classical economics
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Mother of All Frauds

Gold and Silver Sales Not Really "Physical"
By Wayne Jett
© April 6, 2010
    U. S. and London markets sell “physical” gold and silver to buyers without actually owning or delivering the metal. Buyers hedging against currency inflation by owning precious metal in fact get only a contract right to sue the seller. Some say the Federal Reserve is cooperating with these practices to suppress the price of gold – strengthening the dollar artificially by creating illusory supply.
    Giant financial firms engage in deceptive practices at every point of the compass, so there is reason to question what point is served by identifying yet another fraud. But this fraud, if true, is so big the largest banks, the dollar, the Federal Reserve and the U. S. government are at great risk of falling, near term.
CFTC Ignores Manipulation Tip
    Evidence of scandal in precious metals markets came from a London metals trader, Andrew Maguire, who contacted the Commodities Futures Trading Commission in January. Maguire told CFTC gold and silver prices are manipulated, he identified J. P. Morgan Chase as a major player, and he detailed how the manipulation is done.
    On February 3, Maguire alerted CFTC of a major manipulation of silver prices which would begin two days later. He described what to expect and, as the scenario played out as predicted on February 5, Maguire gave CFTC play-by-play and color analysis by emails as if he were describing a sporting event.
    Four days later, seeing no CFTC action, Maguire threatened to go public. CFTC emailed Maguire saying his emails were received and read, and thanking him. With so little to show for his efforts and risks, Maguire traveled to testify at a public hearing on precious metals markets in Washington, D.C., on March 25. This was the first such hearing on precious metals in CFTC history. Although CFTC chairman Gary Gensler did not permit Maguire to testify at the hearing, pertinent evidence surfaced from other sources which raised angst in global markets.
The CFTC Precious Metals Hearing
    The London Bullion Market Association trades 100 ounces of gold for every ounce it actually holds to back the trades. Purchasers of “physical gold” actually get only contract rights to gold, the seller does not actually own the gold, and one “expert” who testified to CFTC says such contracts provide for “cash settlement” rather than delivery of “physical” gold. Another witness testified the Comex follows similar practices and would be “drained” of metal quickly if large buyers were to demand delivery of gold or silver.
Maguire’s Radio Interview
    On March 30, Maguire gave a radio interview covering his disclosures to the CFTC. He and a representative of the Gold Antitrust Action Committee described how selling “paper gold” enables bullion banks to keep the metal price low by multiplying supply 100 times over.   
The alleged practices parallel naked short selling of corporate shares, which dilutes the share float and presses the share price down. GATA has alleged for years a conspiracy among the Fed and bullion banks to suppress the gold price artificially in this manner.
    When Maguire left the radio interview and drove home, the car he drove was hit by another vehicle traveling at high speed from a side road. The other driver attempted to escape by car, but was chased down and captured by police.
Risks of Gold Manipulation
    An attempt to manipulate the price of gold in any currency, even by a central bank, is foolhardy and risky in the extreme. No central bank, including the Federal Reserve, holds sufficient gold to affect the price importantly for an extended period.
    However, the practices of the Comex and LBMA amount to a deceptive means of persuading more private parties to hold its currency (or paper), albeit in an indirect form. Private parties exchange dollars for other paper they believe to be exchangeable for gold (essentially a gold-backed currency), although their belief is false. The sellers of gold hold dollars rather than buying gold, and the Fed is unwilling to exchange its gold for dollars.
    Holding dollars appears less risky than holding a right to sue a bank for delivery of gold the bank does not own. This reiterates the primary point that real shelter from risk is impossible to find when the U. S. government facilitates fraud in the markets. Government adds to investment risk by its power and proclivity to seize precious metal, pay for it with currency, and then devalue the currency.
    Proof of a central bank’s lack of integrity has significant national security implications for the sponsoring government, in addition to financial and economic implications. Demands for delivery of gold by foreign central banks or other large financial firms may be capable of creating a run on the dollar, invoking new uses of federal power. Even discussion of the topic is problematic.
    No matter how intently orthodox economists focus on consumer demand or production, the private economy will not recover strength while financial fraud remains the dominant macro-force. As has been the case since mid-2006, federal officials give no sign they intend to leave their alliance with the predators.
Other Frauds in the Markets
    The private economy never needed the federal government’s management expertise or even taxpayers’ money to get through the financial-economic debacle of 2008 to the present. The dire necessity then was (and now is) extermination of fraud and corruption in U. S. financial markets. Mercantilists dominate federal legislators, regulators and law enforcement so completely, however, the private economy itself is closer to being extinguished than are the predators who have crippled America.
    Little or nothing was done to curtail fraudulent trading practices which aided the swift destruction of Bear Stearns, Fannie Mae, Freddie Mac, Lehman Bros., AIG, Merrill Lynch, Wachovia and Washington Mutual, among numerous other, in 2008. The Securities & Exchange Commission’s lame mantra, repeated endlessly, is “investigations are ongoing and will follow where evidence leads,” meaning they will close the cases with no action when the heat is off.
    Nothing was done by Congress or by the Commodities Futures Trading Commission to stop manipulation of crude oil prices in dark, unmonitored, unreported futures trading, which collapsed the global economy in 2008. So energy users worldwide still are fleeced daily by too-high fuel prices. Employment and economic growth show the consequences.
    The predators do not confine themselves to stealing in the anonymous financial markets. They swindle billions from state and local government entities, using bribes and payoffs to local grafters. Here is a sad example of middle class people impoverished, local government bankrupted, bagmen and grafters ruined and jailed, as those from Wall Street move on to their next killing(s).
Antitrust Conspiracy Indictments
    One token of law enforcement in the realm of high finance is the recent criminal indictment of the major financial institutions in Manhattan for conspiring to fix prices of guaranteed investment contracts (GICs) marketed to state and local governments. The Antitrust Division of the Justice Department has authority to investigate conspiracies to restrain trade, so the agency indicted for price fixing without permission from the SEC (which is said to be “cooperating” in the investigation).
    Ironically, several of the same defendants were sued by hedge funds back in 2006 for conspiring to fix high fees for their prime banking services (borrowing shares for delivery by short sellers). In three cases, these big firms persuaded a federal judge in Manhattan they are exempt from antitrust laws and governed only by securities laws. Cases dismissed. Apparently nobody told the Justice Department, at least, so far.
    The alleged conspiracy in pricing GICs occurs in the $2.8 trillion municipal bond market. When funds are raised by state and municipal bonds for public projects, the money is parked in financial assets to cover part or all of the interest carrying costs. Billions are invested in GICs, so shaving yield on GICs steals billions from public agencies. These indictments are a big deal, but they may be settled for a fine which permits the miscreants to resume corrupt practices without losing a day’s work.  ~