bonds.
China, the largest foreign owner, has been reducing its purchases and has repeatedly said it has enough. Nations worldwide engaged in their own quantitative easing are busy buying their own bonds. Now, the Fed itself has begun the tapering process.
As the U.S. debt and deficits continue to balloon, the government is desperate for a new source of funding. Obama's proposed MyRA looks to Americans to buy up its "junk bonds."
In fact, new demand for bonds is so badly needed, it's easy to see how the MyRA could eventually move from voluntary to mandatory.
Account holders would automatically contribute through payroll deductions, funding the government's IOUs. And those won't pay out for decades until retirement.
This sounds a lot like another government scheme from which Americans can't opt out: Social Security.
Eventually, the need to fund a mushrooming debt could lead to compulsory government bond buying in retirement accounts. At first, it might be 10% to 20% of all new contributions, then perhaps 10% to 20% of existing balances. With over $5 trillion in U.S. retirement accounts, it's easy to see how a mandate for 20% (or more) directed into Treasuries will help extend and pretend.
Consider that Japan's debt to GDP ratio is 140%, already way above the 100% level considered problematic. This is possible in large part because so much of the national debt is held by its own citizens rather than foreigners.
So it's not a huge stretch to imagine America heading down the same path.
Eventually, retirement accounts could even be at risk of partial or even outright confiscation as debt levels become increasingly unsustainable. A desperate government will look to take desperate actions.
If you think I'm exaggerating, consider what's happened elsewhere.
In just the last five years, there have been government confiscations of retirement assets in no fewer than six countries, including Argentina and Poland, as I alluded to in a November article.
In that piece, I said:
Back in January 2010, Bloomberg BusinessWeek reported, "The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged."
Then in February this year, the Washington Times reported: "Consumer Financial Protection Bureau director Richard Cordray recently mentioned these [401(k)] accounts in a recent interview, stating 'That's one of the things we've been exploring and are interested in, in terms of whether and what authority we have.'"
As follow-up, I mentioned that the International Monetary Fund (IMF) was considering the potential of a "'capital levy' - a one-off tax on private wealth - as an exceptional measure to restore debt sustainability."
And if you think this could never happen in the good ol' U.S. of A., consider that back in 1933, President Roosevelt seized privately held gold by signing into law Executive Order 6102.
FDR's official motive was to "provide relief in the existing national emergency in banking, and for other purposes." Desperate times, desperate measures.
The Best Way to Keep Your Retirement Yours
What can you possibly do to protect yourself? Here's where thinking "outside the box" is vital.
The alternatives are simple, but they do require some effort and planning.
There are updates to some key points I've alluded to in the past: there are three basic things to do, and they apply equally to both good and bad times.
- Own and invest in hard assets like gold, silver, energy, and real estate. You can buy physical precious metals; you can buy physically backed ETFs; you can own quality resource equities, including your own home; and you can own income-producing properties and land. Assets in non-retirement accounts are more difficult to expropriate.
- Hold plenty of cash. Cash is king, despite the risks of inflation. Hold it as a bank balance, but watch FDIC deposit insurance limits, and consider diversifying into other currencies. Be sure, however, to hold some physical cash as well, as this could be crucial during a "bank holiday."
- Hold assets internationally. This is largely the same as in owning hard assets, as above, but in another country. Consider opening a foreign bank account. It's not easy for Americans - thanks to FATCA - but holding something outside your country of residence makes it tougher for a desperate government to grab.
Remember, as government debt grows to even more unmanageable levels, and interest rates cause most government income to service the debt, they will become increasingly desperate.
Sidestep the trap.
Don't let your MyRA become Uncle Sam's.
http://moneymorning.com/2014/02/10/prepare-now-new-myra-becomes-theirra/
Our Two Most Onerous Taxes: College Tuition and Healthcare Insurance
By Global Research News
Global Research, February 04, 2014
Max Keiser Report
by Charles Hugh Smith
It is not coincidence that these two unofficial taxes–healthcare and college tuition–are soaring in cost, outpacing all other household expenses.
I have long argued that to make an apples-to-apples comparison of real tax rates in the U.S. and other equivalently developed advanced democracies, we have to include two enormous expenses that are funded by the central state in countries such as Denmark and France: healthcare and college tuition/fees.
In The Real-World Middle Class Tax Rate: 75% (July 5, 2012), I estimated that healthcare insurance (if paid out of gross income, as we self-employed workers do) in the U.S. is roughly equivalent to a 15% tax.
Now that the Orwellian-named Affordable Care Act (ACA) is raising costs and deductibles, the true cost of healthcare (a.k.a. sickcare, because being chronically sick is so darned profitable for the cartels) is more like 20% in America.
Correspondent Tim L. (whose daughter is attending a prestigious STEM–science, technology, engineering, math–university) recently called $40-$50,000 per year college tuition what it really is: a tax:
College tuition is just another tax. If you can afford to pay it, you have to. If you cannot, you do not. Anytime you have to pay more for something because you can, you are paying a tax. Between traditional taxes, the college tuition tax, and the health insurance tax (also paid only by those who can afford to), I figure this year and the next three I’m in a 100+% tax bracket.
Middle-class Scandinavians famously pay around 65% to 75% of their gross incomes in taxes, but these taxes fund national healthcare for all and nearly free college tuition and fees. Add $200,000 (four years of tuition/fees at $50,000/year) in tax to the already-high U.S. real tax rate, and the real tax rate for middle-class households exceeds 100% of gross income.
Since only those with significant savings can possibly afford to pay a $200,000 tuition tax, the average-income household is left with one choice: the debt-serfdom of student loans. This is the acme of a morally bankrupt system of higher education: you need a college degree to have any hope of succeeding in America, but the only way to get that degree is to enter debt servitude, with no guarantees of future income needed to pay off the debt.
It is not coincidence that these two unofficial taxes–healthcare and college tuition–are soaring in cost, outpacing all other household expenses. The only other household item that is skyrocketing is debt:
The two unofficial taxes–paid by debt, either student loans, or Federal deficits– have no restraints: if you can’t pay, then the upper-middle class taxpayers who are paying most of the Federal tax will, one way or another:
Meanwhile, guess what’s been flat to down for the past 40 years–yup, the earned income of the bottom 90%:
With an unofficial tax rate for healthcare and college tuition that makes Scandinavian countries look like low-tax havens, no wonder the middle class in America is vanishing like mist in Death Valley. The political class is now bleating about the erosion of the middle class and rising wealth inequality. There are two primary sources of rising inequality in America: the Federal Reserve and the higher-education and healthcare cartels that so generously fund the campaigns of the bleating politicos.
Copyright Charles Hugh Smith, Max Keiser Report, 2014
http://www.maxkeiser.com/2014/02/our-two-most-onerous-taxes-college-tuition-and-healthcare-insurance/#e6C2w6vYbZ5CFeRA.99
Goldman Sachs Sued for Selling Libya Billions in “Worthless” Options
By Richard Smallteacher
Global Research, February 05, 2014
Goldman Sachs, the Wall Street investment bank, is being sued in London for selling Libya “worthless” derivatives trades in 2008 that the country’s financial managers did not understand. Libya says it lost approximately $1.2 billion on the deals, while Goldman made $350 million.
At the time, the Libyan Investment Authority (LIA), which invests profits from the country’s oil and gas exports, had assets worth $60 billion under former dictator Muammar Gaddafi.Goldman Sachs convinced LIA to buy long-term call options on six companies: Allianz, a German insurance and investment company; Banco Santander, a Spanish bank; Citbank, a U.S. bank; Électricité de France, a French state utility; ENI, an Italian oil company; and UniCredit, an Italian bank.
What the Libyans did not understand was that if the stocks in these six companies did not rise, their investments would become worthless. Instead the LIA executives weretaken in by a trip to Morocco as well as “small gifts, such as aftershaves and chocolates” and an offer of an internship for Mustafa Mohamed Zarti, the brother of the Libyan fund’s deputy executive director, in Dubai and London.
“The unique circumstances allowed Goldman Sachs to take advantage of the LIA’s extremely limited financial and legal experience to deliberately exploit its position of influence and to take advantage in a way that generated colossal losses for the LIA but substantial profits for Goldman Sachs,” said LIA Chairman AbdulMagid Breish in a statement.
For example, LIA paid $200 million to gamble on the value of 22.3 million Citigroupshares. At the time, these shares were worth $5.7 billion and so long as they rose in value by at least $200 million, LIA stood to get its money back and the full value of the shares. But since Citigroup’s shares did not rise by at least $200 million, LIA lost its wager.
The timing of the bets was particularly bad. Since the deals were struck in early 2008, just before the last financial crisis when most share prices tumbled, the Libyans lost their wagers.
“We think the claims are without merit, and will defend them,” Fiona Laffan, a Goldman Sachs spokeswoman in London, told Bloomberg news service.
However, the bank recently claimed that it had retrained its staff to ensure that customers are no longer blind sided by sales pitches[color=red][/color] for complex products. “For all of our employees, the experience of initiating, approving and executing a transaction for a client at Goldman Sachs is now fundamentally different,” Goldman claimed at its annual meeting last year.
Goldman Sachs is not the first Wall Street bank to be accused of taking advantage of naive foreign investors. Morgan Stanley was sued for selling bundled sub-prime mortgages to China Development Industrial Bank (CDIB) from Taiwan that they knew would fail. Even Standard & Poors (S&P), Wall Street’s top ratings agency, has been accused of helping banks to sell “collateralized debt obligations” that they knew were likely to go sour.
But this is not the first time that Goldman Sachs has been happy to help governments carry out dodgy deals. Back in 2001, Goldman reportedly charged Greece $300 million to engage on “‘blatant balance sheet cosmetics” to help the country join the European Monetary Union.
Photo (right) Andy Stern of SEIU International addresses protestors at a rally outside Goldman Sachs office. Credit: SEIU International. Used under Creative Commons license.
Members of the union were required to have government debt under 60 percent of gross domestic product and a budget deficit to gross domestic product ratio of under 3 percent. Unfortunately, Greece debt exceeded 100 percent and deficits were at 3.7 percent
Goldman Sachs took advantage of a loophole that allowed countries to enter the EMU if they could demonstrate that they were lowering their debt and their budget deficit. To do this, Goldman Sachs sold Greece a “cross-currency swap” that gave the government cash up front in return for a big payment at the end of the loan period. The beauty of the arrangement was that since such currency swaps were permitted by the European Statistical Agency (Eurostat), the debt and deficit appeared to shrink.
http://www.globalresearch.ca/goldman-sachs-sued-for-selling-libya-billions-in-worthless-options/5367509
Why is the Fed tapering?
January 30, 2014
Paul Craig Roberts and Dave Kranzler
(special thanks to the cork)
On January 17, 2014, we explained “The Hows and Whys of Gold Price Manipulation.” http://www.paulcraigroberts.org/2014/01/17/hows-whys-gold-price-manipulation/
In former times, the rise in the gold price was held down by central banks selling gold or leasing gold to bullion dealers who sold the gold. The supply added in this way to the market absorbed some of the demand, thus holding down the rise in the gold price.
As the supply of physical gold on hand diminished, increasingly recourse was taken to selling gold short in the paper futures market. We illustrated a recent episode in our article. Below we illustrate the uncovered short-selling that took the gold price down today (January 30, 2014).
When the Comex trading floor opened January 30 at 8:20AM NY time, the price of gold inexplicably plunged $17 over the next 30 minutes. The price plunge was triggered when sell orders flooded the Comex trading floor. Over the course of the previous 23 hours of trading, an average of 202 gold contracts per minute had traded. But starting at the 8:20AM Comex, there were four 1-minute windows of trading here’s what happened:
8:21AM: 1766 contracts sold
8:22AM: 5172 contracts sold
8:31AM: 3242 contracts sold
8:47AM: 3515 contracts sold
Over those four minutes of trading, an average of 3,424 contracts per minute traded, or 17 times the average per minute volume of the previous 23 hours, including yesterday’s Comex trading session.
The yellow arrow indicates when the Comex floor opened for gold futures trading. There was not any news events or related market events that would have triggered a sell-off like this in gold. If an entity holding many contracts wanted to sell down its position, it would accomplish this by slowly feeding its position to the market over the course of the entire trading day in order to avoid disturbing the price or “telegraphing” its intent to sell to the market.
Instead, today’s selling was designed to flood the Comex trading floor with a high volume of sell orders in rapid succession in order to drive the price of gold as low as possible before buyers stepped in.
The reason for this is two-fold: Driving down the price of gold assists the Fed in its efforts to support the dollar, and the Comex is running out of physical gold available to be delivered to those who decide to take delivery of gold instead of cash settlement.
The February gold contract is subject to delivery starting on January 31st. As of January 29th, 2 days before the delivery period starts, there were 2,223,000 ounces of gold futures open against 375,000 ounces of gold available to be delivered. The primary banks who trade Comex gold (JP Morgan, HSBC, Bank Nova Scotia) are the primary entities who are short those Comex contracts. Typically toward the end of a delivery month, these banks drive the price of gold lower for the purpose of coercing holders of the contracts to sell. This avoids the problem of having a shortage of gold available to deliver to the entities who decide to take delivery. With an enormous amount of physical gold moving from the western bank vaults to the large Asian buyers of gold, the Comex ultimately does not have enough gold to honor delivery obligations should the day arrive when a fifth or a fourth of the contracts are presented for delivery. Prior to a delivery period or due date on the contracts, manipulation is used to drive the Comex price of gold as low as possible in order to induce enough selling to avoid a possible default on gold delivery.
Following the taper announcement on January 29, the gold price rose $14 to $1270, and the Dow Jones Index dropped 100 points, closing down 74 points from its trading level at the time the tapering was announced. These reactions might have surprised the Fed, leading to the stock market support and gold price suppression on January 30.
Manipulation of the gold price is a foregone conclusion. The question is: why is the Fed tapering? The official reason is that the recovery is now strong enough not to need the stimulus. There are two problems with the official explanation. One is that the purpose of QE has always been to support the prices of the debt-related derivatives on the balance sheets of the banks too big to fail. The other is that the Fed has enough economists and statisticians to know that the recovery is a statistical artifact of deflating GDP with an understated measure of inflation. No other indicator–employment, labor force participation, real median family income, real retail sales, or new construction–indicates economic recovery. Moreover, if in fact the economy has been in recovery since June 2009, after 4.5 years of recovery it is time for a new recession.
One possible explanation for the tapering is that the Fed has created enough new dollars with which to purchase the worst part of the banks’ balance sheet problems and transfer them to the Fed’s balance sheet, while in other ways enhancing the banks’ profits. With the job done, the Fed can slowly back off.
The problem with this explanation is that the liquidity that the Fed has created found its way into the stock and bond markets and into emerging economies. Curtailing the flow of liquidity crashes the markets, bringing on a new financial crisis.
We offer two explanations for the tapering. One is technical, and one is strategic.
First the technical explanation. The Fed’s bond purchases and the banks’ interest rate swap derivatives have made a dent in the supply of Treasuries. With income tax payments starting to flow in, fewer Treasuries are being issued to put pressure on interest rates. This permits the Fed to make a show of doing the right thing and reduce bond purchases. As a weakening economy becomes apparent as the year progresses, calls for the Fed to support the economy will permit the Fed to broaden the array of instruments that it purchases.
A strategic explanation for tapering is that the growth of US debt and money creation is causing the world to turn a jaundiced eye toward the US dollar and toward its role as world reserve currency.
Currently the Russian Duma is discussing legislation that would eliminate the dollar’s use and presence in Russia. Other countries are moving away from the dollar. Recently the Nigerian central bank reduced its dollar reserves and increased its holdings of Chinese yuan. Zimbabwe, which was using the US dollar as its own currency, switched to Chinese yuan. The former chief economist of the World Bank recently called for terminating the use of the dollar as world reserve currency. He said that “the dominance of the greenback is the root cause of global financial and economic crises.” Moreover, the Federal Reserve is very much aware of the flight away from the dollar into gold, because it is this flight that causes the Fed to manipulate the gold price in order to hold it down and in order to be able to free up gold for delivery.
The Fed knows that the ability of the US to pay its bills in its own currency is the reason it can stand its large trade imbalance and is the basis for US power. If the dollar loses the reserve currency role, the US becomes just another country with balance of payments and currency problems and an inability to sell its bonds in order to finance its budget deficits.
In other words, perhaps the Fed understands that a dollar crisis is a bigger crisis than a bank crisis and that its bailout of the banks is undermining the dollar. The question is: will the Fed let the banks go in order to save the dollar?
Paul Craig Roberts is a former Assistant Secretary of the US Treasury for Economic Policy.
Dave Kranzler traded high yield bonds for Bankers Trust for a decade. As a co-founder and principal of Golden Returns Capital LLC, he manages the Precious Metals Opportunity Fund.
http://www.paulcraigroberts.org/2014/01/30/fed-tapering/
A New Audio Interview With Elston Johnston, Director and Chairman of the Board of Valdor Technology International Inc., is Now at SmallCapVoice.com
AUSTIN, Texas, Jan. 30, 2014 (GLOBE NEWSWIRE) — SmallCapVoice.com, Inc. (SCV) announced today that a new audio interview with Valdor Technology International Inc. (“Valdor”) (TSX:VTI-V) (OTC:VTIFF) is now available. The interview can be heard at http://smallcapvoice.com/blog/1-29-14-smallcapvoice-interview-with-valdor-technology-international-inc-vtiff
Elston Johnston, called into SmallCapVoice.com to provide the listening audience with a comprehensive overview of the Valdor history, the Company highlights for 2013, as well as his own candid insights into the fiber optics industry.
“We are excited about Valdor and we know that our shareholders and new investors want to learn about our plans for the future,” stated Johnston. “Audio presentations disseminated through the web are a powerful way to develop an audience for Valdor.”
About SmallCapVoice.com: SmallCapVoice is a full service corporate investor relations firm located in Texas, USA. They have clients throughout North America and are recognized for their ability to help emerging growth companies build a following with retail and institutional investors. SmallCapVoice uses its newsletter to feature daily stock picks, audio interviews and client news releases. They offer individual investors the tools needed to make informed decisions about the stocks in which they are interested. Tools like stock charts, stock alerts, and Company Information Sheets can assist with investing in stocks listed on the TSX Venture, OTC QB, OTC QX and OTC Pink. To learn more about SmallCapVoice and their services please visit: http://www.smallcapvoice.com/services.html.
About the Fiber Optics Industry: Fiber optics is the future of communications. The signal transmission business is in the early stages of a fiber optics bull market. All signal transmission, in their many and various forms, are being converted from electrical to fiber optics. A comprehensive global report on the fiber optic components market projects that it will reach US$42 billion by the year 2017.
About Valdor Technology International Inc. (www.valdortech.com): Valdor is a high technology fiber optic components company specializing in the design, manufacture, and sale of fiber optic connectors, laser pigtails, splitters, and other optical and optoelectronic components, including some that use the Valdor proprietary and patented Impact Mount(TM) technology. Valdor specializes in harsh environment products and in particular splitters and connectors. Valdor’s business plan incorporates growth by acquisition. For information on Valdor’s product lines please visit www.valdor.com.
Twitter: http://twitter.com/ValdorTechInt
Facebook: http://www.facebook.com/valdortech
For SmallCapVoice.com
Stuart T. Smith
512-267-2430
http://smallcapvoice.com/blog/a-new-audio-interview-with-elston-johnston-director-and-chairman-of-the-board-of-valdor-technology-international-inc-is-now-at-smallcapvoice-com/
Enough Is Enough: Fraud-ridden Banks Are Not L.A.’s Only Option
by Ellen Brown
Posted on January 29, 2014
(special thanks to basserdan)
“Epic in scale, unprecedented in world history.” That is how William K. Black, professor of law and economics and former bank fraud investigator, describes the frauds in which JPMorgan Chase (JPM) has now been implicated. They involve more than a dozen felonies, including bid-rigging on municipal bond debt; colluding to rig interest rates on hundreds of trillions of dollars in mortgages, derivatives and other contracts; exposing investors to excessive risk; failing to disclose known risks, including those in the Bernie Madoff scandal; and engaging in multiple forms of mortgage fraud.
So why, asks Chicago Alderwoman Leslie Hairston, are we still doing business with them? She plans to introduce a city council ordinance deleting JPM from the city’s list of designated municipal depositories. As quoted in the January 14th Chicago Sun-Times:
The bank has violated the city code by making admissions of dishonesty and deceit in the way they dealt with their investors in the mortgage securities and Bernie Madoff Ponzi scandals. . . . We use this code against city contractors and all the small companies, why wouldn’t we use this against one of the largest banks in the world?
A similar move has been recommended for the City of Los Angeles by L.A. City Councilman Gil Cedillo. But in a January 19th editorial titled “There’s No Profit in L A. Bashing JPMorgan Chase,” the L.A. Times editorial board warned against pulling the city’s money out of JPM and other mega-banks – even though the city attorney is suing them for allegedly causing an epidemic of foreclosures in minority neighborhoods.
“L.A. relies on these banks,” says The Times, “for long-term financing to build bridges and restore lakes, and for short-term financing to pay the bills.” The editorial noted that a similar proposal brought in the fall of 2011 by then-Councilman Richard Alarcon, backed by Occupy L.A., was abandoned because it would have resulted in termination fees and higher interest payments by the city.
It seems we must bow to our oppressors because we have no viable alternative – or do we? What if there is an alternative that would not only save the city money but would be a safer place to deposit its funds than in Wall Street banks?
The Tiny State That Broke Free
There is a place where they don’t bow. Where they don’t park their assets on Wall Street and play the mega-bank game, and haven’t for almost 100 years. Where they escaped the 2008 banking crisis and have no government debt, the lowest foreclosure rate in the country, the lowest default rate on credit card debt, and the lowest unemployment rate. They also have the only publicly-owned bank.
The place is North Dakota, and their state-owned Bank of North Dakota (BND) is a model for Los Angeles and other cities, counties, and states.
Like the BND, a public bank of the City of Los Angeles would not be a commercial bank and would not compete with commercial banks. In fact, it would partner with them – using its tax revenue deposits to create credit for lending programs through the magical everyday banking practice of leveraging capital.
The BND is a major money-maker for North Dakota, returning about $30 million annually in dividends to the treasury – not bad for a state with a population that is less than one-fifth that of the City of Los Angeles. Every year since the 2008 banking crisis, the BND has reported a return on investment of 17-26%.
Like the BND, a Bank of the City of Los Angeles would provide credit for city projects – to build bridges, restore lakes, and pay bills – and this credit would essentially be interest-free, since the city would own the bank and get the interest back. Eliminating interest has been shown to reduce the cost of public projects by 35% or more.
Awesome Possibilities
Consider what that could mean for Los Angeles. According to the current fiscal budget, the LAX Modernization project is budgeted at $4.11 billion. That’s the sticker price. But what will it cost when you add interest on revenue bonds and other funding sources? The San Francisco-Oakland Bay Bridge earthquake retrofit boondoggle was slated to cost about $6 billion. Interest and bank fees added another $6 billion. Funding through a public bank could have saved taxpayers $6 billion, or 50%.
If Los Angeles owned its own bank, it could also avoid costly “rainy day funds,” which are held by various agencies as surplus taxes. If the city had a low-cost credit line with its own bank, these funds could be released into the general fund, generating massive amounts of new revenue for the city.
The potential for the City and County of Los Angeles can be seen by examining their respective Comprehensive Annual Financial Reports (CAFRs). According to the latest CAFRs (2012), the City of Los Angeles has “cash, pooled and other investments” of $11 billion beyond what is in its pension fund (page 85), and the County of Los Angeles has $22 billion (page 66). To put these sums in perspective, the austerity crisis declared by the State of California in 2012 was the result of a declared state budget deficit of only $16 billion.
The L.A. CAFR funds are currently drawing only minimal interest. With some modest changes in regulations, they could be returned to the general fund for use in the city’s budget, or deposited or invested in the city’s own bank, to be leveraged into credit for local purposes.
Minimizing Risk
Beyond being a money-maker, a city-owned bank can minimize the risks of interest rate manipulation, excessive fees, and dishonest dealings.
Another risk that must now be added to the list is that of confiscation in the event of a “bail in.” Public funds are secured with collateral, but they take a back seat in bankruptcy to the “super priority” of Wall Street’s own derivative claims. A major derivatives fiasco of the sort seen in 2008 could wipe out even a mega-bank’s available collateral, leaving the city with empty coffers.
The city itself could be propelled into bankruptcy by speculative derivatives dealings with Wall Street banks. The dire results can be seen in Detroit, where the emergency manager, operating on behalf of the city’s creditors, put it into bankruptcy to force payment on its debts. First in line were UBS and Bank of America, claiming speculative winnings on their interest-rate swaps, which the emergency manager paid immediately before filing for bankruptcy. Critics say the swaps were improperly entered into and were what propelled the city into bankruptcy. Their propriety is now being investigated by the bankruptcy judge.
Not Too Big to Abandon
Mega-banks might be too big to fail. According to U.S. Attorney General Eric Holder, they might even be too big to prosecute. But they are not too big to abandon as depositories for government funds.
There may indeed be no profit in bashing JPMorgan Chase, but there would be profit in pulling deposits out and putting them in Los Angeles’ own public bank. Other major cities currently exploring that possibility include San Franciscoand Philadelphia.
If North Dakota can bypass Wall Street with its own bank and declare its financial independence, so can the City of Los Angeles. And so can the County. And so can the State of California.
____________
Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of 12 books including The Public Bank Solution. She is currently running for California state treasurer on the Green Party ticket.
http://ellenbrown.com/2014/01/29/enough-is-enough-banksters-are-not-l-a-s-only-option/
Nigel Farage - Horrifying New “Orwellian” Control Of Citizens
Jan. 29, 2014
Today MEP Nigel Farage broke the news first to King World News that horrifying new “Orwellian” technology is in the process of being put in place in Europe to further tighten government’s grip and control its citizens. He also discussed a rebellion that is taking place in Europe that has the powers that be deeply troubled. Below is what Farage had to say in this breaking news story.
Farage: “Between May 22nd and May 25th, all 28 member states of the European Union will be returning members back to the European Parliament, and there is no doubt that there is quite a strong mood of rebellion in the air. The authorities are very, very scared that they may have a European Parliament that is very difficult to control....
“We’ve got (Euro-sceptic) parties in France, the United Kingdom, Finland, and the Netherlands that are really performing strongly. In fact, the commentators are now tipping euro-skeptic parties to win in Britain, to win in France, and to win in the Netherlands. This is very, very significant political rebellion that will dominate politics for the next three months.”
Eric King: “Nigel, you’ve been leading this rebellion in Europe and it seems to be gaining tremendous headway. How shocked are the powers that be as they watch this rebellion begin to grow?”
Farage: “They’re scared and they are calling on every favor they can from big business and from the one or two big banks whose role in this has not been very pretty. One particularly thinks of how Goldman Sachs almost owns the governments in much of the Mediterranean area. So they are fighting back.
And similarly with the conventional media, by which I mean the established newspapers now launching pretty relentless attacks on those that question the current setup and structure in Europe. So the battle is getting pretty dirty and pretty nasty. So it’s going to be time to put the tin helmets on (laughter ensues) because it’s going to get a bit rough.
But all the authorities can do is to try to discredit those that question them. We play football over on this side of the Atlantic and there is a saying that ‘If you want to play dirty in football, you play the man and not the ball.’ And there is a fair bit of that now going on to try to counter the euro-skeptics. But I don’t think for a European public, who increasingly have fallen out of love with this political project, that it actually makes any difference.”
Eric King: “I know freedom has been rapidly disappearing over the years, but can you give us an update on what you are seeing as far as personal freedoms in Europe and around the world?”
Farage: “I will give you a story: This is what our lords and masters in the European Union are now planning. They are now planning a ‘Police Cooperation Plan’ across Europe that will include surveillance and intelligence gathering. But here is the new bit: ‘Remote Vehicle Stopping Technology.’
Now just get a handle on this. The EU wants the ability and wants the power when it’s tracking our cars as they travel across Europe, if they don’t like what we are doing they would have something built in to all new cars that would allow them to press a button and literally stop our car from running. Can you believe the lengths to which these people are prepared to go?
You heard it first here (on King World News), and I must say, it just shows you the mindset and the mentality that are being built here within Brussels. They’ve already talked to all of the car manufacturers. They’ve got the technology ready to do this. All they need to do it to bully it through the European institutions and we’re going to end up living in something that even (George) Orwell couldn’t have even invented.”
IMPORTANT - The information above was just a small portion of this incredible interview with Farage. Farage spoke about the tremendous turmoil taking place around the globe as well as the greatest threats to the West and also to the entire world. The powerful KWN audio interview with Nigel Farage is available now and you can listen to it by CLICKING HERE.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/1/29_Nigel_Farage_-_Horrifying_New_Orwellian_Control_Of_Citizens.html
Replace dollar with super currency: economist
Updated: 2014-01-29 09:04
By MICHAEL BARRIS in New York,
FU JING in Brussels and CHEN JIA in Beijing (China Daily USA)
The World Bank's former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.
"The dominance of the greenback is the root cause of global financial and economic crises," Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank. "The solution to this is to replace the national currency with a global currency."
Lin, now a professor at Peking University and a leading adviser to the Chinese government, said expanding the basket of major reserve currencies — the dollar, the euro, the Japanese yen and pound sterling — will not address the consequences of a financial crisis. Internationalizing the Chinese currency is not the answer, either, he said.
Lin urged the international community, especially the US and European Union, to play a leading role in currency and infrastructure initiatives. To boost the global economy, he proposed the launch of a "global infrastructure initiative" to remove development bottlenecks in poor and developing countries, a measure he said would also offer opportunities for advanced economies.
"China can only play a supporting role in realizing the plans," Lin said. "The urgent thing is for the US and Europe to endorse these plans. And I think the G20 is an ideal platform to discuss the ideas," he said, referring to the group of finance ministers and central bank governors from 20 major economies.
The concept of a global "super currency" tied to a basket of currencies has been periodically discussed by world leaders as well as endorsed by 2001 Nobel Memorial Prize-winner Joseph Stiglitz. A super currency could also be tied to a single currency, but the interconnectedness of world financial markets and concerns about the volatility that can occur as a result of the system being tied to one currency have made this idea less popular.
Eswar Prasad, a trade-policy professor at Cornell University who also is a senior fellow at the Brookings Institution, said he disagrees that a super currency would protect the global financial system against breakdowns such as the 2008 downturn which plunged the world economy into its most dangerous crisis since the Great Depression of the 1930s.
"Flexible exchange rates provide a useful shock absorption mechanism, especially for emerging market economies," Prasaid, a former chief of financial studies in the International Monetary Fund's research department, told China Daily on Tuesday. "More effective financial regulation and improved global governance, along with better fiscal and structural policies, would go much further than a single currency in enhancing global financial stability," he said.
Arguments in favor of a global currency resurfaced during October's US budget impasse, which forced the government to shut down.
"It is perhaps a good time for the befuddled world to start considering building a de-Americanized world," a Xinhua News Agency commentary said on Oct 14. The piece argued that creating a new international reserve currency to replace reliance on the greenback, would prevent government gridlock in Washington from affecting the rest of the world.
In March 2009, China's central bank governor, Zhou Xiaochuan, called for the creation of a new "super-sovereign reserve currency" to replace the dollar. In a paper published on the People's Bank of China's website, Zhou said an international reserve currency "disconnected from individual nations" and "able to remain stable in the long run" would benefit the global financial system more than current reliance on the dollar.
On that note, David Bloom, global head of FX research at HSBC, said US monetary policy change "will bring fluctuations for emerging countries' currencies and lead to financial instability".
Chen Wenling, chief economist at the China Center for International Economic Exchanges, a government think-tank, said, "A supranational currency may be a new direction for development of the global financial system. It also requires different countries to cooperate in coordinating macroeconomic policies."
Bloom and Chen both said China needs to play a more important role in global financial governance. But Bloom said it is difficult for international financial organizations to reach a consistent conclusion on how to improve the foreign exchange system.
He said the renminbi is predicted to be stronger this year, even against an appreciating US dollar, and internationalization of China's currency will accelerate when the government decides to further open the capital market.
Michal Krol, a researcher at the Brussels-based European Center for International Political Economy, said he disagrees that US dollar hegemony caused the global economic crisis. The emergence of other currencies, such as the euro, the yuan and the yen, created a situation where an adjustment mechanism needs to be in place, he said.
"I don't think that the largest economies and their currencies are at this moment ready for the introduction of a supranational currency," Krol said. "Neither the EU nor China have financial markets and monetary systems yet that are sound, solid, predictable and well functioning to be the cornerstone for a global system. But, indeed, it is time to formulate the fundamentals for global monetary governance."
Pierre Defraigne, executive director of the Madariaga College of Europe Foundation in Brussels, said of Lin's infrastructure proposal, "It is excellent, but the problem is how to implement these plans to link those countries that need such infrastructural construction and those with enough foreign reserves, by using an effective global mechanism."
Contact the writers at michaelbarris@chinadailyusa.com, fujing@ chinadaily.com.cn and chenjia1@chinadaily.com.cn
Li Xiaofei in Brussels contributed to this story.
http://usa.chinadaily.com.cn/world/2014-01/29/content_17264069.htm
Ex-JPMorgan Bankers Raise $375 Million for Mining Fund
By Jesse Riseborough
Jan 29, 2014 2:30 AM
bloomberg.com
Former JPMorgan Chase & Co. bankers Michael Scherb and Verne Grinstead raised $375 million from investors to target acquisitions of mining assets through their Appian Natural Resources Fund LP.
“The whole thesis was really created when I was at JPMorgan, when I could see that traditional sources of capital were going to dry up to the industry,” Scherb, who founded Appian two years ago after leaving the bank, said in a phone interview from London yesterday. “I thought that private equity made sense. I thought it made sense to match long-term capital to a long-term industry.”
Declining prices and a tapering in demand for commodities has dried up financing for new mining projects as investors retreat from the industry. Appian started raising funds a year ago and got commitments of $1 billion from investors, Scherb said.
“We think are real firepower is probably actually double what our fund size is, so we want to deploy around $750 million in the space,” he said. “We have a very strong co-investment component, a lot of that from investors who didn’t make it into the fund, or overflow from investors who did make it into the fund but wanted to invest more.”
Appian joins a swathe new private equity funds focused on the mining industry that are betting on a resurgence in demand for key commodities like copper, coal and zinc. X2 Resources, led by former Xstrata Plc (GLEN) Chief Executive Officer Mick Davis, is seeking to raise at least $3 billion from investors before it starts buying mines, people with knowledge of the plan said last week.
Mining Executives
Jersey-based Appian is run by a six-member management team including founder Scherb, Grinstead and managing partner Vincent Jacheet, who was part of setting up Bain Capital LLC in Europe. The team also includes three former mining industry executives to provide operational experience to the fund, Scherb, who advised mining firms while at JPMorgan, said.
Appian has completed three deals, including an acquisition in Red Eagle Mining Corp. in September which boosted the fund’s stake in the company to 15.3 percent, and has invested just under $100 million so far, he said. Two more acquisitions, one in Latin America and one in Africa, will be announced by the end of March, he said.
“We really want to deploy our capital over the next two years, our pipeline is pretty robust,” he said.
BHP Billiton Ltd. (BHP) and Rio Tinto Group (RIO), the two largest mining companies, are among mineral producers making or planning mine disposals that may total a combined $35 billion, Deutsche Bank AG has estimated.
Africa, Europe
The fund is actively bidding on assets being disposed of by major mining companies, Scherb said. Appian is seeking acquisitions in North America, Latin America, Africa and Europe with an investment size of about $10 million to $100 million and targeting those where first production can be realized within three years, he said.
Appian is looking at five to seven projects or companies every week and declining about 90 percent of them, he said.
“We see a lot of value out there, we see valuations having dropped off tremendously and it allows us good entry opportunities,” Scherb said. “There are good assets out there that are just unloved by the market or undiscovered by the market.”
To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net
To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net
http://www.bloomberg.com/news/2014-01-29/ex-jpmorgan-bankers-raise-375-million-for-mining-fund.html
OBAMA’S GUARANTEED RETURN NO RISK IRA
Posted on 29th January 2014
by Administrator
thenewsdoctors.com
How exactly is Obama going to offer a new retirement plan where your money is “invested” in U.S. Treasury bonds with no risk of losing money? The last time I checked, if you invest in a bond at 2.5% and interest rates go up to 5%, you have a big fucking loss. So, if I’m understanding this lying prick, he is going to use your tax dollars to cover any losses in this new investment. Has anyone told this blithering idiot that Roth IRAs already exist for everyone. This is a ridiculous proposal and appears to be a first step in setting up a system where the government will force all retirement funds in the country into U.S. Treasury bonds when the next financial collapse arrives. Do you think it is a coincidence that this executive order is being used in the same month where the Fed is beginning to taper their purchase of U.S. Treasury bonds? I think not.
Here are the words of the Commander in Thief:
Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans. Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can…
Here’s what will happen as soon as you transfer money into the new Obama IRA:
$GOOG, Bitcoin Rises In Popularity In North American
Posted by: : Paul Ebeling
January 29, 2014
The Miami Beach Convention Center in Florida was the chosen venue for the 1st North American Bitcoin Conference, this past weekend.
Savvy startups trying to Mint fortunes from Bitcoins introduced new technologies to promote widespread use of the cyber-currency.
When Bitcoin vendors organized North America’s 1st Bitcoin conference, they say they chose Miami Beach for 2 reasons. The obvious one, said a participant, was “its warm.” The less obvious reason is a strategic one-Miami is an airport hub for capitals across the Americas, especially Latin America.
The conference aimed to make the digital currency more mainstream than it already is. Bitcoin is electronic cash exchanged “peer-to-peer” outside the world’s central banking systems.
Bitcoin is growing in popularity.
Enterprises like “coingig” – an Amazon.com-style e-Commerce site launched last year by Kenneth Metral is growing. Coingig is like a “digital mall” with around a thousand stores so far. Mr. Metral says his site is already generating nearly a million dollars a year in sales.
Kenneth Metral, CEO of Coingig.com, said, “About now we are doing about a 100 bit coins a month in transactions.” CCTV reporter Nitza Soledad Perez asked: “In dollars how much would that be?” “About 80,000 dollars a month, not bad for a startup,” Metral answered.
Bitcoin is an innovative cyber-currency that is very easy to use, but not that easy to buy, and that is exactly what the young entrepreneurs in this industry are trying to do.
BitPay dispenses Bitcoins like an ATM, running off a Google (NASDAQ:GOOG) Nexus tablet.
Tony Gallippi, co-founder & CEO of Bitpay, said, “So I’m going to put in, 20 dollars. It receives that and now it’s going to send me the Bitcoins. I can feed more money if I want to, but 20 is enough. So now it’s going to connect to our servers. It’s going to broadcast the transaction, and send the Bitcoins. That’s done and now if I go into my phone, right there you see the transaction. It was immediate.”
New West Technologies developed a Bitcoin transaction platform integrated with Microsoft’s (NASDAQ:MSFT) Retail Management System, customers pay with their digital wallets.
Dan King, President of New West Technologies, said, “It’s a big change. We deal a lot with regulatory industries, banks and financial people, and there is a ton of rules a ton of problems, a lot of red tape, and this is something that supersedes all that.”
One company here, BitPay, already has Miami rocking to the Bitcoin beat. One of the most popular bars on Ocean Drive is already accepting Bitcoins.
For those who considered Bitcoins a pseudo-currency for scam artists and geeks, well, after this mainstream conference, they may have to think again.
Stay tuned, this is an ongoing story…
HeffX-LTN
Paul Ebeling
http://www.livetradingnews.com/goog-bitcoin-rises-in-popularity-in-north-american-29344.htm#.UukJahAo7rc
The China Factor In The South East United States.
Posted by: : Paul EbelingPosted
January 29, 2014
One area that’s rapidly growing in popularity is the South East United States, which has turned into a destination for foreign direct investment (FDI).
Over 900 global firms are making the most of what cities in North and South Carolina have to offer and many of them are Chinese.
Chinese businesses that chose the Carolinas as the place to start up shop are seeing their bets pay off.
11 Chinese firms have opened offices in Charlotte in the last 2 yrs which are a part of the growing number of firms doing business with the regions mix of industries- from financial services to shipping to manufacturing.
Pactera Technology, China’s largest IT firm with 23,000 employees based in Beijing made its way to Charlotte in Y 2012 after acquiring a local IT firm.
Vice-President Doug Vinson says moving to the South Eastern US allows the firm to be close to many of it’s major clients in banking and energy-related business- both strong in Charlotte.
“What Pactera did was came in and gave us an opportunity to not only talk to our clients on a business level but then to execute those plans with technology. Pactera has 23,000 employees around the world, it really gave us access to every technical skill and capability needed to serve our clients.” Doug Vinson, VP of Pactera Technology Int’l, said.
The company serves over 70 fortune 500 clients around the world and expects significant growth.
Over 900 foreign owned businesses are located in the Carolinas with a growing population of 2.7-M. The region is attracting business with a lower cost of living and its southern lifestyle.
“We’ve seen growth in the textile, IT, automotive related companies- as well as Chinese involved in the energy sector. Over 1000 jobs in this market from Chinese owned firms, as well as over US$ 300-M in capital invested here.” David Swenson with Charlotte regional partnership said.
Firms like Pactera along with dozens of other Chinese firms are proving the Carolinas have been a Win-Win for all.
Stay tuned…
HeffX-LTN
Paul Ebeling
http://www.livetradingnews.com/the-china-factor-in-the-south-east-united-states-29365.htm#.UukGvhBdW2U
Food Lobby Threatens to Sue Any State that Tries to Label GMOs
By Global Research News
Global Research, January 29, 2014
OrganicConsumers.org
The Organic Consumers Association is reporting that the Grocery Manufacturer’s Association — the mega corp. lobby group that represents 300 companies and way more than just grocery stores — is using a talking points memo to basically misinform and intimidate our legislators with threats of lawsuits should they even attempt to back a GMO labeling law in their state
That's a fantastic interview steviee I was just posting it on another board.
JIM WILLIE REVEALS THE SMOKING GUN ON US GOLD REHYPOTHECATION!
JANUARY 28, 2014 BY THE DOC 46 COMMENTS
Podcast: Play in new window | Download
Doc sat down with the Golden Jackass himself this weekend for an in-depth interview covering the state of the gold market and the Western banking system.
Willie discusses the German efforts to repatriate their gold reserves (along with the implications of only receiving 5 tons from the NY Fed in year 1), as well as Bafin’s investigation into precious metals manipulation and why unlike the CFTC’s, it is likely to result in criminal charges.
Finally, courtesy information provided by a high level executive at one of the world’s leading private refineries, Willie reveals the ‘smoking gun‘ evidence that proves US gold was rehypothecated over a decade ago!
Jim Willie’s full MUST LISTEN interview with The Doc is below:
Tax-Avoiding CEOs Successfully Avoid Tax-Avoidance Tax
By Matt Levine Jan 27, 2014 12:49 PM ET
bloomberg.com
Photographer: Education Images/UIG via Getty Images
A lot of these companies reincorporate in the verdant and sheep-filled hills of... Read More
This Bloomberg News article about companies reincorporating abroad to avoid taxes provides some good perspective on Jamie Dimon's pay. The short story is that U.S. companies can, with a certain amount of effort, move their legal address to Ireland or wherever and more or less avoid paying any taxes. This is called an "inversion," and the math is pretty straightforward:
* Take money from the U.S. government.
* Give it to shareholders.
So if you can do it you ... do it? I guess? I mean, not everyone does it, and there are public relations and so forth reasons not to,1 but roughly speaking if you are a corporate director you value a dollar in the hands of your shareholders significantly higher than you value a dollar in the hands of the government. This is pretty basic stuff.
Similarly straightforwardly, the U.S. government values a dollar in its own hands more than a dollar in the hands of shareholders of foreign-incorporate companies, though this is perhaps a more complex calculation. So in 2004 Congress passed a law to express its displeasure.
The law imposes a special tax of 15 percent on restricted stock and options held by the most senior executives when a company reincorporates outside the U.S.
Can you guess what happened? Oh sure you can, you are smart, and it is easy:
Since the measure took effect, at least seven large companies have disclosed in securities filings that they risked triggering the tax. All took steps to shield their executives from having to pay.
Three of the companies’ boards simply picked up the tax bill for their executives, maintaining that the managers shouldn’t suffer for a decision that benefits shareholders.
At three other companies, including Actavis, the boards went a step further, helping them avoid the tax altogether by allowing restricted stock to vest early and for options to be exercised. Awarding the equity early raises the risk that the executives might quit or sell their shares, or get paid for meeting goals they never attain.
So fine, this joins the long list of stories of "law intended to reduce executive compensation does opposite."2
But that theory is interesting: "the managers shouldn't suffer for a decision that benefits shareholders."3 Congress literally decided that the managers should suffer for a decision that benefits shareholders. Like, they passed a law that said, "here is how we will cause suffering to the managers who make that decision to benefit their shareholders." The suffering was, of course, in the form of taking away money, both because that is how the tax law imposes suffering, and because that is how corporate managers experience suffering.
And the managers -- oh, their boards, whatever -- were like, hahahahaha nope. The transaction is now:
* Company takes $100 from the U.S. government.
* Government takes $10 from executives.
* Company gives $10 to executives, $90 to shareholders.
Or whatever, the numbers aren't important.4 What's important is that they are just numbers. An alternative way of thinking would be:
Government says "we do not want you to do this thing even if it's good for shareholders." Government, being government, expresses this disapproval through a tax law. (Though also through words: “These expatriations aren’t illegal. But they’re sure immoral,” Charles Grassley said about one of them.)
Company says, "hmm, okay, sorry shareholders, but we are doing our patriotic duty and abiding by the will of Congress."
Executives keep their money, government keeps its money, and shareholders miss out on some extra money, but feel a warm sense of patriotic pride, if they're American, which some of them are.
feel silly typing that but it is not, like, an utterly implausible way to understand the world. In this approach, there's no weighing of commensurable economic quantities, the tax savings from inversion versus cost of executive pay gross-ups. There's just, this is not the right thing to do, Congress said so, so we won't.5
One CEO who knows from public disapproval is Jamie Dimon. Is he good for shareholders? That is a hard question and one that a lot of people have a lot of incentive to make harder. Certainly a lot of smart people think the answer is yes. More to the point, presumably all the people on JPMorgan's board think that the answer is yes, and reasonably so.
Did Jamie Dimon preside over doings that led to gajillions of dollars of fines and a widespread sentiment among the public and politicians that JPMorgan has, you know, let down the side, social-contract-wise? Sure, yes, we can confidently say yes to that. People don't like a lot of what JPMorgan has been doing, and that dislike has been expressed in tens of billions of dollars of fines and penalties.
The question is how we should weigh those two things: If you make money, even after paying the fines, should you be rewarded for being Good For Shareholders? Or are the fines not commensurable with the profits? Should presiding over socially undesirable things that lead your firm to be punished with tens of billions of dollars of fines mean that you should be punished too?
You can answer that question in your heart however you want, but the most immediately relevant answers are those that come from JPMorgan's directors. Who are U.S. corporate directors. Who think things like "the managers shouldn't suffer for a decision that benefits shareholders." One gets the sense that that means "the managers shouldn't be punished for any decision that benefits shareholders."
If that's how you think, the analysis is easy. Well, I mean, it's very hard -- the question of how much a CEO is benefiting shareholders is not an easy one -- but it proceeds on one dimension. Count up the money you've made (hard!6), subtract the money you've paid (easier!7), and then give Dimon his fair share of the difference. That's how it works for tax inversions, apparently, and the logic extends easily to mortgage-backed-security fraud and London Whaling and everything else. Shareholder value is all that matters; the rest is just noise.
1 For instance, Stanley Works was deterred from Bermuda-izing itself by legal and union pressures. Seems to be popular among pharmaceutical companies, which don't have especially intensive consumer- or labor-facing public relations needs.
2 Most classically, the non-deductibility of executive salaries over $1 million "may have established one million dollars as the base salary for CEOs." Conceptually, the way these laws always seem to work is that they seek to mobilize shareholders against executive compensation, by disclosing excessive-looking pay to shareholders, say, or by making shareholders pay taxes on that compensation. This might work if executive pay were set by shareholders, though you could argue otherwise. In any case, though, executive pay is set by boards, meaning more or less other directors, and then paid by shareholders. The agency costs are sort of invariant under more taxes.
3 That's Bloomberg News's expression but it tracks what the companies say. E.g. Actavis:
The Actavis board of directors carefully considered the potential impact of the imposition of the Section 4985 excise tax on Actavis’ Section 16 reporting officers and directors, determining that the imposition of the tax would result in the affected individuals being deprived of a substantial portion of the value of their then-unvested equity awards. The Actavis board of directors further concluded that it would not be appropriate to permit a significant burden arising from a transaction that was in the interests of stockholders to be imposed on the individuals most responsible for consummating the transaction and ensuring the success of the combined companies.
Again, Congress concluded that it would be appropriate to impose a significant burden on the individuals most responsible for consummating the transaction. That was the whole point of the law! But, nope.
4 Actavis, one of the companies named in the article, apparently got a tax benefit of $4 a share from the reincorporation. Even leaving aside the non-tax benefits of the transaction, $4 times 127.7 million pre-transaction shares is over $500 million of tax savings to shareholders. Actavis accelerated about $100 million of stock awards ($40 million to the CEO), which is not a $100 million "cost," and paid the CEO a $5 million extra retention bonus. Seems like a good deal for everyone. Except Treasury obvs.
5 Of course if you don't view Congress as a top-class arbiter of the right thing to do, you will tend toward the commensurable cost-benefit approach. One suspects that's how corporate boards work.
6 Because of seat-value, value-over-replacement-banker, etc. effects.
7 Though to be rigorous here you should be counting only Jamie Dimon's contribution to increasing the fines that JPMorgan paid. Presumably it'd have paid a lot of fines whoever was CEO. Maybe more than it paid under Dimon! So, this is hard too I guess.
To contact the writer of this article: Matt Levine at mlevine51@bloomberg.net.
To contact the editor responsible for this article: Tobin Harshaw at tharshaw@bloomberg.net.
http://www.bloomberg.com/news/2014-01-27/tax-avoiding-ceos-successfully-avoid-tax-avoidance-tax.html
New York Vying With California to Write Bitcoin Rules
By Carter Dougherty Jan 27, 2014 1:17 PM
Photographer: Thomas Trutschel/Photothek via Getty Images
Bitcoin, a five-year-old protocol for issuing and moving money across the Internet, has... Read More
California and New York, home to Silicon Valley and Wall Street, are preparing to write rules of the road for entrepreneurs driving a surge of interest in Bitcoin and other virtual currencies.
The outcome could determine how big a threat Bitcoin poses to established payment companies including JPMorgan Chase & Co. and Visa Inc. as well as where venture capital and talent converge to form a geographic hub for U.S. startups.
“If a state becomes Bitcoin-friendly, it will see a huge increase in companies,” said Adam Ettinger, an attorney with San Francisco-based Strategic Counsel Corp., which advises technology investors. “That will mean the brightest minds working on some of the most innovative payment technology we’ve seen in awhile.”
Bitcoin, a five-year-old protocol for issuing and moving money across the Internet, has gained traction with merchants selling everything from Sacramento Kings basketball tickets to kitchen mixers on Overstock.com. Venture capitalists see promise in it as an alternative to the global payment system currently dominated by companies including Visa, Western Union Co. (WU) and large banks.
Legal Status
Bitcoin’s legal status has been uncertain. In March, the U.S. Treasury Department’s Financial Crimes Enforcement Network, which polices money laundering, said virtual-currency firms may be regulated as money transmitters. The move set off the race among states, which license such firms, to determine if and how their laws apply.
Regulators and law enforcers have expressed concern that Bitcoin could facilitate money laundering and sales of drugs and other illegal goods.
Federal prosecutors in New York today indicted the head of a digital currency exchange company on charges of conspiring to launder more than $1 million in Bitcoin tied to Silk Road, an online drug bazaar. Charlie Shrem, the chief executive officer of BitInstant, is also the vice chairman of the Bitcoin Foundation, the group that oversees the currency’s software protocols and lobbies regulators. In October, U.S. authorities shut down Silk Road and arrested its operator for hosting illegal transactions.
Money Transmitters
Stephanie Newberg, president of the Money Transmitter Regulators Association, a group of state officials, said Bitcoin will dominate her association’s agenda precisely because its legal status is unclear.
“Some states have statutes that are broad enough to do it immediately,” said Newberg, who is also deputy commissioner of banking in Texas. “Other states don’t. It’s a state-by-state question.”
JPMorgan Chief Executive Officer Jamie Dimon has said he expects that Bitcoin will be less of a threat once regulators intervene.
Bitcoin “will eventually be made as a payment system, I think, to follow the same standards as the other payment systems, and that will probably be the end of them,” Dimon said Jan. 23 in an interview on CNBC.
Bitcoin was introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto. It has no central issuing authority, and uses a public ledger to verify encrypted transactions.
Successful virtual currency startups will have to commit to being regulated by the states, said Fred Ehrsam, chief executive of Coinbase in San Francisco, a company that helps users buy and sell Bitcoin.
“We think California and New York will set the tone for everything else,” Ehrsam said. “When that tone is established, we’re ready to hand in licensing applications immediately.”
Different Approaches
California and New York have so far adopted different approaches. New York’s superintendent of financial services, Benjamin Lawsky, moved publicly against Bitcoin startups last year, issuing subpoenas for information on their business, a move the companies complain has forced them to spend seed capital on lawyers. Tomorrow Lawsky is scheduled to convene two days of public hearings to consider whether New York should establish what he has called a “BitLicense.”
By contrast, officials in California have been quietly meeting with lawyers and compliance experts for advice before making public moves, according to a person advising Bitcoin companies who asked not to be identified because the meetings were private.
Patrick Murck, general counsel of the Seattle-based Bitcoin Foundation, a group that promotes the use of digital currency, pointedly complimented California on its approach during a U.S. congressional hearing.
‘Respectful’ Dialogue
“We believe a healthy and respectful dialogue between key stakeholders will help ensure that the substantial benefits of the digital economy are met, while mitigating many of the risks,” Murck said at the hearing on Nov. 18.
California law requires companies that transmit monetary value to obtain licenses from its Department of Business Oversight, spokeswoman Alana Golden said. Its lawyers are currently weighing whether companies that only transmit a digital currency fall under this definition, Golden said.
Bitcoin-related businesses are free to apply for a money transmitter license, but Golden cautioned against it.
‘In Flux’
“At this point, we’re not advising the virtual currency companies to apply for licenses,” Golden said. “There’s too much in flux now.”
New York is home to Union Square Ventures, which has invested in Bitcoin startups, and Barry Silbert, the chief executive of SecondMarket, who runs a personal fund devoted to virtual currency companies.
California, and in particular Silicon Valley, is home to many virtual currency startups as well as the largest investment to date, $25 million, in Ehrsam’s Coinbase. Andreessen Horowitz, the Palo Alto-based venture capital firm that led the investment, has said it wants to use Bitcoin to build a new payments system. Bloomberg LP, the parent company of Bloomberg News, is an investor in Andreessen Horowitz.
New York law requires a license to receive a customer’s money for transmission, as a company such as Western Union might do. It also requires a license to issue payment instruments, such as money orders.
Legal ‘Gap’
Marco Santori, a lawyer with Nesenoff & Miltenberg LLP in New York who advises virtual-currency startups, said companies that receive money from a customer to convert into Bitcoin may not fall under that law, since the funds aren’t being transmitted. Since “money” isn’t defined in the law, New York may not have jurisdiction, he said.
“These laws are nowhere near what they’d need to be to regulate Bitcoin businesses,” Santori said.
As a result, Lawsky’s department is considering use of its “gap authority” to regulate virtual currencies, according to a person briefed on the discussions. This authority, included in the law that created the department in 2011, allows it to regulate financial services not otherwise covered by state law.
Companies including New York-based Union Square Ventures have met with staff for Senator Charles Schumer, a New York Democrat, to press their case for creating a Bitcoin-friendly regulatory environment, according to a person familiar with the discussions. Union Square, headed by Fred Wilson, contributed $51,500 to Democratic candidates and organizations in the 2012 election cycle, according to the Center for Responsive Politics.
Lawsky, who was previously chief counsel to Schumer, has said he is mindful of the effects of regulation on what could be an emerging industry.
“We want New York to be a place where these companies are coming and thriving, and at the same time, put in the rules of the road and protections to ensure we don’t have money laundering,” Lawsky told CNBC on Jan. 10.
To contact the reporter on this story: Carter Dougherty in Washington at cdougherty6@bloomberg.net
To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net
http://www.bloomberg.com/news/2014-01-27/new-york-duels-california-to-write-bitcoin-rules.html?cmpid=yhoo
Corporate Welfare: Bankrupting US Cities, Destroying Pensions, Jobs and City Services
By Nancy Hanover
Global Research, January 27, 2014
World Socialist Web Site
To some, it may come as a surprise that the bankrupt City of Detroit and the hard-hit State of Michigan are subsidizing the Big Three automakers, the pharmaceutical industry, energy companies and virtually every large Michigan business. But a massive giveaway—“corporate welfare,” both locally and nationally—is bankrupting municipalities everywhere as shown by reports from Demos (“The Detroit Bankrupcty”, the New York Times (“United States of Subsidies”) and Good Jobs First (“Megadeals”).
While making the political decision to use the bankruptcy court to destroy pensions, jobs, city services and public institutions like the Detroit Institute of Arts, the government has been nothing but generous to Fortune 500 CEOs asking for a handout.
In a city where citizens routinely wait for up to three hours for public transportation and tens of thousands suffer from utility shutoffs in the dead of winter, more than $20 million a year has been awarded to companies including Comerica Bank, Rock Ventures/Garbsman, the Farbman Group, Quicken Loans, the Detroit Medical Center and multibillion-dollar conglomerate DTE Energy.
Wallace C. Turbeville’s report on the bankruptcy for Demos calls these “extensive subsidies” and suggests the emergency manager “reclaim tax subsides and other expenditures to incentivize investment in the downtown area” and treat them similarly to the rest of the city’s debt. Of course Emergency Manager Kevyn Orr, a Democrat, has been placed into his dictatorial position not to penalize his corporate masters but to ensure their interests and lay the basis for their dramatic increase in profit-taking.
Tax boondoggles in the city include a whopping $285 million to billionaire Mike Ilitch for a 45-block entertainment district and $100 million in tax abatements for Compuware, also a billion-dollar company.
Smaller gifts were available as well, including $27 million in tax incentives awarded to the Meridian Health Plan building to be built in the central business district. Owners David, Sherry, Jon, Sean and Michael Cotton are real estate developers whose core business is a series of health care businesses in Michigan, Illinois, Iowa and several other states. The Cottons believe they can boost that number to $35 million in public financing through additional credits, according to Crain’s Detroit Business.
Another recipient of the city’s munificence is Whole Foods Market, a wildly profitable firm paying out $500 million last year in stock dividends, which is receiving $4.2 million, but hopes to get more from so-called brownfield (“blighted” areas requiring “revitalization”) incentives.
Detroit has been saddled with 16 “renaissance zones” that were virtually tax-free for business and forgave millions of dollars in taxes. At the same time, Detroit homeowners have the highest property taxes among the nation’s 50 largest cities, and paid twice the national average in tax.
Last September, a frenzy of downtown Detroit developers spurred the first-ever Novogradac Historic Tax Credit Conference. It brought them together with hundreds of assorted accountants and tax attorneys looking to parlay the Federal Historic Preservation Tax Incentive program into millions of dollars. The possibility of funding 20 percent of rehabilitation costs with federal dollars has whetted the appetites of the gentrifiers/developers who are in the process of evicting hundreds of elderly and disabled Section 8 renters living in downtown buildings.
But it was not just Detroit and federal agencies that contributed to the corporate coffers. The role of the State of Michigan was pivotal to the Detroit bankruptcy on multiple levels. It was Governor Rick Snyder who conspired with law firm Jones Day and Kevyn Orr to declare the city in “financial emergency” and appoint Orr with the prearranged plan to impose bankruptcy, void contracts and loot the city’s assets.
Not as well publicized was the fact that the “tipping point” in Detroit’s cash flow crisis was reached when Michigan’s annual state revenue sharing was cut by $67 million per year. Author of the Demos report, Walter Turbeville, explains the mechanics in “The Detroit Bankruptcy”. It was in two stages, and part of the cut followed declining populations, but “$42.8 millions (64 percent of the total state cuts) were at the discretion of the state legislature.
“By cutting revenue-sharing with the city, the state effectively reduced its own budget challenges on the backs of the taxpayers of Detroit (and other cities). These cuts account for nearly a third of the city’s revenue losses between FY 2011 and FY 2012.” Turbeville, a former Goldman Sachs accountant, concludes, “Thus, the state was an active player in the events leading to the cash flow crisis.”
Put more bluntly, Governor Rick Snyder and the state legislature—with the full support of both Republicans and Democrats—pulled the plug on Detroit, suffering in the aftershock of the Great Recession of 2008.
Yet while depriving Detroit, as well as other Michigan municipalities, of desperately needed revenues, the State of Michigan was spending—as it has done annually—a staggering $6.65 billion on business incentives.
Michigan: More megadeals than any other state
According to the Good Jobs First report, Michigan—possibly the hardest hit state of the “Rust Belt”—has offered more large government-funded subsidies to corporations than any other in the nation. It identifies 29 megadeals involving awards higher than $75 million.
The New York Times series “United States of Subsidies” by Louise Story points out that 30 cents out of every dollar in Michigan’s budget goes to this type of “corporate welfare” at the direct expense of support to education, infrastructure and municipalities.
The lion’s share of these gifts went to the Big Three automakers, now expecting to post all-time record profits in 2013, above the already banner year of 2012 at $12.3 billion. General Motors (whose government bailout is now estimated to have cost taxpayers $10 billion) was the top beneficiary receiving $3.3 billion in aid, according to the Center for Automotive Research. The New York Times puts Ford at $1.58 billion and Chrysler at $1.4 billion. Overall national incentives for automakers since 1985 are pegged at an astronomical $13.9 billion. It should be noted that whether Democrats or Republicans were in power, the process escalated.
Among others, Story conducted more than two dozen in-depth interviews with former GM officials and tax consultants to prepare “United States of Subsidies”. She pointed to the role of Argonaut Realty, the automaker’s real estate division, in conducting the shakedown of local governments across the US. GM enlisted their tax managers, charities’ accountants and union representatives alongside plant managers and executives in a combination of threats and negotiations to rein in the biggest tax boondoggles. “For towns, it became a game of survival,” notes Story.
The procedure is classic: cities and states are pitted against each other in a reverse auction. Often even the scenario presented was a fraud, perpetrated by the transnational company seeking higher profits. One example in the GM saga was the company’s demand for tax cuts in Moraine, Ohio. GM told the city that Moraine was competing with Shreveport, Louisiana and Linden, New Jersey to maintain an auto plant. After the Moraine school board caved and accepted the property tax cuts to education funding, it was discovered that the other towns had not been in discussion with GM.
This is a national scourge. As the stakes for jobs has intensified, states are creating more and more incentives. In 2010 alone, 40 new types of tax credits were created or expanded. Oklahoma and West Virginia give up amounts equal to about one-third of their budgets, Maine about one-fifth. Texas awards $19 billion a year and Alaska, West Virginia and Nebraska give up the most per resident, according to the Times.
Because no national database of corporate incentives exists, Story and Good Jobs First had to conduct months-long investigations to uncover the myriad layers of giveaways by thousands of government agencies and officials.
$80 billion annually funneled to big business
The Times uncovered a staggering $80 billion annually donated by states, counties and cities to business. And it cautioned that the actual cost of awards is certainly far higher. The report points to the wide range of corporate entities receiving money, including many among the world’s most profitable firms: Exxon Mobil, Royal Dutch Shell, Boeing, Airbus, Citigroup, Goldman Sachs, Walt Disney, ESPN, Sears, General Electric, Dow Chemical, Amazon, Apple, Intel and Samsung. Sixteen of the Fortune 50 are represented.
Dozens of officials at large corporations who were questioned by Louise Story justified the whipsawing of communities as “owing it to the shareholders to maximize profits,” she reported. Hallmark CEO Donald Hall Jr. said, “this use of incentives is really transferring money from education to businesses.”
It is also no accident how difficult it was assembling these statistics; the government accounting standards board has failed to regulate the accounting of tax-based economic development expenditures. There is furthermore very little oversight once grants are issued. For the most part, no one tracks the “effectiveness” of job retention as a result of giveaways.
A poignant Metro Detroit example is the famed Ford Willow Run plant in Ypsilanti, Michigan, designed by Albert Kahn and used to build bombers in World War II. After the war, it became Kaiser Motors and then was taken over by General Motors, which expanded the facility into a complex. Over the years, the small outlying town of Ypsilanti granted more than $200 million in incentives to the facility.
Doug Winters, the city’s attorney, explained to the Times reporter, “They had put basically a stranglehold on the entire state of Michigan and other places across the country by just grabbing these tax abatements by the billions. They were doing it with a very thinly disguised threat that if you don’t give us these tax abatements, then we’ll have to go somewhere else.”
After the company closed the first plant, the city sued, but was unsuccessful. The judge said that a company’s job assurances “cannot be evidence of a promise.” In 2010 the company closed the remaining factory and Winters sued again. The claim has now been relegated to the corporate books of the defunct “bad GM”.
Referring to General Motors, Winters told Story, “We’re their own private ATM. When they need money, they come begging, but when they don’t want oversight, they say ‘get out of the way’.”
Like payoffs to the Mafia consigliere, there is no respite for states, counties, school districts or municipalities. Ford and GM are now slated to receive federal tax credits for making more fuel-efficient vehicles… worth $50 million, an event celebrated by Michigan Democratic Senators Carl Levin and Debbie Stabenow. Republican Governor of Michigan Rick Snyder recently announced a state grant of $2.5 million for infrastructure improvements for Hyundai’s Superior Township technical center in Metro Detroit. The GM plant in the small enclave of Detroit, Hamtramck, is asking for $1.8 million in order to make critical investments in their operations.
It goes on and on. The substantial New York Times exposé demonstrates the proliferation of this “beggar-thy-neighbor” policy in the false hope of local officials maintaining economically viable communities. As a result, hundreds of school districts are in financial emergency, teachers and staffs are subjected to pay cuts and layoffs, recreation centers are closed and city infrastructure is allowed to rot. Municipalities are systematically being bankrupted as a greater and greater portion of social wealth is diverted to the profits of their resident corporations.
The extent of corporate blackmail nationally demonstrates that the looting of Detroit is just the beginning. Here is a glimpse of the national picture:
*Walmart, the world’s most profitable corporation, receives $1.2 in taxpayer assistance.
*Alcoa receives a 30-year discounted electricity deal worth $5.6 billion.
*Sasol natural gas could receive as much as $21 billion on investment subsidies.
*Boeing’s tax breaks and subsidies are estimated at $3.2 billion.
*Nike’s 30-year single sales factor tax commitment nets it $2.02 billion.
*Intel’s property tax abatement for a computer chip plant means $2 billions in benefits.
*Cheniere Energy of Louisiana will retain $1.69 billion in earnings due to subsidies for the Sabine Pass natural gas liquefaction plant.
*Google’s North Carolina deal received $254,700,000 (for 210 jobs).
*Apple’s North Carolina negotiations yielded $320,700,000 (for 50 jobs).
*Goldman Sachs moved operations from Manhattan to Jersey City, New Jersey and netted $164 million in tax incentives.
What was once considered extortion or bribery has become a normal business model. The blood and sweat of the working class demands nationalization of the ill-gotten gains of the parasitic financial elite and the establishment of a society where jobs, housing, education, pensions, and culture are considered basic rights for all of society.
http://www.globalresearch.ca/corporate-welfare-bankrupting-us-cities-destroying-pensions-jobs-and-city-services/5366383
Is a Major Gold Scandal Going Mainstream?
by Washingtons Blog
Posted on January 27, 2014
(special thanks to basserdan)
Allegation that Central Banks Have Rehypothecated, Leased or Outright Sold the Gold They Claim to Have Is Gaining Momentum
We noted in 2012 ( http://tinyurl.com/jwxhh8f ) that there are serious questions as to whether the Fed and other central banks really have the gold holdings which they claim.
This story is starting to go mainstream.
The Financial Times writes ( http://tinyurl.com/lk2zsmt ) today (h/t Zero Hedge):
A year ago the Bundesbank announced that it intended to repatriate 700 tons of Germany’s gold from Paris and New York. Although a couple of jumbo jets could have managed the transatlantic removal, it made security sense to ship the load in smaller consignments. Just how small, and over how long, has only just become apparent.
Last month Jens Weidmann, Bundesbank president, admitted that just 37 tons had arrived in Frankfurt. The original timescale, to complete the transfer by 2020, was leisurely enough, but at this rate it would take 20 years for a simple operation. Well, perhaps not so simple. While he awaits delivery, Herr Weidmann is welcome to come and look through the bars in the Federal Reserve’s vaults, but the question is: whose bars are they?
In the “armchair farmer” fraud you are told: “Look, this is your pig, in the sty.” It works until everyone wants physical delivery of their pig, which is why Buba’s move last year caused such a stir. After all nobody knows whether there are really 260m ounces of gold in Fort Knox, because the US government won’t let auditors inside.
The delivery problem for the Fed is a different breed of pig. The gold market is far more than exchanging paper money for precious metal. Indeed the metal seems something of a sideshow. In June last year the average volume of gold cleared in London hit 29m ounces per day. The world’s mines are producing 90m ounces per year. The traded volume was many times the cleared volume.
The paper gold in the London Bullion Market takes the familiar forms that bankers have turned into profit machines: futures, options, leveraged trades, collateralised obligations, ETFs .?.?. a storm of exotic instruments, each of which is carefully logged, cross-checked and audited.
Or perhaps not. High-flying traders find such backroom work tedious, and prefer to let some drone do it, just as they did with those money-market instruments that fuelled the banking crisis. The drones will have full control of the paper trail, won’t they? There’s surely no chance that the Fed’s little delivery difficulty has anything to do with the cat’s-cradle of pledges based on the gold in its vaults? http://tinyurl.com/n682b6k
John Hathaway suspects there is. He worries about all the paper (and pixels) linked to gold. He runs the Tocqueville gold fund (the clue is in the name) and doesn’t share the near-universal gloom of London’s gold analysts ( http://tinyurl.com/lakzkh2 ), who a year ago forecast an average $1700 for 2013. It is currently $1,260.
As has been remarked here before, forecasting the price is for mugs and bugs. But one day the ties that bind this pixelated gold may break, with potentially catastrophic results. So if you fancy gold at today’s depressed price, learn from Buba and demand delivery.
And last week, Glenn Beck – hate him or love him, he’s got the 594th most popular website in the world and many viewers on Dish network and various cable providers – did an entire 20-minute episode on the issue:
Thanks for the update basserdan. Depositors must have threatened to close their accounts.
Billionaire Hugo Salinas Price: 'Everything in our modern world is a lie' (Exclusive interview!)
Guillermo Barba
Jan. 24, 2014
Inteligencia Financiera Global blog (Global Financial Intelligence Blog) is honored to present an exclusive interview with billionaire entrepreneur Hugo Salinas Price, by Guillermo Barba. We are sure our readers from around the world will enjoy it.
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- Mr. Salinas, thank you for accepting this interview.
As many people know, you have been an advocate for liberty, free markets and honest money among other topics. You are started the project-proposal of monetizing the pure silver coin in Mexico but, can your proposal be implemented in any country? What does it take to do that? Could gold be monetized the same way?
My proposal was, and is, to give a monetary value in local currency, to a silver coin which has no engraved value upon its face. The monetary value – higher than the value of the silver in the coin itself – could be quote, ideally from the Treasury. If the price of silver rises, this quote could be increased to give the silver coin a higher monetary value. (It could rise either because the price of silver in dollars has risen, or because the local currency has devalued.) But under no circumstances should the monetary value, once quoted, ever be reduced. If the value of the silver in the coin falls, the monetary value remains the same.
This is an entirely “doable” project. Actually, it only replicates what used to happen with silver coins up until the middle of the 20th Century. You see, silver coins, all over the world, always had monetary value superior to the value of the silver which they contained. (Same as we propose). When the value of silver fell in the 1930’s, the silver coins retained their monetary value unchanged. (Same as we propose). But silver coins disappeared when the price of silver rose after WW II. What we propose retains the silver coins as money, because if the price of silver rises, the monetary value of the coin also rises. (This was impossible in the 20th century, because the monetary value was engraved upon the coins. We eliminate that problem, by having no engraved value upon the coins.)
This project can only become a reality if a leader with enough political power a) understands our project b) wishes to do something to benefit the people whose leader he is.
At the present time, the prospects for our project are poor, because the world “leaders” are really not independent men or women; they are under the control of their respective Central Bankers, who form an international fraternity whose leaders are the Fed, the IMF, and the BIS. Whenever anything “monetary” is presented to these supposedly top world leaders, they all refer the question to their Central Bankers. These, of course, are completely against anything that will devolve real power to the population, real protection for individuals and their families. They are against all forms of SAVINGS; their whole interest lies in promoting more DEBT, and NOT more savings. They one and all consider that savings are simply a drag on GROWTH, and they want people to spend, not to save. And the silver coin promotes savings, which in fact are the fountainhead of all prosperity.
Gold cannot be monetized in this way, only silver. Gold is in fact money, so it cannot be “monetized” or “demonetized”. All that governments can do is either a) to allow it to be used as money, or b) to put up obstacles to its use as money. Currently, governments put up obstacles to use of gold as money.
Today, the peso value of a one-ounce coin of gold is $16,925 Mexican pesos (kitco.com Jan 23, 2014). Now if the Mexican government were to say that the one-ounce coin of gold has a monetary value of say, $20,000 Mexican pesos that would not put a higher monetary value upon gold; it would simply be a declaration that the peso has a lower monetary value. Such a move would not “monetize” gold – it is already money – but it would devalue the Mexican peso: to one twenty-thousandth of an ounce of gold.
- Mr. Salinas, why is it important to go back to sound money (gold and silver)? You know, “modern” economist like Nouriel Roubini call gold a “barbarous relic” and others name silver the “poor-man´s gold”.
Mr. Barba, everything in our modern world is a lie. Look wherever you will, and you will find lies. Our civilization is living on borrowed time, because you cannot deal with Reality and the problem of finding sustenance for life in Fiction or Lies; you have to deal with Reality by means of Truth, and not by Lies. If we go on pretending that we can avoid Reality by means of Lies, we are going to end up in a barbarous state.
The world is attempting to live by means of the great lie of fiat money. It will not work. You deal with Reality by means of Truth; Truth is thinking that checks with Reality. Gold is money, and if we refuse to face that fact, we are lying.
- How and why did we get to this current global economic crisis, where debts in the world (over all in the “first world” economies) are growing up exponentially? Is there any relationship between this, public deficits and the abandonment of the gold standard?
We got to this state because our leaders – in Universities and in Politics – have wished to forget Reality and have thought that by using our brains we can get around Reality. Thus our thinkers and political leaders have been attempting to put Reality to one side and in its place, use fictitious money which can be manipulated to keep people happy.
The problem is fundamentally a moral problem. Is political power to be based on Reality, or on systematic deceit of the populations of the world? Our leaders have chosen mass deceit as their instrument of power. What they will obtain will be utter chaos and disorder, and mass impoverishment.
One of the problems is that the population of the world is now headed for 7.5 billion humans, and the fact of life is that poverty never has been eliminated and never will be eliminated. There will always be people who live in misery. Now, that fact is politically unacceptable! And so, politicians lie to their populations and print up funny-money to distribute and thus appease the people. But such a policy cannot eliminate the fundamental condition of life in this world, which is that some people will always be poor. Efforts to alter this condition only lead to far more terrible conditions of utter despotism by governments such as the Bolshevik Communism of the USSR under Lenin and Stalin.
We have an educational example in the French Revolution of 1789. In 1790, the Revolution had begun and frightened businessmen contracted their operations. The complaint was “There is insufficient money!” And so the most brilliant Frenchmen thought that if there was a scarcity of gold, they had the brains to overcome this problem. How? By printing money! So they began to print money, at first in moderate amounts. But, all they got was a rising price of gold in terms of their printed money. So they began to fight gold, to disparage it and to persecute holders of gold, and they printed up endless amounts of money. It all ended very badly, after sending gold-holders to the guillotine or the galleys.
The people of Paris were reduced to starvation. Napoleon ended it all, saying: “I shall pay gold, or not pay at all.” You cannot get around the realities of life successfully, no matter how brilliant you are. The graduates of the great universities of the world, do not agree; they think they are qualified to run the world according to their brilliant ideas
- Who benefits from this policy of permanent monetary and credit expansion? What can the average person do to protect himself from this attack against his private property and purchasing power?
The clear beneficiaries of monetary and credit expansion are those who get the money and the credit first, before the rest of the people. They become wealthier, at least for a time, while the rest of the people sink into diminished well-being. But eventually, all goes up in smoke and heads begin to roll: those of the guilty as well as those of the innocent.
The only thing that the average person can do is a) to understand the situation, first of all. And b) to save up some silver and gold, which may perhaps, if he is lucky, allow him to survive the collapse that invariably comes after money and credit have been expanded beyond any limit.
- Do you think that the gold (and silver) markets could be manipulated? If so, what would be the purpose of such manipulation and could that last forever?
Of course the gold and silver markets are manipulated. You have to be either blind or a Harvard Graduate with doctorate in Economics to ignore the fact.
The purpose of the manipulation is the same as the purpose of the French Revolutionaries in attacking gold when they were printing their “Assignats” paper money like crazy; to try to suppress the indicator which showed the destruction they were carrying out with unlimited printing of fiat money. Gold tells the Truth and so it is an enemy of those who wish to deceive their populations. Paul Adolph Volcker, famous former head of the Federal Reserve of the US, once stated: “Gold is my enemy”.
Gold will triumph over paper. It always has, ever since the Chinese invented paper money many centuries ago. But in the meantime, paper money is twisting the economic facts to such a degree, that enormous distortions are taking place in the markets. Enormous investment mistakes are being made. All this will become evident in due course; a gigantic collapse is going to take place and many who think they are very wealthy will find they have next to nothing.
- Would it be possible to return to a gold standard? Would it be beneficial for creating jobs for younger generations?
A return to a gold standard will not be possible until thinkers and leaders begin to think differently from how they think today. We know for a fact that people in Asia have not forgotten about gold. They are buying gold frantically. They can see what we cannot, that the dollar is doomed. Perhaps a new monetary order may be imposed by China and Russia acting together. At least, that is a hope.
There is only one way to deal with Reality and the problem of human survival: through a clear recognition of the facts. Gold allows us to recognize the facts, however much we may dislike them. We do a disservice to the young when we continue to turn away from Reality and think that amassing paper wealth is anything that can endure. The young deserve the chance to build their lives according to their ability in dealing with Reality, and this is the chance that gold gives them.
- Do you think that the world is ruled by a certain group or groups of people, who “control” the history of this planet? Is this possible or are they just conspiracy theories?
Certainly, the world – in the current mess – is run by perhaps one thousand individuals, who use the false economic theories that prevail to further their hold on power. There may be an even smaller very influential group, within these thousand individuals. But the main problem is not these power groups: the main problem is that false economic theories are supported by billions of humans who blindly accept those theories. So actually, it is the people themselves who enslave themselves.
- Mr. Salinas, we know China has been accumulating gold at a very high rate. China is now the #1 consumer of this metal, over India. Why is gold so important to Beijing? Is the Chinese government hiding something? What do you think?
Evidently, the Chinese are not so silly as to think that gold is no longer of vital interest and importance to humans. China is thousands of years old. The US is not even 250 years old. They know that the rule of the US dollar is coming to an end, and are preparing for that moment. They are not talking about this, because they know that those who think understand China’s motives, while it is useless to explain their motives to those who will not think.
- Last year the Bundesbank reported that it would repatriate all of its gold reserves from Paris and part of them supposedly located in New York, in the 2013 – 2020 period. Nevertheless, last year they repatriated merely 37 tons and only five tons from the NY Fed. In your opinion, what would be the reason for this delay?
The reason is crystal clear: the US does not have the gold is says it has. The US was the custodian of a gold cookie-jar, and the US government simply ate up the cookies. They have no gold left-
- In one of your recent articles ("The siren song of the Welfare State"), you write that in our world the national management of an economy means “making millions of individuals do what they wouldn’t do if left to themselves.” Could you please explain this, and why the outcome of this lack of freedom is “World Socialism”?
It is very simple. When governments attempt to “manage” an economy, they have to make people do what they would not do if left to themselves. This is obvious. If government allows people do what they wish, without interference, then the government will not be “managing” anything. If government is to “manage” the economy, it MUST interfere with what individuals would do if left to themselves. “Government Management” MEANS that you are interfering in the decisions of individuals.
When government prints up money, it is twisting the economic facts and leading individuals to make decisions they would not make, if the money was gold. So here you see, people unconsciously do what they would not do if they were dealing with real money. Printing money is one of the main ways of “managing” a modern economy by mass-disinformation, because money is a transmitter of economic information through prices. If the money is false, the information it provides (prices) is false.
Now as “government management” means interfering with the decisions of individuals, the result will be impoverishment, because people always try to maximize their own benefit by their decisions, and if they are not free to take their own decisions, they are fighting a losing battle to achieve their own benefit and progress: they have to take second-best or third-best or fourth-best decisions, all to their detriment.
So this condition leads to less prosperity. As prosperity fades, governments claim they need more power, stricter management, more management to make things go better. And that process of more and more “management” finally ends up in: Socialism. Quite logical.
-In another of your articles ("When Reality overthrows imagination”), you state that at no time in history has the human kind lived in this real, physically tangible world, relying so much on the human brain’s capacity for imagination. Is this a problem that affects lives of human beings? Do they rely too much on technology and erroneous economy theories? Why?
Imagination is a wonderful and beneficent ability of the human brain, no doubt. But imagination must find an anchor in Reality. If we have no anchor, we are adrift in a world of dreams. That is our world today, a Dream World, based on fictitious money which is now being created without any limit. See Japan’s fantastic plans to create vast, astronomical sums of fiat money to get out of an economic funk. We must have imagination, yes, but anchored in Reality, not in fantastic dreams. We are dreaming ourselves into a very real Hell, thanks to imaginary money, which is what we are forced to use – all money in banks is only imaginary money.
The world is enamored of Technology and thinks that the great triumphs of technology are sufficient for us to affirm in all confidence that technology can solve human problems. But the problem is that technology deals with the physical universe, which is subject to predictable responses. The sphere of human action is not amenable to technology, because humans have free will, which atoms do not have. It appears that our so-called “Economists” today forget this fact. They want to “manage” us to prosperity, forgetting that we have free-will and will inevitably frustrate their plans for us. But, they will go on attempting to “manage” us until we collapse into a new Dark Age. That is what lies ahead for humanity, unless….. you fill in the dots.
Thanks for your time and answers Mr. Salinas.
This was the first in a series of exclusive interviews with several pundits on gold and silver. Stay tuned!
Guillermo Barba
http://www.plata.com.mx/mplata/articulos/articlesFilt.asp?fiidarticulo=229
Billionaire Hugo Salinas Price: 'Everything in our modern world is a lie' (Exclusive interview!)
Guillermo Barba
Jan. 24, 2014
Inteligencia Financiera Global blog (Global Financial Intelligence Blog) is honored to present an exclusive interview with billionaire entrepreneur Hugo Salinas Price, by Guillermo Barba. We are sure our readers from around the world will enjoy it.
****
- Mr. Salinas, thank you for accepting this interview.
As many people know, you have been an advocate for liberty, free markets and honest money among other topics. You are started the project-proposal of monetizing the pure silver coin in Mexico but, can your proposal be implemented in any country? What does it take to do that? Could gold be monetized the same way?
My proposal was, and is, to give a monetary value in local currency, to a silver coin which has no engraved value upon its face. The monetary value – higher than the value of the silver in the coin itself – could be quote, ideally from the Treasury. If the price of silver rises, this quote could be increased to give the silver coin a higher monetary value. (It could rise either because the price of silver in dollars has risen, or because the local currency has devalued.) But under no circumstances should the monetary value, once quoted, ever be reduced. If the value of the silver in the coin falls, the monetary value remains the same.
This is an entirely “doable” project. Actually, it only replicates what used to happen with silver coins up until the middle of the 20th Century. You see, silver coins, all over the world, always had monetary value superior to the value of the silver which they contained. (Same as we propose). When the value of silver fell in the 1930’s, the silver coins retained their monetary value unchanged. (Same as we propose). But silver coins disappeared when the price of silver rose after WW II. What we propose retains the silver coins as money, because if the price of silver rises, the monetary value of the coin also rises. (This was impossible in the 20th century, because the monetary value was engraved upon the coins. We eliminate that problem, by having no engraved value upon the coins.)
This project can only become a reality if a leader with enough political power a) understands our project b) wishes to do something to benefit the people whose leader he is.
At the present time, the prospects for our project are poor, because the world “leaders” are really not independent men or women; they are under the control of their respective Central Bankers, who form an international fraternity whose leaders are the Fed, the IMF, and the BIS. Whenever anything “monetary” is presented to these supposedly top world leaders, they all refer the question to their Central Bankers. These, of course, are completely against anything that will devolve real power to the population, real protection for individuals and their families. They are against all forms of SAVINGS; their whole interest lies in promoting more DEBT, and NOT more savings. They one and all consider that savings are simply a drag on GROWTH, and they want people to spend, not to save. And the silver coin promotes savings, which in fact are the fountainhead of all prosperity.
Gold cannot be monetized in this way, only silver. Gold is in fact money, so it cannot be “monetized” or “demonetized”. All that governments can do is either a) to allow it to be used as money, or b) to put up obstacles to its use as money. Currently, governments put up obstacles to use of gold as money.
Today, the peso value of a one-ounce coin of gold is $16,925 Mexican pesos (kitco.com Jan 23, 2014). Now if the Mexican government were to say that the one-ounce coin of gold has a monetary value of say, $20,000 Mexican pesos that would not put a higher monetary value upon gold; it would simply be a declaration that the peso has a lower monetary value. Such a move would not “monetize” gold – it is already money – but it would devalue the Mexican peso: to one twenty-thousandth of an ounce of gold.
- Mr. Salinas, why is it important to go back to sound money (gold and silver)? You know, “modern” economist like Nouriel Roubini call gold a “barbarous relic” and others name silver the “poor-man´s gold”.
Mr. Barba, everything in our modern world is a lie. Look wherever you will, and you will find lies. Our civilization is living on borrowed time, because you cannot deal with Reality and the problem of finding sustenance for life in Fiction or Lies; you have to deal with Reality by means of Truth, and not by Lies. If we go on pretending that we can avoid Reality by means of Lies, we are going to end up in a barbarous state.
The world is attempting to live by means of the great lie of fiat money. It will not work. You deal with Reality by means of Truth; Truth is thinking that checks with Reality. Gold is money, and if we refuse to face that fact, we are lying.
- How and why did we get to this current global economic crisis, where debts in the world (over all in the “first world” economies) are growing up exponentially? Is there any relationship between this, public deficits and the abandonment of the gold standard?
We got to this state because our leaders – in Universities and in Politics – have wished to forget Reality and have thought that by using our brains we can get around Reality. Thus our thinkers and political leaders have been attempting to put Reality to one side and in its place, use fictitious money which can be manipulated to keep people happy.
The problem is fundamentally a moral problem. Is political power to be based on Reality, or on systematic deceit of the populations of the world? Our leaders have chosen mass deceit as their instrument of power. What they will obtain will be utter chaos and disorder, and mass impoverishment.
One of the problems is that the population of the world is now headed for 7.5 billion humans, and the fact of life is that poverty never has been eliminated and never will be eliminated. There will always be people who live in misery. Now, that fact is politically unacceptable! And so, politicians lie to their populations and print up funny-money to distribute and thus appease the people. But such a policy cannot eliminate the fundamental condition of life in this world, which is that some people will always be poor. Efforts to alter this condition only lead to far more terrible conditions of utter despotism by governments such as the Bolshevik Communism of the USSR under Lenin and Stalin.
We have an educational example in the French Revolution of 1789. In 1790, the Revolution had begun and frightened businessmen contracted their operations. The complaint was “There is insufficient money!” And so the most brilliant Frenchmen thought that if there was a scarcity of gold, they had the brains to overcome this problem. How? By printing money! So they began to print money, at first in moderate amounts. But, all they got was a rising price of gold in terms of their printed money. So they began to fight gold, to disparage it and to persecute holders of gold, and they printed up endless amounts of money. It all ended very badly, after sending gold-holders to the guillotine or the galleys.
The people of Paris were reduced to starvation. Napoleon ended it all, saying: “I shall pay gold, or not pay at all.” You cannot get around the realities of life successfully, no matter how brilliant you are. The graduates of the great universities of the world, do not agree; they think they are qualified to run the world according to their brilliant ideas
- Who benefits from this policy of permanent monetary and credit expansion? What can the average person do to protect himself from this attack against his private property and purchasing power?
The clear beneficiaries of monetary and credit expansion are those who get the money and the credit first, before the rest of the people. They become wealthier, at least for a time, while the rest of the people sink into diminished well-being. But eventually, all goes up in smoke and heads begin to roll: those of the guilty as well as those of the innocent.
The only thing that the average person can do is a) to understand the situation, first of all. And b) to save up some silver and gold, which may perhaps, if he is lucky, allow him to survive the collapse that invariably comes after money and credit have been expanded beyond any limit.
- Do you think that the gold (and silver) markets could be manipulated? If so, what would be the purpose of such manipulation and could that last forever?
Of course the gold and silver markets are manipulated. You have to be either blind or a Harvard Graduate with doctorate in Economics to ignore the fact.
The purpose of the manipulation is the same as the purpose of the French Revolutionaries in attacking gold when they were printing their “Assignats” paper money like crazy; to try to suppress the indicator which showed the destruction they were carrying out with unlimited printing of fiat money. Gold tells the Truth and so it is an enemy of those who wish to deceive their populations. Paul Adolph Volcker, famous former head of the Federal Reserve of the US, once stated: “Gold is my enemy”.
Gold will triumph over paper. It always has, ever since the Chinese invented paper money many centuries ago. But in the meantime, paper money is twisting the economic facts to such a degree, that enormous distortions are taking place in the markets. Enormous investment mistakes are being made. All this will become evident in due course; a gigantic collapse is going to take place and many who think they are very wealthy will find they have next to nothing.
- Would it be possible to return to a gold standard? Would it be beneficial for creating jobs for younger generations?
A return to a gold standard will not be possible until thinkers and leaders begin to think differently from how they think today. We know for a fact that people in Asia have not forgotten about gold. They are buying gold frantically. They can see what we cannot, that the dollar is doomed. Perhaps a new monetary order may be imposed by China and Russia acting together. At least, that is a hope.
There is only one way to deal with Reality and the problem of human survival: through a clear recognition of the facts. Gold allows us to recognize the facts, however much we may dislike them. We do a disservice to the young when we continue to turn away from Reality and think that amassing paper wealth is anything that can endure. The young deserve the chance to build their lives according to their ability in dealing with Reality, and this is the chance that gold gives them.
- Do you think that the world is ruled by a certain group or groups of people, who “control” the history of this planet? Is this possible or are they just conspiracy theories?
Certainly, the world – in the current mess – is run by perhaps one thousand individuals, who use the false economic theories that prevail to further their hold on power. There may be an even smaller very influential group, within these thousand individuals. But the main problem is not these power groups: the main problem is that false economic theories are supported by billions of humans who blindly accept those theories. So actually, it is the people themselves who enslave themselves.
- Mr. Salinas, we know China has been accumulating gold at a very high rate. China is now the #1 consumer of this metal, over India. Why is gold so important to Beijing? Is the Chinese government hiding something? What do you think?
Evidently, the Chinese are not so silly as to think that gold is no longer of vital interest and importance to humans. China is thousands of years old. The US is not even 250 years old. They know that the rule of the US dollar is coming to an end, and are preparing for that moment. They are not talking about this, because they know that those who think understand China’s motives, while it is useless to explain their motives to those who will not think.
- Last year the Bundesbank reported that it would repatriate all of its gold reserves from Paris and part of them supposedly located in New York, in the 2013 – 2020 period. Nevertheless, last year they repatriated merely 37 tons and only five tons from the NY Fed. In your opinion, what would be the reason for this delay?
The reason is crystal clear: the US does not have the gold is says it has. The US was the custodian of a gold cookie-jar, and the US government simply ate up the cookies. They have no gold left-
- In one of your recent articles ("The siren song of the Welfare State"), you write that in our world the national management of an economy means “making millions of individuals do what they wouldn’t do if left to themselves.” Could you please explain this, and why the outcome of this lack of freedom is “World Socialism”?
It is very simple. When governments attempt to “manage” an economy, they have to make people do what they would not do if left to themselves. This is obvious. If government allows people do what they wish, without interference, then the government will not be “managing” anything. If government is to “manage” the economy, it MUST interfere with what individuals would do if left to themselves. “Government Management” MEANS that you are interfering in the decisions of individuals.
When government prints up money, it is twisting the economic facts and leading individuals to make decisions they would not make, if the money was gold. So here you see, people unconsciously do what they would not do if they were dealing with real money. Printing money is one of the main ways of “managing” a modern economy by mass-disinformation, because money is a transmitter of economic information through prices. If the money is false, the information it provides (prices) is false.
Now as “government management” means interfering with the decisions of individuals, the result will be impoverishment, because people always try to maximize their own benefit by their decisions, and if they are not free to take their own decisions, they are fighting a losing battle to achieve their own benefit and progress: they have to take second-best or third-best or fourth-best decisions, all to their detriment.
So this condition leads to less prosperity. As prosperity fades, governments claim they need more power, stricter management, more management to make things go better. And that process of more and more “management” finally ends up in: Socialism. Quite logical.
-In another of your articles ("When Reality overthrows imagination”), you state that at no time in history has the human kind lived in this real, physically tangible world, relying so much on the human brain’s capacity for imagination. Is this a problem that affects lives of human beings? Do they rely too much on technology and erroneous economy theories? Why?
Imagination is a wonderful and beneficent ability of the human brain, no doubt. But imagination must find an anchor in Reality. If we have no anchor, we are adrift in a world of dreams. That is our world today, a Dream World, based on fictitious money which is now being created without any limit. See Japan’s fantastic plans to create vast, astronomical sums of fiat money to get out of an economic funk. We must have imagination, yes, but anchored in Reality, not in fantastic dreams. We are dreaming ourselves into a very real Hell, thanks to imaginary money, which is what we are forced to use – all money in banks is only imaginary money.
The world is enamored of Technology and thinks that the great triumphs of technology are sufficient for us to affirm in all confidence that technology can solve human problems. But the problem is that technology deals with the physical universe, which is subject to predictable responses. The sphere of human action is not amenable to technology, because humans have free will, which atoms do not have. It appears that our so-called “Economists” today forget this fact. They want to “manage” us to prosperity, forgetting that we have free-will and will inevitably frustrate their plans for us. But, they will go on attempting to “manage” us until we collapse into a new Dark Age. That is what lies ahead for humanity, unless….. you fill in the dots.
Thanks for your time and answers Mr. Salinas.
This was the first in a series of exclusive interviews with several pundits on gold and silver. Stay tuned!
Guillermo Barba
http://www.plata.com.mx/mplata/articulos/articlesFilt.asp?fiidarticulo=229
Bank-Run Fears Continue; HSBC Restricts Large Cash Withdrawals
by Tyler Durden on 01/24/2014 21:31 -0500
Following research last week suggesting that HSBC has a major capital shortfall, the fact that several farmer's co-ops were unable to pay back depositors in China, and, of course, the liquidity crisis in China itself, news from The BBC that HSBC is imposing restrictions on large cash withdrawals raising a number of red flags. The BBC reports that some HSBC customers have been prevented from withdrawing large amounts of cash because they could not provide evidence of why they wanted it. HSBC admitted it has not informed customers of the change in policy, which was implemented in November for their own good: "We ask our customers about the purpose of large cash withdrawals when they are unusual... the reason being we have an obligation to protect our customers, and to minimise the opportunity for financial crime." As one customer responded: "you shouldn't have to explain to your bank why you want that money. It's not theirs, it's yours."
Via The BBC,
Some HSBC customers have been prevented from withdrawing large amounts of cash because they could not provide evidence of why they wanted it, the BBC has learnt.
Listeners have told Radio 4's Money Box they were stopped from withdrawing amounts ranging from £5,000 to £10,000.
HSBC admitted it has not informed customers of the change in policy, which was implemented in November.
The bank says it has now changed its guidance to staff.
...
"When we presented them with the withdrawal slip, they declined to give us the money because we could not provide them with a satisfactory explanation for what the money was for. They wanted a letter from the person involved."
Mr Cotton says the staff refused to tell him how much he could have: "So I wrote out a few slips. I said, 'Can I have £5,000?' They said no. I said, 'Can I have £4,000?' They said no. And then I wrote one out for £3,000 and they said, 'OK, we'll give you that.' "
He asked if he could return later that day to withdraw another £3,000, but he was told he could not do the same thing twice in one day.
...
Mr Cotton cannot understand HSBC's attitude: "I've been banking in that bank for 28 years. They all know me in there. You shouldn't have to explain to your bank why you want that money. It's not theirs, it's yours."
...
HSBC has said that following customer feedback, it was changing its policy: "We ask our customers about the purpose of large cash withdrawals when they are unusual and out of keeping with the normal running of their account. Since last November, in some instances we may have also asked these customers to show us evidence of what the cash is required for."
"The reason being we have an obligation to protect our customers, and to minimise the opportunity for financial crime. However, following feedback, we are immediately updating guidance to our customer facing staff to reiterate that it is not mandatory for customers to provide documentary evidence for large cash withdrawals, and on its own, failure to show evidence is not a reason to refuse a withdrawal. We are writing to apologise to any customer who has been given incorrect information and inconvenienced."
But Eric Leenders, head of retail at the British Bankers Association, said banks were sensible to ask questions of their customers: "I can understand it's frustrating for customers. But if you are making the occasional large cash withdrawal, the bank wants to make sure it's the right way to make the payment."
The arrogance is incredible...
http://www.zerohedge.com/news/2014-01-24/bank-run-fears-continue-hsbc-restricts-large-cash-withdrawals
Chinese Gold Leasing: Hidden Danger
I got this article from a source in the mainland.
In short, some enterprises in China use gold leasing from banks to solve their short-term funding problems in the hope of buying back the gold at lower levels to repay the lease. However they can be short-squeezed when gold moves higher. My source was so kind to do a quick translation for us (the west):
The Gold Bear Market Game: Spread Arbitrage Through Gold Leasing For Individuals
January 20, 2014
By Chen Zhi, Shanghai
It’s Spring Festival time again. A private business owner Chen Qian (Alias) is unhappy with her own investment impulse.
At the beginning of January, she got the 11 million RMB from a due trust product and she wanted to use it as the cushion to pay for the bills for procurement. 2 weeks later, because she couldn’t resist the temptation of a real estate trust product with an annualized rate of 11%, she put her money into this product.
To her surprise, because another sum of sales proceeds was said to be delayed, she now needed some money to pay for business procurement.
In fact, this is not her first time to be in a shortage of funds. In the past, she could pledge trust products at banks to apply for short-term bridge loans. This year, she was told banks didn’t have enough lending capacity so the bridge loan was impossible.
Therefore, she had to try the gold lease business.
Gold lease is like this: eligible businesses can lease gold from banks and pay the same quantity and grade gold when the gold lease is due and pay the relevant gold lease rate. During the lease, businesses can sell the gold to get short-term funding.
However, to her surprise, gold lease is not only a new financing tool but many business owners use it as a modern arbitrage means.
“Among my friends, there are business owners investing tens of millions of RMB and play the gold lease risk-free spread arbitrage.” Chen Qian said. But in her opinion, this kind of risk free arbitrage may have unfathomable risks.
6.7 % Funding Cost: The Involvement Of Individuals
Chen Qian’s first experience with gold lease is from the recommendation of a jewellery manufacturer.
In the past, through gold lease, this jewellery manufacturer could easily get tens of millions yuan of “cheap”funds, even in the time of credit crunch, which made her jealous.
It works like this: the jewellery manufacturer first leases 33kg of gold from a bank and then sells it through the Shanghai Gold Exchange to get around 10 million yuan (at 303 yuan/gram). Then he uses 1.5 million (15% margin rate) to buy 33 kg of gold futures contracts and use the 8.5 million left for the short-term funding of businesses.
Because the finance expenses including the gold lease expense, the brokerage fee for the futures contract are less than 0.55 million yuan, then the effective cost for the gold lease is close to 6.7 %. At the same time, the total finance expenses for bank loans (including loan rate, to cost to buy wealth management products, business audits, etc) are more than 9 %.
But not all businesses are qualified for gold lease as a means to get low rate loans. Chen Qian’s first application for gold lease was turned down. The reason is banks only lease gold to companies involved in gold market, including gold production, fabrication, sales and trade. Gold lease is not available for high net worth individuals.
Under the guide of the jewellery manufacturer, Chen Qian found that high net worth individuals can circumvent rules to get gold lease contracts. Way No. 1: set up an enterprise related to gold business. One only needs to put the phrase “gold jewellery business” into the business license to satisfy the internal compliance needs of banks. Way No 2: use the “tunnel” provided by financial lease companies and gold fabricators. One just needs to ask them to lease gold from banks to re-lease to individuals.
In her opinion, her enterprise’s internal credit rating in banks is B+ and has enough credit limit and funds so leasing gold is simple.
“Some bank insiders say, gold lease is an off-sheet lease activity. When authorities are putting tight controls on on-sheet lending, this kind of off-sheet lease business is flexible” Chen Qian said. The biggest flexibility in her opinion is lack of generalised pricing standards.
At the moment, ICBC, CCB, SPDB, BOC etc all have gold lease businesses. The 3 banks Chen met had the following rates: the lowest 3.5 %, highest 4.2 % and one is 3.8 %
“The pricing (of the lease) is related to banks’ internal pricing of risks” a person working at a Bank’s precious metals dept. This is related to the bank’s cost to deal with future gold volatility, the cost for physical delivery etc. But he emphasized that to prevent enterprises and individuals to use gold lease to get funds for speculation, most banks don’t allow non-gold related enterprises to get involved.
Every rule has loopholes. Chen found in casual chat that gold lease has become a fashionable spread arbitrage game among the enterprise owners around.
Picking Pennies In Front Of A Bulldozer Through Spread Arbitrage.
Spread arbitrage is like this: these business owners, in the background of gold’s 28% pullback in 2013, remain bearish on gold. They “borrow”gold through different ways and sell the gold on the SGE for funds. They hope to buy back the same amount of gold to repay and get the spread when gold falls further to their targets in 2014.
“A business owner signed a 3-month gold lease agreement at the end of last year and sold the gold at $1300/oz. He said he would buy back and return the gold when gold fell to $1150/oz in Q1 2014 and pocket the $150/oz difference.” Chen said. This business owner used tens of thousands of yuan. Because banks had many limitation on gold lease targets, he chose to lease physical gold from gold producers/merchants.
Gold merchants have a lot of physical gold in hand and this gold has no interest. So they would rather lease out the gold for a return.
This method is similar to banks’ gold lease. It needs business owners to put a certain percentage as margin and use real estate as pledge. During the lease, the hedge in the gold futures agreement must be done through the gold merchant’s account to control gold price volatility. But if the gold’s fall is far less than business owner’s target price to buy back the gold at the beginning of the lease, the business owner has to meet margin calls or even suffer losses.
“Gold lease is usually shorter than 1 year because the shortage the tenor, the easier to control price volatility.” The person working at the Bank’s precious metals department said. But there are some radical rich investors.
Recently, some rich people even use the funds through gold lease to invest in high yield real estate trust products to achieve “getting something from nothing”. The spread between the yield on trust products and gold lease rate is risk free in their eyes.
“Is it really risk free?” Chen was suspicious. On the one hand, many real estate investment products are facing default risks and on the other, gold lease arbitrage is facing the volatility of gold price. If these 2 risks occur at the same time, this seemingly risk-free arbitrage could be in fact “picking pennies in front of a bulldozer.”
In Gold We Trust
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Written by Koos Jansen on January 21, 2014 at 1:12 pm
http://www.ingoldwetrust.ch/chinese-gold-leasing-hidden-danger
PROJECT UPDATE: Brazil Resources Confirms Resource Estimates for Recently Acquired Projects
Wednesday January 22, 2014, 4:30am PST
By Andrew Topf - Exclusive to Gold Investing News
It’s a rare thing in today’s difficult junior resource market for a company to not only be surviving, but thriving.
One such company is Brazil Resources (TSXV:BRI), which gained 1.47 percent yesterday on the Toronto Venture Exchange after confirming the resource estimates from three gold projects it inherited late last year through its acquisition of Brazilian Gold.
Those projects are São Jorge, Boa Vista and Surubim. Together with BRI’s Cachoeira project it bought in 2012 for cash and shares, these four properties account for 3.93 million ounces in the indicated and inferred categories.
The new numbers from São Jorge, Boa Vista and Surubim confirm previous calculations done before the acquisition of Brazilian Gold, and are now compliant with National Instrument 43-101 (“NI 43-101?) – the accepted industry standard for reporting resource estimates.
Breaking it down, the São Jorge project has an indicated resource of 715,000 ounces and an inferred resource of 1.035 million ounces. Grades in the indicated category are 1.54 grams per tonne and 1.14 g/t inferred. The cutoff grade for both categories is 0.3 grams per tonne. Boa Vista has an inferred resource of 336,000 ounces graded 1.23 g/t at a 0.5 g/t cutoff, while the Surubim project has 503,000 inferred ounces graded 0.81 g/t at a cutoff of 0.3 g/t gold.
Cocheira, located Southeast of Luna Gold’s (TSX:LGC) producing Aurizona mine, has an NI 43-101-compliant indicated resource of 786,737 ounces and 563,200 ounces inferred, with grades of 1.4 g/t and 1.12 g/t respectively, according to an updated technical report and resource estimate put out last October. According to the report by engineering firm Tetra Tech, the property is similar in geology, mineralogy, topography and grade to the Aurizona mine, and that it has significant exploration upside:
“Significant exploration potential remains around and within the three known zones and the potential exists to locate additional gold mineralization along the shear zone where it passes to the northeast,” the report reads.
While BRI’s portfolio of properties (it’s also exploring the Artulandia project west of Brasilia, the Apa High property in northern Paraguay, and the previously mined Montes Aureos project) has attracted the attention of the market, with its stock up nearly 40 percent year to date, it has also earned praise from analysts and newsletter writers.
Lawrence Roulston, publisher of Resource Opportunities, wrote in a recent newsletter that Brazil Resources is “the leading gold explorer in Brazil”. Along with the company’s “extensive property position,” Roultson calls out BRI’s “exceptional management team and a strategic alliance with a powerful Brazilian financial group.”
The latter refers to BRI’s partnership with Brasilinvest Group, one of the largest private merchant banks in Brazil, while the former acknowledges the key people behind Brazil Resources. These include founder and chairman Amir Adnani, CEO of Uranium Energy Corp, (NYSE:NEC) which became the first uranium junior to mine and process uranium in the United States; president and CEO Stephen Swatton, an industry veteran whose resume includes a stint as global head of business development for BHP Billiton’s (NYSE:BHP,ASX:BHP,LSE:BLT) exploration division; director Mario Garnero, chairman and principal shareholder of Brasilinvest Group; and director Herb Dhaliwal, an influential Canadian politician who held three Cabinet posts including Minister of Natural Resources.
Brazil Resources’ model is somewhat different from most juniors trading around similar market capitalizations, which may have one or two projects and are looking to get bought out, not make additional buys. Adnani articulated the goal upon the company’s completed acquisition of Brazilian Gold last October:
“The acquisition of BGC has expanded our project base in the region and represents a significant milestone in our strategy to build shareholder value through targeted accretive acquisitions.” In other words, picking up some great assets on the cheap, something that can be done, strategically, in today’s depressed gold market. Those assets can then either be developed through further exploration, or hived off, adding to the company treasury.
According to Gold Newsletter, BRI’s acquisition of Brazilian Gold for around $13.5 million “made great sense for Brazil Resources, as it not only expanded its in situ gold profile to almost 4 million ounces, but it also came with several advanced stage assets the company’s management team is confident it can move along the development curve.”
Of course, to do that, BRI needs cash, but the company has demonstrated its ability to raise capital. On the last day of 2013 BRI announced it successfully completed an oversubscribed $6.4 million private placement, raising $1.4 million more than the initial $5 million announced placement. Again, Adnani indicated his intention of how the cash would be used:
“The proceeds of this financing will allow us to advance our long-term growth strategy, including positioning the company to take advantage of accretive opportunities in the current depressed resource markets,” he stated.
The company’s intention of seeking further acquisitions is causing industry observers to sit up and take notice, in a market where it’s easy to assume that all juniors are hurting. Not so.
“With the junior resource industry presently starved for cash, there are opportunities available,” Roulston wrote. “The cash from the private placement puts BRI in a strong position to advance its projects and to make further acquisitions.”
Securities Disclosure: I, Andrew Topf, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Brazil Resources is a client of the Investing News Network. This article is not paid-for content.
http://goldinvestingnews.com/39885/project-update-brazil-resources-confirms-resource-estimates-for-recently-acquired-projects.html
The Hows and Whys of Gold Price Manipulation
By Jason Hamlin, on January 19th, 2014
Paul Craig Roberts and Dave Kranzler present one of the best explanation that I have seen on how and why the gold price is manipulated. This detailed analysis also provides an excellent indication of where the gold price is headed in the coming years.
The deregulation of the financial system during the Clinton and George W. Bush regimes had the predictable result: financial concentration and reckless behavior. A handful of banks grew so large that financial authorities declared them “too big to fail.” Removed from market discipline, the banks became wards of the government requiring massive creation of new money by the Federal Reserve in order to support through the policy of Quantitative Easing the prices of financial instruments on the banks’ balance sheets and in order to finance at low interest rates trillion dollar federal budget deficits associated with the long recession caused by the financial crisis.
The Fed’s policy of monetizing one trillion dollars of bonds annually put pressure on the US dollar, the value of which declined in terms of gold. When gold hit $1,900 per ounce in 2011, the Federal Reserve realized that $2,000 per ounce could have a psychological impact that would spread into the dollar’s exchange rate with other currencies, resulting in a run on the dollar as both foreign and domestic holders sold dollars to avoid the fall in value. Once this realization hit, the manipulation of the gold price moved beyond central bank leasing of gold to bullion dealers in order to create an artificial market supply to absorb demand that otherwise would have pushed gold prices higher. The manipulation consists of the Fed using bullion banks as its agents to sell naked gold shorts in the New York Comex futures market. Short selling drives down the gold price, triggers stop-loss orders and margin calls, and scares participants out of the gold trusts. The bullion banks purchase the deserted shares and present them to the trusts for redemption in bullion. The bullion can then be sold in the London physical gold market, where the sales both ratify the lower price that short-selling achieved on the Comex floor and provide a supply of bullion to meet Asian demands for physical gold as opposed to paper claims on gold.
The evidence of gold price manipulation is clear. In this article we present evidence and describe the process. We conclude that ability to manipulate the gold price is disappearing as physical gold moves from New York and London to Asia, leaving the West with paper claims to gold that greatly exceed the available supply.
The primary venue of the Fed’s manipulation activity is the New York Comex exchange, where the world trades gold futures. Each gold futures contract represents one gold 100 ounce bar. The Comex is referred to as a paper gold exchange because of the use of these futures contracts. Although several large global banks are trading members of the Comex, JP Morgan, HSBC and Bank Nova Scotia conduct the majority of the trading volume. Trading of gold (and silver) futures occurs in an auction-style market on the floor of the Comex daily from 8:20 a.m. to 1:30 p.m. New York time. Comex futures trading also occurs on what is known as Globex. Globex is a computerized trading system used for derivatives, currency and futures contracts. It operates continuously except on weekends. Anyone anywhere in the world with access to a computer-based futures trading platform has access to the Globex system.
In addition to the Comex, the Fed also engages in manipulating the price of gold on the far bigger–in terms of total dollar value of trading–London gold market. This market is called the LBMA (London Bullion Marketing Association) market. It is comprised of several large banks who are LMBA market makers known as “bullion banks” (Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorganChase, Merrill Lynch/Bank of America, Mitsui, Societe Generale, Bank of Nova Scotia and UBS). Whereas the Comex is a “paper gold” exchange, the LBMA is the nexus of global physical gold trading and has been for centuries. When large buyers like Central Banks, big investment funds or wealthy private investors want to buy or sell a large amount of physical gold, they do this on the LBMA market.
The Fed’s gold manipulation operation involves exerting forceful downward pressure on the price of gold by selling a massive amount of Comex gold futures, which are dropped like bombs either on the Comex floor during NY trading hours or via the Globex system. A recent example of this occurred on Monday, January 6, 2014. After rallying over $15 in the Asian and European markets, the price of gold suddenly plunged $35 at 10:14 a.m. In a space of less than 60 seconds, more than 12,000 contracts traded – equal to more than 10% of the day’s entire volume during the 23 hour trading period in which which gold futures trade. There was no apparent news or market event that would have triggered the sudden massive increase in Comex futures selling which caused the sudden steep drop in the price of gold. At the same time, no other securities market (other than silver) experienced any unusual price or volume movement. 12,000 contracts represents 1.2 million ounces of gold, an amount that exceeds by a factor of three the total amount of gold in Comex vaults that could be delivered to the buyers of these contracts.
This manipulation by the Fed involves the short-selling of uncovered Comex gold futures. “Uncovered” means that these are contracts that are sold without any underlying physical gold to deliver if the buyer on the other side decides to ask for delivery. This is also known as “naked short selling.” The execution of the manipulative trading is conducted through one of the major gold futures trading banks, such as JPMorganChase, HSBC, and Bank of Nova Scotia. These banks do the actual selling on behalf of the Fed. The manner in which the Fed dumps a large quantity of futures contracts into the market differs from the way in which a bona fide trader looking to sell a big position would operate. The latter would try to work off his position carefully over an extended period of time with the goal of trying to disguise his selling and to disturb the price as little as possible in order to maximize profits or minimize losses. In contrast, the Fed‘s sales telegraph the intent to drive the price lower with no regard for preserving profits or fear or incurring losses, because the goal is to inflict as much damage as possible on the price and intimidate potential buyers.
The Fed also actively manipulates gold via the Globex system. The Globex market is punctuated with periods of “quiet” time in which the trade volume is very low. It is during these periods that the Fed has its agent banks bombard the market with massive quantities of gold futures over a very brief period of time for the purpose of driving the price lower. The banks know that there are very few buyers around during these time periods to absorb the selling. This drives the price lower than if the selling operation occurred when the market is more active.
A primary example of this type of intervention occurred on December 18, 2013, immediately after the FOMC announced its decision to reduce bond purchases by $10 billion monthly beginning in January 2014. With the rest of the trading world closed, including the actual Comex floor trading, a massive amount of Comex gold futures were sold on the Globex computer trading system during one of its least active periods. This selling pushed the price of gold down $23 dollars in the space of two hours. The next wave of futures selling occurred in the overnight period starting at 2:30 a.m. NY time on December 19th. This time of day is one of the least active trading periods during any 23 hour trading day (there’s one hour when gold futures stop trading altogether). Over 4900 gold contracts representing 14.5 tonnes of gold were dumped into the Globex system in a 2-minute period from 2:40-2:41 a.m, resulting in a $24 decline in the price of gold. This wasn’t the end of the selling. Shortly after the Comex floor opened later that morning, another 1,654 contracts were sold followed shortly after by another 2,295 contracts. This represented another 12.2 tonnes of gold. Then at 10:00 a.m. EST, another 2,530 contracts were unloaded on the market followed by an additional 3,482 contracts just six minutes later. These sales represented another 18.7 tonnes of gold.
All together, in 6 minutes during an eight hour period, a total amount of 37.6 tonnes (a “tonne” is a metric ton–about 10% more weight than a US ”ton”) of gold future contracts were sold. The contracts sold during these 6 minutes accounted for 10% of the total volume during that 23 hours period of time. Four-tenths of one percent of the trading day accounted for 10% of the total volume. The gold represented by the futures contracts that were sold during these 6 minutes was a multiple of the amount of physical gold available to Comex for delivery.
The purpose of driving the price of gold down was to prevent the announced reduction in bond purchases (the so-called tapering) from sending the dollar, stock and bond markets down. The markets understand that the liquidity that Quantitative Easing provides is the reason for the high bond and stock prices and understand also that the gains from the rising stock market discourage gold purchases. Previously when the Fed had mentioned that it might reduce bond purchases, the stock market fell and bonds sold off. To neutralize the market scare, the Fed manipulated both gold and stock markets. (See Pam Martens for explanation of the manipulation of the stock market: http://wallstreetonparade.com/2013/12/why-didn’t-the-stock-market-sell-off-on-the-fed’s-taper-announcement/ )
While the manipulation of the gold market has been occurring since the start of the bull market in gold in late 2000, this pattern of rampant manipulative short-selling of futures contracts has been occurring on a more intense basis over the last 2 years, during gold’s price decline from a high of $1900 in September 2011. The attack on gold’s price typically will occur during one of several key points in time during the 23 hour Globex trading period. The most common is right at the open of Comex gold futures trading, which is 8:20 a.m. New York time. To set the tone of trading, the price of gold is usually knocked down when the Comex opens. Here are the other most common times when gold futures are sold during illiquid Globex system time periods:
- 6:00 p.m NY time weekdays, when the Globex system re-opens after closing for an hour;
- 6:00 p.m. Sunday evening NY time when Globex opens for the week;
- 2:30 a.m. NY time, when Shanghai Gold Exchange closes
- 4:00 a.m. NY time, just after the morning gold “fix” on the London gold market (LBMA);
2:00 p.m. NY time any day but especially on Friday, after the Comex floor trading has closed – it’s an illiquid Globex-only session and the rest of the world is still closed.
In addition to selling futures contracts on the Comex exchange in order to drive the price of gold lower, the Fed and its agent bullion banks also intermittently sell large quantities of physical gold in London’s LBMA gold market. The process of buying and selling actual physical gold is more cumbersome and complicated than trading futures contracts. When a large supply of physical gold hits the London market all at once, it forces the market a lot lower than an equivalent amount of futures contracts would. As the availability of large amounts of physical gold is limited, these “physical gold drops” are used carefully and selectively and at times when the intended effect on the market will be most effective.
The primary purpose for short-selling futures contracts on Comex is to protect the dollar’s value from the growing supply of dollars created by the Fed’s policy of Quantitative Easing. The Fed’s use of gold leasing to supply gold to the market in order to reduce the rate of rise in the gold price has drained the Fed’s gold holdings and is creating a shortage in physical gold. Historically most big buyers would leave their gold for safe-keeping in the vaults of the Fed, Bank of England or private bullion banks rather than incur the cost of moving gold to local depositories. However, large purchasers of gold, such as China, now require actual delivery of the gold they buy.
Demands for gold delivery have forced the use of extraordinary and apparently illegal tactics in order to obtain physical gold to settle futures contracts that demand delivery and to be able to deliver bullion purchased on the London market (LBMA). Gold for delivery is obtained from opaque Central Bank gold leasing transactions, from “borrowing” client gold held by the bullion banks like JP Morgan in their LBMA custodial vaults, and by looting the gold trusts, such as GLD, of their gold holdings by purchasing large blocks of shares and redeeming the shares for gold.
Central Bank gold leasing occurs when Central Banks take physical gold they hold in custody and lease it to bullion banks. The banks sell the gold on the London physical gold market. The gold leasing transaction makes available physical gold that can be delivered to buyers in quantities that would not be available at existing prices. The use of gold leasing to manipulate the price of gold became a prevalent practice in the 1990's. While Central Banks admit to engaging in gold lease transactions, they do not admit to its purpose, which is to moderate rises in the price of gold, although Fed Chairman Alan Greenspan did admit during Congressional testimony on derivatives in 1998 that “Central banks stand ready to lease gold in increasing quantities should the price rise.”
Another method of obtaining bullion for sale or delivery is known as “rehypothecation.” Rehypothecation occurs when a bank or brokerage firm “borrows” client assets being held in custody by banks. Technically, bank/brokerage firm clients sign an agreement when they open an account in which the assets in the account might be pledged for loans, like margin loans. But the banks then take pledged assets and use them for their own purpose rather than the client’s. This is rehypothecation. Although Central Banks fully disclose the practice of leasing gold, banks/brokers do not publicly disclose the details of their rehypothecation activities.
Over the course of the 13-year gold bull market, gold leasing and rehypothecation operations have largely depleted most of the gold in the vaults of the Federal Reserve, Bank of England, European Central Bank and private bullion banks such as JPMorganChase. The depletion of vault gold became a problem when Venezuela was the first country to repatriate all of its gold being held by foreign Central Banks, primarily the Fed and the BOE. Venezuela’s request was provoked by rumors circulating the market that gold was being leased and hypothecated in increasing quantities. About a year later, Germany made a similar request. The Fed refused to honor Germany’s request and, instead, negotiated a seven year timeline in which it would ship back 300 of Germany’s 1500 tonnes. This made it apparent that the Fed did not have the gold it was supposed to be holding for Germany.
Why does the Fed need seven years in which to return 20 percent of Germany’s gold? The answer is that the Fed does not have the gold in its vault to deliver. In 2011 it took four months to return Venezuela’s 160 tonnes of gold. Obviously, the gold was not readily at hand and had to be borrowed, perhaps from unsuspecting private owners who mistakenly believe that their gold is held in trust.
Western central banks have pushed fractional gold reserve banking to the point that they haven’t enough reserves to cover withdrawals. Fractional reserve banking originated when medieval goldsmiths learned that owners of gold stored in their vault seldom withdrew the gold. Instead, those who had gold on deposit circulated paper claims to gold. This allowed goldsmiths to lend gold that they did not have by issuing paper receipts. This is what the Fed has done. The Fed has created paper claims to gold that does not exist in physical form and sold these claims in mass quantities in order to drive down the gold price. The paper claims to gold are a large multiple of the amount of actual gold available for delivery. The Reserve Bank of India reports that the ratio of paper claims to gold exceed the amount of gold available for delivery by 93:1.
Fractional reserve systems break down when too many depositors or holders of paper claims present them for delivery. Breakdown is occurring in the Fed’s fractional bullion operation. In the last few years the Asian markets–specifically and especially the Chinese–are demanding actual physical delivery of the bullion they buy. This has created a sense of urgency among the Fed, Treasury and the bullion banks to utilize any means possible to flush out as many weak holders of gold as possible with orchestrated price declines in order to acquire physical gold that can be delivered to Asian buyers.
The $650 decline in the price of gold since it hit $1900 in September 2011 is the result of a manipulative effort designed both to protect the dollar from Quantitative Easing and to free up enough gold to satisfy Asian demands for delivery of gold purchases.
Around the time of the substantial drop in gold’s price in April, 2013, the Bank of England’s public records showed a 1300 tonne decline in the amount of gold being held in the BOE bullion vaults. This is a fact that has not been denied or reasonably explained by BOE officials despite several published inquiries. This is gold that was being held in custody but not owned by the Bank of England. The truth is that the 1300 tonnes is gold that was required to satisfy delivery demands from the large Asian buyers. It is one thing for the Fed or BOE to sell, lease or rehypothecate gold out of their vault that is being safe-kept knowing the entitled owner likely won’t ask for it anytime soon, but it is another thing altogether to default on a gold delivery to Asians demanding delivery.
Default on delivery of purchased gold would terminate the Federal Reserve’s ability to manipulate the gold price. The entire world would realize that the demand for gold greatly exceeds the supply, and the price of gold would explode upwards. The Federal Reserve would lose control and would have to abandon Quantitative Easing. Otherwise, the exchange value of the US dollar would collapse, bringing to an end US financial hegemony over the world.
Last April, the major takedown in the gold price began with Goldman Sachs issuing a “technical analysis” report with an $850 price target (gold was around $1650 at that time). Goldman Sachs also broadcast to every major brokerage firm and hedge fund in New York that gold was going to drop hard in price and urged brokers to get their clients out of all physical gold holdings and/or shares in physical gold trusts like GLD or CEF. GLD and CEF are trusts that purchase physical gold/silver bullion and issue shares that represent claims on the bullion holdings. The shares are marketed as investments in gold, but represent claims that can only be redeemed in very large blocks of shares, such as 100,000, and perhaps only by bullion banks. GLD is the largest gold ETF (exchange traded firm), but not the only one. The purpose of Goldman Sachs’ announcement was to spur gold sales that would magnify the price effect of the short-selling of futures contracts. Heavy selling of futures contracts drove down the gold price and forced sales of GLD and other ETF shares, which were bought up by the bullion banks and redeemed for gold.
At the beginning of 2013, GLD held 1350 tonnes of gold. By April 12th, when the heavy intervention operation began, GLD held 1,154 tonnes. After the series of successive raids in April, the removal of gold from GLD accelerated and currently there are 793 tonnes left in the trust. In a little more than one year, more than 41% of the gold bars held by GLD were removed – most of that after the mid-April intervention operation.
In addition, the Bank of England made its gold available for purchase by the bullion banks in order to add to the ability to deliver gold to Asian purchasers.
The financial media, which is used to discredit gold as a safe haven from the printing of fiat currencies, claims that the decline in GLD’s physical gold is an indication that the public is rejecting gold as an investment. In fact, the manipulation of the gold price downward is being done systematically in order to coerce holders of GLD to unload their shares. This enables the bullion banks to accumulate the amount of shares required to redeem gold from the GLD Trust and ship that gold to Asia in order to meet the enormous delivery demands. For example, in the event described above on January 6th, 14% of GLD’s total volume for the day traded in a 1-minute period starting at 10:14 a.m. The total volume on the day for GLD was almost 35% higher than the average trading volume in GLD over the previous ten trading days.
Before 2013, the amount of gold in the GLD vault was one of the largest stockpiles of gold in the world. The swift decline in GLD’s gold inventory is the most glaring indicator of the growing shortage of physical gold supply that can be delivered to the Asian market and other large physical gold buyers. The more the price of gold is driven down in the Western paper gold market, the higher the demand for physical bullion in Asian markets. In addition, several smaller physical gold ETFs have experienced substantial gold withdrawals. Including the more than 100 tonnes of gold that has disappeared from the Comex vaults in the last year, well over 1,000 tonnes of gold has been removed from the various ETFs and bank custodial vaults in the last year. Furthermore, there is no telling how much gold that is kept in bullion bank private vaults on behalf of wealthy investors has been rehypothecated. All of this gold was removed in order to avoid defaulting on delivery demands being imposed by Asian commercial, investment and sovereign gold buyers.
The Federal Reserve seems to be trapped. The Fed is creating approximately 1,000 billion new US dollars annually in order to support the prices of debt related derivatives on the books of the few banks that have been declared to be “to big to fail” and in order to finance the large federal budget deficit that is now too large to be financed by the recycling of Chinese and OPEC trade surpluses into US Treasury debt. The problem with Quantitative Easing is that the annual creation of an enormous supply of new dollars is raising questions among American and foreign holders of vast amounts of US dollar-denominated financial instruments. They see their dollar holdings being diluted by the creation of new dollars that are not the result of an increase in wealth or GDP and for which there is no demand.
Quantitative Easing is a threat to the dollar’s exchange value. The Federal Reserve, fearful that the falling value of the dollar in terms of gold would spread into the currency markets and depreciate the dollar, decided to employ more extreme methods of gold price manipulation.
When gold hit $1,900, the Federal Reserve panicked. The manipulation of the gold price became more intense. It became more imperative to drive down the price, but the lower price resulted in higher Asian demand for which scant supplies of gold were available to meet.
Having created more paper gold claims than there is gold to satisfy, the Fed has used its dependent bullion banks to loot the gold exchange traded funds (ETFs) of gold in order to avoid default on Asian deliveries. Default would collapse the fractional bullion system that allows the Fed to drive down the gold price and protect the dollar from QE.
What we are witnessing is our central bank pulling out all stops on integrity and lawfulness in order to serve a small handful of banks that financial deregulation allowed to become “too big to fail” at the expense of our economy and our currency. When the Fed runs out of gold to borrow, to rehypothecate, and to loot from ETFs, the Fed will have to abandon QE or the US dollar will collapse and with it Washington’s power to exercise hegemony over the world.
Dave Kranzler traded high yield bonds for Bankers Trust for a decade. As a co-founder and principal of Golden Returns Capital LLC, he manages the Precious Metals Opportunity Fund.
https://www.goldstockbull.com/articles/hows-whys-gold-price-manipulation/
William Black: JP Morgan’s Frauds are Epic, Unprecedented in World History
By Greg Hunter
January 19, 2014
(special thanks to basserdan)
William Black is both a Professor of Law and Economics. He has a wealth of opinions on the politics of spying and Wall Street crime. On President Obama’s curtailing of NSA spying, Professor Black says, “It is only because of Snowden’s disclosures that we know more, and we have this debate . . . The NSA probably intercepts 50,000 documents for every one document that foreign intelligent services collect. So, we are the story internationally. . . . It turns out we were not just spying on terrorists, we were spying on the general population of the world. . . . We used the intelligence we were gathering against journalists to try to discourage whistleblowers from coming forward.” As far as President Obama’s recent curtailment of NSA spying, Professor Black says, “It really tells you the politics of the thing. They decided they had to do something politically to curtail this because they are getting terrible publicity, and they’re getting terrible publicity not just in the United States. . . . This turned into disaster in terms of public relations for the United States and in terms of diplomatic relations.”
Professor Black is a former financial regulator and an expert in white collar crime. What does the Professor think about the trouble JP Morgan Chase has been in over things such as the so-called London Whale trading losses, the selling of tainted mortgage bonds and being a conduit for convicted fraudster Bernie Madoff? Just these three legal debacles alone have cost the bank nearly $23 billion in fines, restitution and trading losses in the last year. Professor Black says, “CEO Jamie Dimon has presided over the largest financial crime spree in world history. . . . It depends on how you count it, but it is more than a dozen, and more in the range of 15 major felonies that either the United States investigators have found, state investigators have found or foreign governments have found.” The Professor goes on to say, “JP Morgan’s frauds are epic in scale, unprecedented in world history. . . in these $23 billion we’re talking about, these are frauds that made Jamie Dimon and other senior officers incredibly wealthy by creating fictional income that led to very real bonuses.”
But, it’s not just JP Morgan. According to Professor Black, the entire financial system is headed for an even bigger collapse. As a major warning sign, Professor Black points to Treasury Secretary Jack Lew’s complaint about no money for regulation in the recent budget deal. Professor Black says, “Jack Lew is the anti-canary in the coal mine because Lew has been gutting regulation for virtually all of his professional life. . . . Lew is saying, my God we’ve gone so far we’re going to cause the collapse of the system. . . . You know when Jack Lew keels over, you know that carbon monoxide has already killed everybody reasonable.” Professor Black goes on to say, “The system is ungovernable . . . It has already largely imploded.” Join Greg Hunter as he goes One-on-One with Professor William Black, who recently updated and re-released his popular book “The Best Way to Rob a Bank is to Own One.”
Manipulating the Entire IPO Market With Just $250 Million
Submitted by testosteronepit on 01/20/2014 12:43 -0500
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
Tech isn’t exactly booming, as we’ve seen from numerous revenue and earnings debacles. Most recently, Intel’s: revenues were down 1% from 2012 and 2.4% from 2011. Net income was down 13% from 2012 and 25% from 2011. Looking forward, they’d be flat, CEO Brian Krzanich warned. In 2013, the PC industry just saw its worst decline in shipments ever.
Dell and HP announced big layoffs. Other tech companies too are “realigning” their workforce. And after rumors started spinning out of control on Friday, Intel confirmed that it too would axe 5% of its workforce of about 105,000 “to align our resources to meet the needs of our business.” Revelations of how the NSA has compromised products and services of US tech companies caused orders to collapse in China, Russia, and other countries, where orders were supposed to grow at big double-digit rates. It left IBM, Cisco, and brethren with a mess on their hands [read.... Costs Of NSA Scandal To Bleed US Tech For Years].
But that hasn’t kept valuations of tech startups from being pushed into the stratosphere. Turns out, it’s relatively easy these days. By the stroke of a pen and $250 million, an elite club decided amongst each other that the “valuation” of on-line storage provider Dropbox was close to $10 billion.
BlackRock, the world’s largest money manager with $4.3 trillion in assets, is leading the deal, according to unnamed sources of the Wall Street Journal. The elite club includes “previous backers,” and they included Goldman Sachs, Sequoia Capital, Index Ventures, and Accel Partner. In 2011, Dropbox had raised $250 million from these previous backers. The deal valued it at $4 billion. With the above stroke of a pen, the value of their investments has jumped 150%. With that same stroke of the pen, they also jacked up the future valuations of all other IPOs, and many more billions will be made – just like Twitter’s IPO helped jack up Dropbox’s valuation.
Unlike certain other highfliers, like Pinterest, which raised $225 million last year in a deal that valued it at $3.8 billion though it hasn’t even figured out how to generate revenues, Dropbox has measurable revenues. Not a lot – about what a large Ford dealership might rake in, without the profits. Growth has been dramatic: In 2010, it had $12 million in revenues; in 2011, $46 million; in 2012, $116 million, and in 2013, more than $200 million, according to these unnamed sources. It has 200 million users, as co-founder and CEO Drew Houston claimed in November, up by a factor of 10 over the last three years.
But growth is slowing. So it has been trying to refocus. Instead of only going after consumers, it’s trying to reel in corporate customers with its cloud storage services. Everyone and his dog is in this business, including Microsoft, IBM, Google, Amazon, and another furiously hyped startup, Box, which has a $2 billion valuation and is planning to sell its inflated shares to the public this year.
Dropbox calls its cloud services “safe and secure.” But in April, it was widely reported that it wasn’t hard to hack into the service and then use it as a vector to deliver malware to a corporate network that could wreak all sorts of havoc and pilfer the digital crown jewels. Many corporate customers have now blacklisted Dropbox.
Unperturbed, the members of the elite club decided out of the blue that it had a $10 billion valuation, printing an instant billionaire (Drew Houston) and a lot of multi-millionaires. All for just $250 million. For BlackRock, it was petty cash.
But inflating Dropbox’s valuation to $10 billion manipulates the entire IPO market that depends on buzz and hype and folly to rationalize these ridiculous valuations. Unnamed sources “leaking” these valuations to the media are part of it. It balloons the valuations of other startups. It creates that “healthy” IPO market where money doesn’t matter, where revenues and profits are irrelevant, and where custom-fabricated metrics are used to sell these shares to the public – mostly mutual funds that bury them in your portfolio.
Even the SEC, which hardly ever warns about anything, warned about these newfangled metrics that are designed, as Chair Mary Jo White said, “to illustrate the size and growth” of these outfits that lack outmoded metrics, such as revenues and profits. She and her staff were particularly concerned that “the true meaning of the metric (or more importantly the link from metric to income and eventual profitability) may not be clear or even identified.”
So Dropbox’s 200 million users? A cute metric, sure. “It sounds good,” to use White’s words. But it says nothing about revenues and “eventual profitability.” In fact, “the connection may not necessarily be there.” Investors are supposed to be impressed and hand over their money. It’s all part of the IPO buzz and hype that characterize a “healthy” IPO market.
“Healthy” for whom? Goldman and other members of that elite club.
The purpose is to rationalize to the public that this deal is worth buying so that they will pile in and drive up the value even further. It makes the IPO market look “healthy.” Hopefully, the exuberance will last until the original investors get to dump their shares, take their hard-earned money, and move on. A similar wealth transfer takes place when a corporation prints a truckload of its shares to buy the startup, at the expense of existing shareholders. Happens all the time.
There will be a few successes out of the hundreds of IPOs spilling out of a “healthy” IPO market, and they’ll be held up forever to whet your appetite. The rest will languish in mutual funds and retirement accounts, where they eat into people’s wealth and hopes. Many of them will become penny stocks.
It isn’t often that the public is this blind to these machinations. It only happens during times of stock market exuberance, when nothing can go wrong, when stocks can only go up, and when high prices only justify even higher prices. When it all goes to heck, as it periodically does, the window of the “healthy” IPO market closes. At that point, IPOs receive actual scrutiny, buzz and hype fall on deaf ears, rationality reigns, and hardly any IPOs make it out of the gate. Those are the long years between stock market bubbles.
Corporate earnings growth slowed to almost zero, as did growth in capital expenditures, cash-flow, and sales, and corporations hold more debt than they did in 2009, wrote Societe Generale’s exasperated Global Quantitative Research team. “Thank goodness equities went up in 2013, otherwise it might have been a rather depressing year.” Read.... The Corporate Malaise That The Stock Market Is Furiously Ignoring (for now)
http://www.zerohedge.com/contributed/2014-01-20/manipulating-entire-ipo-market-just-250-million
The Hows and Whys of Gold Price Manipulation
By Jason Hamlin, on January 19th, 2014
Paul Craig Roberts and Dave Kranzler present one of the best explanation that I have seen on how and why the gold price is manipulated. This detailed analysis also provides an excellent indication of where the gold price is headed in the coming years.
The deregulation of the financial system during the Clinton and George W. Bush regimes had the predictable result: financial concentration and reckless behavior. A handful of banks grew so large that financial authorities declared them “too big to fail.” Removed from market discipline, the banks became wards of the government requiring massive creation of new money by the Federal Reserve in order to support through the policy of Quantitative Easing the prices of financial instruments on the banks’ balance sheets and in order to finance at low interest rates trillion dollar federal budget deficits associated with the long recession caused by the financial crisis.
The Fed’s policy of monetizing one trillion dollars of bonds annually put pressure on the US dollar, the value of which declined in terms of gold. When gold hit $1,900 per ounce in 2011, the Federal Reserve realized that $2,000 per ounce could have a psychological impact that would spread into the dollar’s exchange rate with other currencies, resulting in a run on the dollar as both foreign and domestic holders sold dollars to avoid the fall in value. Once this realization hit, the manipulation of the gold price moved beyond central bank leasing of gold to bullion dealers in order to create an artificial market supply to absorb demand that otherwise would have pushed gold prices higher. The manipulation consists of the Fed using bullion banks as its agents to sell naked gold shorts in the New York Comex futures market. Short selling drives down the gold price, triggers stop-loss orders and margin calls, and scares participants out of the gold trusts. The bullion banks purchase the deserted shares and present them to the trusts for redemption in bullion. The bullion can then be sold in the London physical gold market, where the sales both ratify the lower price that short-selling achieved on the Comex floor and provide a supply of bullion to meet Asian demands for physical gold as opposed to paper claims on gold.
The evidence of gold price manipulation is clear. In this article we present evidence and describe the process. We conclude that ability to manipulate the gold price is disappearing as physical gold moves from New York and London to Asia, leaving the West with paper claims to gold that greatly exceed the available supply.
The primary venue of the Fed’s manipulation activity is the New York Comex exchange, where the world trades gold futures. Each gold futures contract represents one gold 100 ounce bar. The Comex is referred to as a paper gold exchange because of the use of these futures contracts. Although several large global banks are trading members of the Comex, JP Morgan, HSBC and Bank Nova Scotia conduct the majority of the trading volume. Trading of gold (and silver) futures occurs in an auction-style market on the floor of the Comex daily from 8:20 a.m. to 1:30 p.m. New York time. Comex futures trading also occurs on what is known as Globex. Globex is a computerized trading system used for derivatives, currency and futures contracts. It operates continuously except on weekends. Anyone anywhere in the world with access to a computer-based futures trading platform has access to the Globex system.
In addition to the Comex, the Fed also engages in manipulating the price of gold on the far bigger–in terms of total dollar value of trading–London gold market. This market is called the LBMA (London Bullion Marketing Association) market. It is comprised of several large banks who are LMBA market makers known as “bullion banks” (Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorganChase, Merrill Lynch/Bank of America, Mitsui, Societe Generale, Bank of Nova Scotia and UBS). Whereas the Comex is a “paper gold” exchange, the LBMA is the nexus of global physical gold trading and has been for centuries. When large buyers like Central Banks, big investment funds or wealthy private investors want to buy or sell a large amount of physical gold, they do this on the LBMA market.
The Fed’s gold manipulation operation involves exerting forceful downward pressure on the price of gold by selling a massive amount of Comex gold futures, which are dropped like bombs either on the Comex floor during NY trading hours or via the Globex system. A recent example of this occurred on Monday, January 6, 2014. After rallying over $15 in the Asian and European markets, the price of gold suddenly plunged $35 at 10:14 a.m. In a space of less than 60 seconds, more than 12,000 contracts traded – equal to more than 10% of the day’s entire volume during the 23 hour trading period in which which gold futures trade. There was no apparent news or market event that would have triggered the sudden massive increase in Comex futures selling which caused the sudden steep drop in the price of gold. At the same time, no other securities market (other than silver) experienced any unusual price or volume movement. 12,000 contracts represents 1.2 million ounces of gold, an amount that exceeds by a factor of three the total amount of gold in Comex vaults that could be delivered to the buyers of these contracts.
This manipulation by the Fed involves the short-selling of uncovered Comex gold futures. “Uncovered” means that these are contracts that are sold without any underlying physical gold to deliver if the buyer on the other side decides to ask for delivery. This is also known as “naked short selling.” The execution of the manipulative trading is conducted through one of the major gold futures trading banks, such as JPMorganChase, HSBC, and Bank of Nova Scotia. These banks do the actual selling on behalf of the Fed. The manner in which the Fed dumps a large quantity of futures contracts into the market differs from the way in which a bona fide trader looking to sell a big position would operate. The latter would try to work off his position carefully over an extended period of time with the goal of trying to disguise his selling and to disturb the price as little as possible in order to maximize profits or minimize losses. In contrast, the Fed‘s sales telegraph the intent to drive the price lower with no regard for preserving profits or fear or incurring losses, because the goal is to inflict as much damage as possible on the price and intimidate potential buyers.
The Fed also actively manipulates gold via the Globex system. The Globex market is punctuated with periods of “quiet” time in which the trade volume is very low. It is during these periods that the Fed has its agent banks bombard the market with massive quantities of gold futures over a very brief period of time for the purpose of driving the price lower. The banks know that there are very few buyers around during these time periods to absorb the selling. This drives the price lower than if the selling operation occurred when the market is more active.
A primary example of this type of intervention occurred on December 18, 2013, immediately after the FOMC announced its decision to reduce bond purchases by $10 billion monthly beginning in January 2014. With the rest of the trading world closed, including the actual Comex floor trading, a massive amount of Comex gold futures were sold on the Globex computer trading system during one of its least active periods. This selling pushed the price of gold down $23 dollars in the space of two hours. The next wave of futures selling occurred in the overnight period starting at 2:30 a.m. NY time on December 19th. This time of day is one of the least active trading periods during any 23 hour trading day (there’s one hour when gold futures stop trading altogether). Over 4900 gold contracts representing 14.5 tonnes of gold were dumped into the Globex system in a 2-minute period from 2:40-2:41 a.m, resulting in a $24 decline in the price of gold. This wasn’t the end of the selling. Shortly after the Comex floor opened later that morning, another 1,654 contracts were sold followed shortly after by another 2,295 contracts. This represented another 12.2 tonnes of gold. Then at 10:00 a.m. EST, another 2,530 contracts were unloaded on the market followed by an additional 3,482 contracts just six minutes later. These sales represented another 18.7 tonnes of gold.
All together, in 6 minutes during an eight hour period, a total amount of 37.6 tonnes (a “tonne” is a metric ton–about 10% more weight than a US ”ton”) of gold future contracts were sold. The contracts sold during these 6 minutes accounted for 10% of the total volume during that 23 hours period of time. Four-tenths of one percent of the trading day accounted for 10% of the total volume. The gold represented by the futures contracts that were sold during these 6 minutes was a multiple of the amount of physical gold available to Comex for delivery.
The purpose of driving the price of gold down was to prevent the announced reduction in bond purchases (the so-called tapering) from sending the dollar, stock and bond markets down. The markets understand that the liquidity that Quantitative Easing provides is the reason for the high bond and stock prices and understand also that the gains from the rising stock market discourage gold purchases. Previously when the Fed had mentioned that it might reduce bond purchases, the stock market fell and bonds sold off. To neutralize the market scare, the Fed manipulated both gold and stock markets. (See Pam Martens for explanation of the manipulation of the stock market: http://wallstreetonparade.com/2013/12/why-didn’t-the-stock-market-sell-off-on-the-fed’s-taper-announcement/ )
While the manipulation of the gold market has been occurring since the start of the bull market in gold in late 2000, this pattern of rampant manipulative short-selling of futures contracts has been occurring on a more intense basis over the last 2 years, during gold’s price decline from a high of $1900 in September 2011. The attack on gold’s price typically will occur during one of several key points in time during the 23 hour Globex trading period. The most common is right at the open of Comex gold futures trading, which is 8:20 a.m. New York time. To set the tone of trading, the price of gold is usually knocked down when the Comex opens. Here are the other most common times when gold futures are sold during illiquid Globex system time periods:
- 6:00 p.m NY time weekdays, when the Globex system re-opens after closing for an hour;
- 6:00 p.m. Sunday evening NY time when Globex opens for the week;
- 2:30 a.m. NY time, when Shanghai Gold Exchange closes
- 4:00 a.m. NY time, just after the morning gold “fix” on the London gold market (LBMA);
2:00 p.m. NY time any day but especially on Friday, after the Comex floor trading has closed – it’s an illiquid Globex-only session and the rest of the world is still closed.
In addition to selling futures contracts on the Comex exchange in order to drive the price of gold lower, the Fed and its agent bullion banks also intermittently sell large quantities of physical gold in London’s LBMA gold market. The process of buying and selling actual physical gold is more cumbersome and complicated than trading futures contracts. When a large supply of physical gold hits the London market all at once, it forces the market a lot lower than an equivalent amount of futures contracts would. As the availability of large amounts of physical gold is limited, these “physical gold drops” are used carefully and selectively and at times when the intended effect on the market will be most effective.
The primary purpose for short-selling futures contracts on Comex is to protect the dollar’s value from the growing supply of dollars created by the Fed’s policy of Quantitative Easing. The Fed’s use of gold leasing to supply gold to the market in order to reduce the rate of rise in the gold price has drained the Fed’s gold holdings and is creating a shortage in physical gold. Historically most big buyers would leave their gold for safe-keeping in the vaults of the Fed, Bank of England or private bullion banks rather than incur the cost of moving gold to local depositories. However, large purchasers of gold, such as China, now require actual delivery of the gold they buy.
Demands for gold delivery have forced the use of extraordinary and apparently illegal tactics in order to obtain physical gold to settle futures contracts that demand delivery and to be able to deliver bullion purchased on the London market (LBMA). Gold for delivery is obtained from opaque Central Bank gold leasing transactions, from “borrowing” client gold held by the bullion banks like JP Morgan in their LBMA custodial vaults, and by looting the gold trusts, such as GLD, of their gold holdings by purchasing large blocks of shares and redeeming the shares for gold.
Central Bank gold leasing occurs when Central Banks take physical gold they hold in custody and lease it to bullion banks. The banks sell the gold on the London physical gold market. The gold leasing transaction makes available physical gold that can be delivered to buyers in quantities that would not be available at existing prices. The use of gold leasing to manipulate the price of gold became a prevalent practice in the 1990's. While Central Banks admit to engaging in gold lease transactions, they do not admit to its purpose, which is to moderate rises in the price of gold, although Fed Chairman Alan Greenspan did admit during Congressional testimony on derivatives in 1998 that “Central banks stand ready to lease gold in increasing quantities should the price rise.”
Another method of obtaining bullion for sale or delivery is known as “rehypothecation.” Rehypothecation occurs when a bank or brokerage firm “borrows” client assets being held in custody by banks. Technically, bank/brokerage firm clients sign an agreement when they open an account in which the assets in the account might be pledged for loans, like margin loans. But the banks then take pledged assets and use them for their own purpose rather than the client’s. This is rehypothecation. Although Central Banks fully disclose the practice of leasing gold, banks/brokers do not publicly disclose the details of their rehypothecation activities.
Over the course of the 13-year gold bull market, gold leasing and rehypothecation operations have largely depleted most of the gold in the vaults of the Federal Reserve, Bank of England, European Central Bank and private bullion banks such as JPMorganChase. The depletion of vault gold became a problem when Venezuela was the first country to repatriate all of its gold being held by foreign Central Banks, primarily the Fed and the BOE. Venezuela’s request was provoked by rumors circulating the market that gold was being leased and hypothecated in increasing quantities. About a year later, Germany made a similar request. The Fed refused to honor Germany’s request and, instead, negotiated a seven year timeline in which it would ship back 300 of Germany’s 1500 tonnes. This made it apparent that the Fed did not have the gold it was supposed to be holding for Germany.
Why does the Fed need seven years in which to return 20 percent of Germany’s gold? The answer is that the Fed does not have the gold in its vault to deliver. In 2011 it took four months to return Venezuela’s 160 tonnes of gold. Obviously, the gold was not readily at hand and had to be borrowed, perhaps from unsuspecting private owners who mistakenly believe that their gold is held in trust.
Western central banks have pushed fractional gold reserve banking to the point that they haven’t enough reserves to cover withdrawals. Fractional reserve banking originated when medieval goldsmiths learned that owners of gold stored in their vault seldom withdrew the gold. Instead, those who had gold on deposit circulated paper claims to gold. This allowed goldsmiths to lend gold that they did not have by issuing paper receipts. This is what the Fed has done. The Fed has created paper claims to gold that does not exist in physical form and sold these claims in mass quantities in order to drive down the gold price. The paper claims to gold are a large multiple of the amount of actual gold available for delivery. The Reserve Bank of India reports that the ratio of paper claims to gold exceed the amount of gold available for delivery by 93:1.
Fractional reserve systems break down when too many depositors or holders of paper claims present them for delivery. Breakdown is occurring in the Fed’s fractional bullion operation. In the last few years the Asian markets–specifically and especially the Chinese–are demanding actual physical delivery of the bullion they buy. This has created a sense of urgency among the Fed, Treasury and the bullion banks to utilize any means possible to flush out as many weak holders of gold as possible with orchestrated price declines in order to acquire physical gold that can be delivered to Asian buyers.
The $650 decline in the price of gold since it hit $1900 in September 2011 is the result of a manipulative effort designed both to protect the dollar from Quantitative Easing and to free up enough gold to satisfy Asian demands for delivery of gold purchases.
Around the time of the substantial drop in gold’s price in April, 2013, the Bank of England’s public records showed a 1300 tonne decline in the amount of gold being held in the BOE bullion vaults. This is a fact that has not been denied or reasonably explained by BOE officials despite several published inquiries. This is gold that was being held in custody but not owned by the Bank of England. The truth is that the 1300 tonnes is gold that was required to satisfy delivery demands from the large Asian buyers. It is one thing for the Fed or BOE to sell, lease or rehypothecate gold out of their vault that is being safe-kept knowing the entitled owner likely won’t ask for it anytime soon, but it is another thing altogether to default on a gold delivery to Asians demanding delivery.
Default on delivery of purchased gold would terminate the Federal Reserve’s ability to manipulate the gold price. The entire world would realize that the demand for gold greatly exceeds the supply, and the price of gold would explode upwards. The Federal Reserve would lose control and would have to abandon Quantitative Easing. Otherwise, the exchange value of the US dollar would collapse, bringing to an end US financial hegemony over the world.
Last April, the major takedown in the gold price began with Goldman Sachs issuing a “technical analysis” report with an $850 price target (gold was around $1650 at that time). Goldman Sachs also broadcast to every major brokerage firm and hedge fund in New York that gold was going to drop hard in price and urged brokers to get their clients out of all physical gold holdings and/or shares in physical gold trusts like GLD or CEF. GLD and CEF are trusts that purchase physical gold/silver bullion and issue shares that represent claims on the bullion holdings. The shares are marketed as investments in gold, but represent claims that can only be redeemed in very large blocks of shares, such as 100,000, and perhaps only by bullion banks. GLD is the largest gold ETF (exchange traded firm), but not the only one. The purpose of Goldman Sachs’ announcement was to spur gold sales that would magnify the price effect of the short-selling of futures contracts. Heavy selling of futures contracts drove down the gold price and forced sales of GLD and other ETF shares, which were bought up by the bullion banks and redeemed for gold.
At the beginning of 2013, GLD held 1350 tonnes of gold. By April 12th, when the heavy intervention operation began, GLD held 1,154 tonnes. After the series of successive raids in April, the removal of gold from GLD accelerated and currently there are 793 tonnes left in the trust. In a little more than one year, more than 41% of the gold bars held by GLD were removed – most of that after the mid-April intervention operation.
In addition, the Bank of England made its gold available for purchase by the bullion banks in order to add to the ability to deliver gold to Asian purchasers.
The financial media, which is used to discredit gold as a safe haven from the printing of fiat currencies, claims that the decline in GLD’s physical gold is an indication that the public is rejecting gold as an investment. In fact, the manipulation of the gold price downward is being done systematically in order to coerce holders of GLD to unload their shares. This enables the bullion banks to accumulate the amount of shares required to redeem gold from the GLD Trust and ship that gold to Asia in order to meet the enormous delivery demands. For example, in the event described above on January 6th, 14% of GLD’s total volume for the day traded in a 1-minute period starting at 10:14 a.m. The total volume on the day for GLD was almost 35% higher than the average trading volume in GLD over the previous ten trading days.
Before 2013, the amount of gold in the GLD vault was one of the largest stockpiles of gold in the world. The swift decline in GLD’s gold inventory is the most glaring indicator of the growing shortage of physical gold supply that can be delivered to the Asian market and other large physical gold buyers. The more the price of gold is driven down in the Western paper gold market, the higher the demand for physical bullion in Asian markets. In addition, several smaller physical gold ETFs have experienced substantial gold withdrawals. Including the more than 100 tonnes of gold that has disappeared from the Comex vaults in the last year, well over 1,000 tonnes of gold has been removed from the various ETFs and bank custodial vaults in the last year. Furthermore, there is no telling how much gold that is kept in bullion bank private vaults on behalf of wealthy investors has been rehypothecated. All of this gold was removed in order to avoid defaulting on delivery demands being imposed by Asian commercial, investment and sovereign gold buyers.
The Federal Reserve seems to be trapped. The Fed is creating approximately 1,000 billion new US dollars annually in order to support the prices of debt related derivatives on the books of the few banks that have been declared to be “to big to fail” and in order to finance the large federal budget deficit that is now too large to be financed by the recycling of Chinese and OPEC trade surpluses into US Treasury debt. The problem with Quantitative Easing is that the annual creation of an enormous supply of new dollars is raising questions among American and foreign holders of vast amounts of US dollar-denominated financial instruments. They see their dollar holdings being diluted by the creation of new dollars that are not the result of an increase in wealth or GDP and for which there is no demand.
Quantitative Easing is a threat to the dollar’s exchange value. The Federal Reserve, fearful that the falling value of the dollar in terms of gold would spread into the currency markets and depreciate the dollar, decided to employ more extreme methods of gold price manipulation.
When gold hit $1,900, the Federal Reserve panicked. The manipulation of the gold price became more intense. It became more imperative to drive down the price, but the lower price resulted in higher Asian demand for which scant supplies of gold were available to meet.
Having created more paper gold claims than there is gold to satisfy, the Fed has used its dependent bullion banks to loot the gold exchange traded funds (ETFs) of gold in order to avoid default on Asian deliveries. Default would collapse the fractional bullion system that allows the Fed to drive down the gold price and protect the dollar from QE.
What we are witnessing is our central bank pulling out all stops on integrity and lawfulness in order to serve a small handful of banks that financial deregulation allowed to become “too big to fail” at the expense of our economy and our currency. When the Fed runs out of gold to borrow, to rehypothecate, and to loot from ETFs, the Fed will have to abandon QE or the US dollar will collapse and with it Washington’s power to exercise hegemony over the world.
Dave Kranzler traded high yield bonds for Bankers Trust for a decade. As a co-founder and principal of Golden Returns Capital LLC, he manages the Precious Metals Opportunity Fund.
https://www.goldstockbull.com/articles/hows-whys-gold-price-manipulation/
Swiss Gold Coins Are Ready To Change The World
Gold Silver Worlds | January 15, 2014
This article is reprinted from the latest Journal Of The Gold Standard Institute.
“Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world?” was the famous question that Steve Jobs asked PepsiCo’s vice president John Sculley to win him for his company. We ask you the same question to win you for the Swiss Gold Coin Initiative. It is a project with historic potential, fully developed and ready for one or several visionary investors to make it happen.
Let’s get to the point:
Switzerland is in a unique position, thanks to its direct democratic rights, to legalize, via a popular initiative, the introduction of constitutionally protected private gold coins. The constitution shall be amended as follows:
Article 99bis (new)
Swiss Gold Coins
1. The Federal government shall define the rules for the issuance of a set of quickly and easily tradable gold coins with a solid, clearly recognizable gold content starting at 0.1 grams.
2. The issuance of the coins (production, coinage, placing on the market) is provided by Swiss companies. The coins bear a unified symbol of Swiss origin, indicate the gold content in grams and a freely designed identification of the issuer.
3. The issuance, acquisition and trading of the gold coins are tax and duty free.
I spare the distinguished readers of this journal the arguments of why gold is the best known hedge against the dangers in today’s paper money regime.
Less well known are the obstacles in today’s gold market. In Switzerland, for example, the federal government has the monopoly for minting coins which means the private production of gold coins is illegal. The last government made gold coins, the “Vrenelis”, were manufactured in 1949. They cost about 220 Dollars per coin and their buying generally requires professional advice.
Even more serious is that the tax exemption for gold as an investment is regulated in an ordinance and ordinances can be changed relatively easily. As long as the ownership of gold is, according to ProAurorum, limited to 13% of the Swiss population, a sudden tax on gold would leave 87% of the population unaffected and therefore likely unconcerned. At the same time the tax exemption for gold is an essential precondition for gold to serve as an investment hedge.
The Gold Coin Initiative will remove these obstacles and allow the private production of simple and practical gold coins.
The smallest size will be regular metal coins with 0.1 gram gold in their center, available for about 5 Dollars, which will open up a new dimension in accessibility to the gold market. The new coins will be standardized, suited for daily use and readily available, even from ATM’s. With their introduction it may be expected that ownership of gold increases from 13% of the population to 99%. This is decisive because only when the great majority of the population has an interest in it is the taxfree status of gold guaranteed in a democracy!
The initiative not only has advantages but at the same time no disadvantages. The reason ultimately lies in the fact that technically we are just facilitating the already existing gold trade and anchoring the also already existing tax exemption in the constitution. There are no costs and no risks to the public and the taxpayer.
To illustrate the potential benefits let’s take a look into the future, let’s say three years after the acceptance of the initiative.
Today, that is, three years after adoption of the initiative, gold coins are as familiar to the Swiss as Euros and Dollars. Small savers diversify their investments with gold as easily as only specialists and big savers used to. Gold coins serve as part of investment plans, as presents and kids once again love to save in piggy banks. Pension fund clients may choose to save up to 10% in physical gold coins, in life insurance contracts up to 20% can be selected.
On the international level large scale investors value the constitutionally protected tax exemption for gold coins. Insurance companies offer life insurance policies with gold coin annuities and their VIP clients can tour the gold storage facilities. Banks plan to issue debit cards, gold bonds and international commercial contracts in gold.
Swiss Gold Coins are produced for the whole world and foreign gold producers are building Swiss subsidiaries. A new high tech industry is developing around the technology to prevent forgery through new alloys, holograms and even microchips for large coins, in cooperation with the jewelry and watch industry.
Marketing departments and artists love to issue coins with innovative designs, tourist regions and hotels use gold coins sold exclusively on site as an additional unique selling point.
The highly visible and popular gold coin souvenirs are appearing all over the world and are causing grass root “bottom up” political pressure in other countries to introduce Gold Coins as well, while the manufacturing and financial industries there are putting on pressure “top down”.
The Swiss experience has shown that Gold coins are used not as a medium of exchange, but as an additional “safe haven” alternative for investors. Gold coins will therefore not be monetary competition for the Central Bank’s independence. In the special Swiss case the National bank was even helped in its fight for a less volatile exchange rate by the gold coins function as a safe haven alternative to the Swiss Franc.
These are only rough sketches of already foreseeable developments while we may expect that reality will far surpass them. Who would have thought, for example, that the opening up of the airwaves for personal communication, the “democratization of the walkie-talkie” so to speak by the mobile telephone would simultaneously lead to SMS to mobile Skype apps, and Twitter? Reality has in that case far surpassed even the imagination of science fiction writers and it is quite possible that the “democratization of Gold” will lead to similarly surprising innovations.
Conclusion: The Swiss Gold Coin Initiative is a unique, politically realistic and potentially far reaching reformation of the monetary system. The next step is the collection of 100 000 signatures in Switzerland. To get started requires about the same number Dollars Considering the dangers in today’s paper money system and in view of the anticipated benefits of the initiative its realization is not only a urgent opportunity, but a moral obligation for whoever can contribute to it.
More information under www.goldfranc.org
Author: Thomas Jacob | President Gold Franc Association
http://goldsilverworlds.com/physical-market/swiss-gold-coins-are-ready-to-change-the-world/
Swiss Gold Coins Are Ready To Change The World
Gold Silver Worlds | January 15, 2014
This article is reprinted from the latest Journal Of The Gold Standard Institute.
“Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world?” was the famous question that Steve Jobs asked PepsiCo’s vice president John Sculley to win him for his company. We ask you the same question to win you for the Swiss Gold Coin Initiative. It is a project with historic potential, fully developed and ready for one or several visionary investors to make it happen.
Let’s get to the point:
Switzerland is in a unique position, thanks to its direct democratic rights, to legalize, via a popular initiative, the introduction of constitutionally protected private gold coins. The constitution shall be amended as follows:
Article 99bis (new)
Swiss Gold Coins
1. The Federal government shall define the rules for the issuance of a set of quickly and easily tradable gold coins with a solid, clearly recognizable gold content starting at 0.1 grams.
2. The issuance of the coins (production, coinage, placing on the market) is provided by Swiss companies. The coins bear a unified symbol of Swiss origin, indicate the gold content in grams and a freely designed identification of the issuer.
3. The issuance, acquisition and trading of the gold coins are tax and duty free.
I spare the distinguished readers of this journal the arguments of why gold is the best known hedge against the dangers in today’s paper money regime.
Less well known are the obstacles in today’s gold market. In Switzerland, for example, the federal government has the monopoly for minting coins which means the private production of gold coins is illegal. The last government made gold coins, the “Vrenelis”, were manufactured in 1949. They cost about 220 Dollars per coin and their buying generally requires professional advice.
Even more serious is that the tax exemption for gold as an investment is regulated in an ordinance and ordinances can be changed relatively easily. As long as the ownership of gold is, according to ProAurorum, limited to 13% of the Swiss population, a sudden tax on gold would leave 87% of the population unaffected and therefore likely unconcerned. At the same time the tax exemption for gold is an essential precondition for gold to serve as an investment hedge.
The Gold Coin Initiative will remove these obstacles and allow the private production of simple and practical gold coins.
The smallest size will be regular metal coins with 0.1 gram gold in their center, available for about 5 Dollars, which will open up a new dimension in accessibility to the gold market. The new coins will be standardized, suited for daily use and readily available, even from ATM’s. With their introduction it may be expected that ownership of gold increases from 13% of the population to 99%. This is decisive because only when the great majority of the population has an interest in it is the taxfree status of gold guaranteed in a democracy!
The initiative not only has advantages but at the same time no disadvantages. The reason ultimately lies in the fact that technically we are just facilitating the already existing gold trade and anchoring the also already existing tax exemption in the constitution. There are no costs and no risks to the public and the taxpayer.
To illustrate the potential benefits let’s take a look into the future, let’s say three years after the acceptance of the initiative.
Today, that is, three years after adoption of the initiative, gold coins are as familiar to the Swiss as Euros and Dollars. Small savers diversify their investments with gold as easily as only specialists and big savers used to. Gold coins serve as part of investment plans, as presents and kids once again love to save in piggy banks. Pension fund clients may choose to save up to 10% in physical gold coins, in life insurance contracts up to 20% can be selected.
On the international level large scale investors value the constitutionally protected tax exemption for gold coins. Insurance companies offer life insurance policies with gold coin annuities and their VIP clients can tour the gold storage facilities. Banks plan to issue debit cards, gold bonds and international commercial contracts in gold.
Swiss Gold Coins are produced for the whole world and foreign gold producers are building Swiss subsidiaries. A new high tech industry is developing around the technology to prevent forgery through new alloys, holograms and even microchips for large coins, in cooperation with the jewelry and watch industry.
Marketing departments and artists love to issue coins with innovative designs, tourist regions and hotels use gold coins sold exclusively on site as an additional unique selling point.
The highly visible and popular gold coin souvenirs are appearing all over the world and are causing grass root “bottom up” political pressure in other countries to introduce Gold Coins as well, while the manufacturing and financial industries there are putting on pressure “top down”.
The Swiss experience has shown that Gold coins are used not as a medium of exchange, but as an additional “safe haven” alternative for investors. Gold coins will therefore not be monetary competition for the Central Bank’s independence. In the special Swiss case the National bank was even helped in its fight for a less volatile exchange rate by the gold coins function as a safe haven alternative to the Swiss Franc.
These are only rough sketches of already foreseeable developments while we may expect that reality will far surpass them. Who would have thought, for example, that the opening up of the airwaves for personal communication, the “democratization of the walkie-talkie” so to speak by the mobile telephone would simultaneously lead to SMS to mobile Skype apps, and Twitter? Reality has in that case far surpassed even the imagination of science fiction writers and it is quite possible that the “democratization of Gold” will lead to similarly surprising innovations.
Conclusion: The Swiss Gold Coin Initiative is a unique, politically realistic and potentially far reaching reformation of the monetary system. The next step is the collection of 100 000 signatures in Switzerland. To get started requires about the same number Dollars Considering the dangers in today’s paper money system and in view of the anticipated benefits of the initiative its realization is not only a urgent opportunity, but a moral obligation for whoever can contribute to it.
More information under www.goldfranc.org
Author: Thomas Jacob | President Gold Franc Association
http://goldsilverworlds.com/physical-market/swiss-gold-coins-are-ready-to-change-the-world/
Rules of Thumb for Junior Mining Speculators and A Light at the End of the Tunnel
POSTED ON JANUARY 15, 2014 BY BRENT COOK
“Fundamental trends have been set in motion over the past few years that follow upon the previous decade-long bull market and that point to an improving investment climate for the junior miners.”
Rules of Thumb for Junior Mining Speculators —A Light at the End of the Tunnel
by Brent Cook. Initially published by Streetwise Reports (The Gold Report–1/13/14)
www.explorationinsights.com
As we all know, for most speculators and investors the past few years in the mining and exploration sector have been disastrous. However, there are a number of fundamental trends that have been set in motion over the past few years that follow upon the previous decade long bull market that point to an improving investment climate for the junior miners. We will deal with that below and lay out some useful rules of thumb for interested investors; but first, let’s briefly consider where we are today.
With inflation expectations low and metal prices apparently contained, I don’t see a pending catalyst to pop metal prices or entice the crowd into our antiquated sector. Further, given the mining sector’s very poor returns to investors who bought into the commodity boom and currency debasement story, it is difficult to see them stepping back in again. Where the next big slug of new money for mining and exploration will come from is not apparent.
Barring a significant rise in metal prices, the larger mining companies will continue to cut wherever they can. This means: people, projects, exploration, and development. Most will also be forced to lower production costs via high grading—a process that ultimately guts a deposit, rendering rock previously classified as ore, as waste.
It also means we are unlikely to see a buying binge by the miners because they are in the unenviable position of proving that mining their current deposits is a viable business. Good luck on that one!
Money will remain tight for development projects, extremely limited for exploration, and virtually non-existent for conceptual ideas. Mediocre junior miners, and explorers without sufficient funds to survive the year, will be decimated. Therefore, I expect 2014 will also be another tough year for most explorers.
However (and I need to point out that this is the most positive I have been for some time) 2014 should be a good year for investors to begin positioning themselves in the better metal deposits, mining companies, and the most competent explorers. The reason is quite simple: the industry is not finding enough economicdeposits to replace mine production.
The drastic cost saving measures being implemented by most miners, combined with the increasing difficulty and cost of exploring, plus the length of time to permit these activities, is compounding the already low odds of discovery success. Throw in the pervading political, social, environmental, and financial uncertainties of exploration and mining, and we are virtually guaranteed the industry will be devoting less time and money to finding the fewer and fewer deposits that might be viable. This dearth of exploration comes despite strong global metal consumption and the fact that a deposit found today would take between 4 and 20 years to begin producing. We are not replacing the 2013 global gold production of ~86 million ounces, ~7.4 million ounces of platinum, or ~18 million tonnes of copper, etc.
There is a pinch point coming sometime in the future that will coincide with the “investing” crowd waking up to the fact that mined Bitcoins actually don’t go into refrigerators or cars, nor factor into a central banker’s view of the world. We have covered this topic many times in past EI issues—this very simple idea is the one “macro-view” that seems most likely to be proven right, eventually. Quality metal deposits and the people capable of finding them will become increasingly valuable the longer this bear market lasts.
With that prelude out of the way, we here at Exploration Insights would like to offer those of you still interested in the junior mining sector some guidelines and rules of thumb for junior mining speculators.
The following compilation summarizes these ideas collected from correspondence between myself and a number of accomplished friends in the industry—specifically: Ron Stewart, Managing Director Clarus Securities; Quinton Hennigh, CEO Novo Resources and all around top geologist; and Steve Ristorcelli, President Mine Development Associates.
Although there will undoubtedly be good projects or companies that are screened out by these “rules”, in the long run I have found it to be more important to first, avoid a loss and next, concentrate on a gain. Money lost is hard to win back; and losses are especially painful if the writing was already on the wall.
The Rules and Guidelines. . .
Desktop Reviews
An initial company review can be done at one’s desk, and should take no more than about 90 minutes. Easily more than fifty percent of companies fall out at this first-stage review. Information that a company chooses to present on (or withhold from) its website provides valuable insights into the company’s competence, or lack thereof, as well as its general approach towards exploration. In addition to the working capital, debt, burn, share structure, executive compensation, asset ownership, project jurisdiction, and management bio’s that should be readily obtainable from page one, notice how the company is presenting itself.
American eagles, stars and stripes, the Statue of Liberty, cowboy boots, and gold bars prominently displayed all over the front page are big red flags that say, “Put your running shoes on, folks”.
Likewise, the more gold that is plastered all over the website, the less there is likely to be in the ground.
If the company happens to be only OTC listed, run, don’t walk: these companies are not subject to the same oversight as companies listed on larger exchanges. A recent example, Mission Mining, is an OTC listed company operating completely outside the bounds of acceptability and accountability.
My personal avoid list also includes companies domiciled anywhere near Las Vegas (see Mission above), Scottsdale, and even Miami.
Be very wary of oddball minerals that purportedly account for a significant economic value in the rock.
“Proprietary” anything should make you nervous—as in “proprietary assay techniques”, metallurgical processes, or modeling software.
If anyone ever raises money on projects in the Moapa Formation (see Las Vegas again) or getting gold out of cinder cones, sell everything—we are in a bubble.
Also useful “uh-oh” data points include:
How many times has the project been renamed? The more times a project picks up a new name, the closer to zero is its value.
Similarly, how many times has a company changed its focus while chasing the next hot story, be it uranium, rare earths, or an area play. Although money can be made on these ambulance chasers, one must be more nimble than the founders—who have usually run these flash in the pan stock jobs through many cycles.
Is management financially committed to making shareholders money? Unless they own a significant position relative to their net worth you may not be getting 110% of their effort.
Insider selling is usually not a good sign, although there are times it is necessary—just find out the reason.
Friday evening and long holiday weekend news releases are generally bad news
Small mines, restarts, and reprocessing of tailings usually don’t work. Everything that can go wrong with a big mine can happen to a small one; but they are usually undercapitalized with no room for error. If one wants to be involved in small operations, go with a team that has successfully and profitably done so in the past and…
If an exploration company decides it can fund exploration via a small mining operation, get the hell out. Geologists are dreamers, not miners.
With regards to drill holes:
Watch for high grade smearing across low grade rock. Many companies that are having a hard time stringing together high grade continuity will push those grades out into waste, hoping to bulk up the deposit (on paper at least). Use the Drill Interval Calculator to check on the residual grade. I also find it useful to calculate what percentage of the grade is carried by what percentage of the rock.
Percent metal in tonnes also works for resource estimates—how much of the resource is in how many tonnes? Ideally, we want to see a fairly even distribution.
Where does the high grade ore lie? If the higher grade ore lies at the bottom of an open pit, the payback period is extended, as the overlying material may not make money. You usually want to start a mine on the best rock in order to pay back capital.
Oh, and if someone claims 10 million ounces out of nowhere (with potentially 90 million more) you maywant to take a look at how that happened.
Does the company provide sufficient supporting documentation for whatever results or claims they are issuing? This is really important.
If simple things like drill hole location maps, drill sections, or surface geochemistry and geology maps are missing or unintelligible, your job is done—how is one to draw his or her own conclusion without the facts? The obvious conclusion to be drawn is that either the company is incompetent or hiding something.
Corebox provides an easy way for companies to display drill sections for relatively simple geometries. Exemplary companies that provide good templates for what and how results should be presented include Almaden Minerals and Mirasol Resources.
Paid-for research and newsletter promotions should also be scrutinized. Although 43-101 regulations prohibit most of this from being displayed on a company website, it still happens. Read through the tiny disclaimers at the end of the page. If the writer is receiving payment, options, or etc., then it really isn’t unbiased research.
Also be somewhat skeptical of big firm research. The Chinese Wall between research and banking is occasionally rather weak; and ultimately it is commissions that provide for bonuses.
Historical results should be part of the data presented for a project. The vast majority of projects have seen at least some previous exploration. The historical data should be available—preferably included with the new results, referenced in the news release, or via a 43-101 report. Although there may be valid reasons the previous results did not produce what the company is currently targeting, it is nevertheless very important data for anyone investigating the property.
Be wary of twinned drill holes. Occasionally, and I realize some of you may find this hard to believe, companies will essentially re-drill a previous, stellar, hole, yet fail to mention this fact; or will neglect to disclose the results of nearby, but less than stellar, holes. Why is it that so many companies re-drill a best hole when in fact the problem the previous owners had was not with the good hole, but all the dud holes? Drill highlights are great, but all the results, good and bad, are necessary for a thorough evaluation.
Field Reviews
Although most of you are unable to take a review to this level, we are including them here as we think it is important to understand the field review process. This is really where the rubber meets the road.
Geology is a subjective, interpretive, science; meaning, it requires thought and contemplation that goes beyond the capacity of any computer. It also means interpretations will vary between “experts” and change over time as more data becomes available. The simple act of drawing a fault contact or soil assay contour by hand on a map incorporates everything the geologist has seen and mapped in the field combined with previous experience on other projects and a subtle “feel” for what is happening at depth that cannot be captured in a digitized map based on GPS coordinates.
A narrow mineralized structure on a hillside can produce a large geochemical anomaly by simple down slope migration. Look at the topography and consider the geologic setting when evaluating soil geochemistry maps.
Geologic maps should document and differentiate between actual outcrop and interpreted geology under cover. (My pet peeve: I detest geologic maps that are little more than blobs of color on paper.) Old-school and slower for sure, but in the end, intellectual capital is really an exploration company’s greatest asset.
The field geologist should be able to draw an interpretive cross section, reflecting what they think is happening at depth, in a notebook or on a bar napkin. If they can’t, you’ve got a problem.
A map must differentiate rock type from alteration, or at least recognize the presence of both. I have been to way too many projects where the geologist fails to differentiate between the alteration and rock type.
If “it” doesn’t make sense, it probably doesn’t make sense.
Presumably, your site visit will include a tour of the rocks (mine or core shack) and general site works, plus allow you access to the technical and management types. Ron Stewart is responsible for most of this simple guide to conducting a field-based resource and reserve model review, and I agree 100%.
1. Ask to see a set of sections and plans. . .if they don’t have them available, you are done. Leave, do not invest; consider as a possible short—if they do, go to 2.
2. If the sections and plans don’t have individual assay grades or are too small to read and/or there are no pencil drawn lines indicating a geologic interpretation or color indicating that they’ve spent a bit of time on the drawings, you are done. Leave, do not invest; consider as a possible short—if they do, go to step 3.
3. If all they have are computer images (which IMHO are entirely unsatisfying) feel free to express your displeasure and accept the fact you’ll likely not get much out of this part of the tour and so, I’m afraid you are done. It is not a fatal flaw, but do feel free to go get a coffee or otherwise wander around—and try to sneak a look at other stuff in the office.
4. Wow—I’m impressed—they actually have and use pencils! At this point you should congratulate them. Now it gets a bit tricky. . .ask them to show you or explain how they develop mineralized domains. If they say they use geology (rock type, alteration, or some defined physical characteristic in the rock) immediately applaud them. . .if they say they use a grade shell (which is far more common) ask what grade limit is used to define the domain and go to 5.
5. Now compare posted block grades with the individual assay grades from the drilling. This will take a few minutes. Look to see if they correspond reasonably well and if they do, congratulations, you are done and you can relax—if they don’t, then try to assess the size of the areas where the posted resource block grade appears to overstate the data, and where those patches are, and ask why they are comfortable with the block estimates. At this point accept the fact that there is some fundamental flaw in their understanding of the geology and controls to mineralization; this is a big red flag and you will have to go to the field or core shack to try to find an explanation. The hair on the back of your neck should be standing up as you try to figure out how they have created fictional ore, otherwise referred to as miracle muck. You are done, proceed with caution, and hope that lunch is at least decent.
With that, I wish you all success and luck in 2014. It could be a pivotal year for junior mining and exploration investors.
Brent Cook
Economic Geologist
Author and Executive Editor
Exploration Insights
http://ceo.ca/rules-of-thumb-for-junior-mining-speculators-and-a-light-at-the-end-of-the-tunnel/
How Putin Conquered South Africa, Russia Uranium Victory over the United States
Jan 14, 2014 - 01:57 PM GMT
By: Marin_Katusa
In the global war for energy supremacy, Russia has won another victory over the United States.
This time, the battleground has been South Africa, where Russia's state-owned nuclear power company, Rosatom, has just signed an agreement to build eight new reactors. Once all of them are operational, South Africa's nuclear capacity will increase more than sixfold—from 1.8 gigawatts (GW) to 11.4 GW over the next 15 years.
This means that Russia will help develop the entirety of South Africa's nuclear energy sector, including financing and training.
And just as importantly, South Africa will be using Russia's nuclear fuel.
Rosatom has been busy signing these types of deals with other foreign countries as well—Finland, Turkey, Ukraine, even the United Kingdom—which guarantees that Russia will be able to keep a stranglehold on these countries' nuclear industries.
The strategy is clear: Rosatom is aiming to become the world's largest supplier of uranium in the coming years.
Remember what we said about the ongoing "Putinization" of Europe's oil and gas; how Russia is planning to leverage its control over Europe's energy to gain political and economic benefits?
The same thing is happening in uranium, except the stakes are even higher—because Putin is now looking to dominate the global nuclear market.
Russia and the former Soviet nations (colloquially called "the -stans") already control nearly half of the world's uranium supply:
Similarly, they hold more than half of the world's capacity for uranium enrichment, a necessary part of fuel fabrication:
Note that the United States only controls 3% of global uranium supply—and less than 15% of the enrichment capacity, despite the fact that it's the largest consumer of uranium in the world.
While nuclear energy powers one out of every five homes in America, the US currently imports more than 90% of the uranium required for its nuclear reactors.
So what happens when one day Rosatom says "Nyet" to the American utilities? You can be sure that they'll be scrambling to find any source of uranium they can get their hands on.
And they'll pay far more than the current spot price of US$34.50/lb. You should know that the price of uranium accounts for just 3% of the total costs of a nuclear power plant, so whether the utilities pay $100 or even $200 per pound of yellowcake is irrelevant, as long as they can keep the reactors running and the lights on in America.
As the US and other countries scramble to get out from under Putin's heavy thumb, for the right uranium producers outside of Russia's sphere of influence, this will be a bonanza for the history books.
***
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http://www.marketoracle.co.uk/Article43950.html
Bitcoin ATMs Are Coming To New York City
by Tyler Durden on 01/12/2014 12:56 -0500
With over 1,000 new merchants adopting Bitcoin every week, it is perhaps not surprising that, as NY Post reports, the first Bitcoin ATM is about to debut in New York City. Following success in Canada and Europe, Brooklyn native Willard Ling, 30, is set to introduce the first bitcoin ATM to New York City at the East Village bubble tea shop 'Just Sweet'. State regulators with the Department of Financial Services are expected to hold hearings later this month to discuss how the digital currency should be regulated; and until then, Ling’s bitcoin ATM will sit in his apartment.
Via NY Post,
Josh Harvey, co-founder of Lamassu, showed off the first bitcoin dispenser at last week’s Consumer Electronics Show and has found quite a bit of interest for the $5,000 machines.
How does the ATM work?
The machine, designed and manufactured in Portugal, looks like a typical deli ATM — but functions more like a vending machine. You put in US dollars and receive bitcoins back on your phone.
New York State Department of Financial Services Announces Bitcoin Hearings
Jon Southurst (@southtopia) | Published on January 11, 2014 at 09:42 GMT | Regulation, US & Canada
The New York State Department of Financial Services (NYDFS) will hold public hearings on the regulation of digital currencies on 28th and 29th January in New York City.
It will also discuss potentially issuing something it calls “BitLicenses” as a regulatory requirement specific to businesses in the “virtual” currency field.
Financial Services Superintendent Benjamin M. Lawsky issued a notice yesterday inviting members of the press and public to attend the hearings, which will include witnesses presenting before an inquiry as well as panel discussions.
The notice warned that space would be limited, and promised “a broad cross-section of industry participants, investors, academics and other individuals involved in the virtual currency industry.”
As the United States’ predominant financial services and trading hub, New York State is bound to receive high-profile attention and set the tone for future discussions with whatever findings it reaches.
The NYDFS first raised the idea of public hearings and BitLicenses in November, around the same time the US Senate Committee was holding its own hearings. Since then there has been a marked shift in US authorities’ opinions on digital currency – from initial disdain and joking to genuine curiosity.
Bitcoin’s price has leapt from around $400 the week of the hearings to something nearer $1,000, drawing in larger players and putting huge amounts of money at stake. If public statements around the world are any guide, central banks have also been rattled.
“Our public hearing will review the interconnection between money transmission regulations and virtual currencies. Additionally, the hearing is also expected to consider the possibility and feasibility of NYDFS issuing a ‘BitLicense’ specific to virtual currency transactions and activities, which would include anti-money laundering and consumer protection requirements for licensed entities,” the November statement said.
The outcome of the Senate hearings was seen as positive for digital currencies and bitcoin in particular. Senator Jerry Moran turned to Reddit to hear users’ opinions, saying:
“Thanks everyone. I appreciate your comments. This thread will be a valuable resource as I continue to educate myself about bitcoin and digital currency.”
Prominent members of the bitcoin and digital currency community testified as witnesses, steering the discussion away from the usual crime-and-security cliches and back towards the potential for financial innovation. Stand-out witnesses included BitPay CEO Tony Gallippi and the Bitcoin Foundation’s general counsel Patrick Murck.
Over-regulation, including a requirement for many digital currency businesses to register as money transmitters separately in all 50 states, is seen as a barrier to entrepreneurship in the US and many of the world’s largest bitcoin businesses are located elsewhere.
The NYDFS’s statement in November, however, still listed several examples of bitcoin-related criminal activity before mentioning potential positives. While accepting some form of regulation as potentially inevitable, the digital currency community will again have its collective fingers crossed for further level-headed, conversation-setting testimonies.
US Law image via Shutterstock
http://www.coindesk.com/new-york-state-announces-bitcoin-hearings/
Dr. Paul Craig Roberts-U.S. Markets Rigged by its Own Authorities–It Blows the Mind
By Greg Hunter
USAWatchdog.com
January 8, 2014
(special thanks to basserdan)
Economist Dr. Paul Craig Roberts says, “We have a situation where all the markets are rigged. All the markets are manipulated.” As an example, Dr. Roberts points to the stock market. Dr. Roberts contends, “We have a stock market at all-time highs, and where is the economy? There’s not one. There’s no recovery.” Dr. Roberts goes on to say, “53% of Americans earn less than $30,000 per year. Well, the poverty rate for a family of four is something like $24,000. . . . If there is no income to drive the economy and there is no credit expansion to drive the economy, then how does it go anywhere? You can’t possibly have a recovery.”
When asked how long can this go on, Dr. Roberts replied, “How long can they fool people?” When asked about the recent Fed “taper” of $10 billion a month in bond purchases with printed money, Roberts said, “Foreigners are getting nervous because they see the Fed creating all this new money.” Roberts thinks the appearance of cutting back the money printing “is a way to protect the dollar.” Obama Care is another headwind for the economy as monthly premiums for many double. Dr. Roberts says, “The whole thing is constructed to produce massive income for the insurance companies, and that drains the economy.”
So, what does Dr. Roberts see for 2014? “I would expect, this year, the economy will drop again, and they won’t be able to hide it. So, the deficit will widen . . . and the widening deficit will again cause dollar worries. Who’s going to finance it? It means the Fed will have to print more dollars.” Roberts goes on to say, “The Fed won’t be able to cut back $10 billion a year. It will have to increase it $30 billion a year, $40 billion a year, whatever.” On gold and silver, Roberts says, “The West is draining itself of physical bullion. . . If there is a currency collapses and you try to flee into gold, there won’t be any there. The Chinese will have it.” So, is this the year gold and silver stage a big turnaround? Roberts says, “It’s gone on longer than I thought it could go on. I didn’t realize all the deceptive and crooked methods they would use to rig the markets. The notion that a democratic capitalist country having its markets rigged by its own authorities–it blows the mind. This is not normal. What will they do next? I don’t know.” Join Greg Hunter as he goes One-on-One with former Assistant Treasury Secretary Dr. Paul Craig Roberts.
Funds With $100 Billion May Be Too Big to Fail, FSB Says
By Ben Moshinsky Jan 9, 2014 5:23 AM ET
Bloomberg
Photographer: Chris Ratcliffe/Bloomberg
Investment funds that manage more than $100 billion in assets may be labeled too big to fail, global regulators said, as they seek to expand financial safeguards beyond banks and insurers.
Hedge funds with trading activities exceeding a set value of $400 billion to $600 billion would also be assessed by national authorities to gauge whether they need extra rules because their collapse could spark a crisis, the Financial Stability Board said in a statement yesterday.
The report addresses “the risks to global financial stability and economic stability posed by the disorderly failure of financial institutions other than banks and insurers,” Mark Carney, Bank of England governor and FSB chairman, said in the statement. “They are integral to solving the problem of financial institutions that are too big to fail.”
The FSB, which brings together regulators and central bankers from the Group of 20 nations, is ranking banks and insurers by their potential to cause a global meltdown and demanding bigger financial cushions to avert a repeat of the 2008 credit freeze. Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, was added to the FSB’s list of too-big-to-fail banks in November. Insurers such as American International Group Inc. and Allianz SE were deemed systemically important in July.
Systemic Risk
“Unlike banks and insurance companies, asset managers do not invest on a principal basis and do not take on balance-sheet risk,” said Dan Waters, managing director of ICI Global, a worldwide lobby group for the fund-management industry.
“Regulated funds and their managers have not been and are highly unlikely to be a source of systemic risk,” Waters said.
Finance companies that provide business funding, personal loans, store credit and car loans may also be considered crucial for stability because of the “potential difficulty of substituting certain types of finance to the real economy that they provide,” the FSB said in the report, which was produced with the International Organization of Securities Commissions, a Madrid-based group of supervisors from more than 100 countries.
As much as 80 percent of all assets outside of the banking and insurance industries are in the hands of such finance companies, broker-dealers and investment funds, according to the FSB.
While yesterday’s report proposes how to classify companies as systemically important, the FSB said possible measures to defuse the risks they pose to the financial system “will be taken at a later stage.”
The board, based in Basel, Switzerland, said it will seek opinions on its proposals until April 7.
To contact the reporter on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net
http://www.bloomberg.com/news/2014-01-08/funds-with-100-billion-may-be-too-big-to-fail-fsb-says.html