As I mentioned in
my last entry, the two biggest, most enduring, and most credible “conspiracies”
in the financial world revolve around gold manipulation (See GATA's website (Gold Anti-Trust Action
Committee)) and naked short selling (See DeepCapture.com).
Although they are treated as distinct from and unrelated to each other, these
two conspiracies are in fact ONE.
Let's begin with a quick overview of gold manipulation and naked short selling in
order to show how they are connected.
SUMMARY OF THE GOLD MANIPULATION CONSPIRACY
GATA provides a summary of the gold
manipulation conspiracy.
A Summary of GATA's Work - Andrew Hepburn
Submitted by Administrator on Mon, 2004-01-12 08:00.
By Andrew Hepburn
The Gold Anti-Trust
Action Committee (GATA) believes that central banks, acting through certain
investment banks, have surreptitiously
manipulated the price of gold. Such
activity appears to have started in the mid-1990s and continues to this
day. Prominent entities involved include J.P. Morgan Chase, Goldman Sachs,
Deutsche Bank, the Federal Reserve, the Bank of England, and the Bank for
International Settlements. GATA specifically alleges that the
U.S. Treasury's Exchange Stabilization Fund
[ESF] has been used, contrary to official
denials, for gold market
interventions. Furthermore, GATA
believes that the official sector intervened in the late 1990s to prevent an
impending gold derivative crisis, the result of excessive
short positions accumulated over many years.
These claims are based on analyses of publicly available government documents
and statistics, trading abnormalities, and material presented in a GATA-backed
lawsuit. Howe vs. Bank for
International Settlements et al. accusing the BIS,
Federal Reserve, U.S. Treasury, and four bullion banks of gold market manipulation. Though the suit was
dismissed in 2002 on two technicalities, the evidence
presented in it is recognized by many knowledgeable observers as having
sufficiently proven the price-fixing allegations. …
…
Central banks lease gold either by making
gold deposits with, or by making gold loans to, bullion
banks, the largest of which are international banks or other
financial institutions. In both cases, the gold is placed
with a bullion bank usually at a very low rate of interest, often 2% or less. This
so-called "leased" gold is then sold into the market and the currency
proceeds delivered for investment or other use by the bullion bank and/or its
customer. When the gold deposit is called or the gold loan comes
due, the physical gold required for repayment must generally
be repurchased in the market.
…
The benefit to the bullion banks lay in the difference between gold
lease rates and prevailing interest rates. By borrowing gold
cheaply, selling it into the spot market, and investing
the proceeds in interest-bearing instruments, the gold borrowers
realized substantial gains. …
Understanding
the mechanics of the gold leasing (gold manipulation)
The Goldseek article below does a Forensic Examination of
the Gold Carry Trade.
Forensic Examination of the Gold Carry Trade
-- Posted Wednesday, 13 May
2009
By: Rob Kirby
… Central Banks “swap” and “lease” gold is an undeniable matter of public
record. …
… Central Banks claim to
“officially” have somewhere in the neighborhood of 30,000 metric tonnes of gold
bullion in their vaults. However, the reality is
that Central Banks possess LESS physical gold than they officially report
– how much less is a matter of speculation and a closely guarded secret.
The following formula explains the
mechanics of the Gold Carry [lease] Trade:
Image may be NSFW.
Clik here to view.
** Do not confuse the Gold Forward Rate
[GOFO] with the Gold futures price – they are not related.
…
What Happens When Gold Is Leased?
When
Central Banks lease gold, it PHYSICALLY
leaves the vault and the recipient / borrower sells
the physical metal into the marketplace to raise cash –
to invest or to finance capital expenditures. In this regard, we can say that
“GOLD LEASING” is a means by which physical bullion is made available in the
market place – thereby lowering the gold price. After the
gold physically leaves the vault of the Central Bank, it is replaced with an I.
O. U. and the Central Bank, for accounting purposes, “double counts” by
continuing to claim that they still possess the same amount of physical bullion
in the vault. It is
notable that fraudulent accounting practices relating to gold is promoted by
lawmakers the world over. This is contrary to generally
accepted accounting practices and promotes market opacity instead of the much
talked about need for transparency. Explicitly, it serves to
promote the supremacy of the fiat U.S. Dollar as the world’s reserve currency.
I’ve circled the 10 % spike in lease rates on
the chart below:
Image may be NSFW.
Clik here to view.
…
Now, let’s stop and consider WHO did the lending of metal in Sept. 1999 – expelling physical
precious metal, intentionally at a loss, in the face of a RISING PRICE of GOLD. Remember folks, 3 month GOFO
[the gold forward rate] is the return “earned” by the lender of bullion:
Image may be NSFW.
Clik here to view.
So ask yourself WHO would lend
physical gold bullion to ANYONE with a guarantee that you would
get LESS
bullion back in 3 months????????????
…
What
to take away from the passage above is that the gold lease rate is an indicator of how much central
bank gold is being leased out. The higher the lease rate,
the more leased gold is being sold
It is also key to note that when leased gold is sold to investors around the
world, the money collected is brought to the US and put into “interest-bearing
instruments”. This means more gold is leased out, the more demand is
created for dollars and US treasuries.
Time Frame of the gold leasing fraud
The gold leasing that was rampant in the 1990s was ended by the “Washington
Agreement”. The gold sextant explains how this happened.
February 1, 2000. Two Bills: Scandal and Opportunity in Gold?
…
On September 26, 1999, 15 European
central banks, led
by the ECB, announce that they will limit their total combined
gold sales over the next five years to 2000 tonnes,
not to exceed 400 tonnes in any one year, and will not increase their gold
lending or other gold derivatives activities. Besides the
ECB and the 11 members of the EMU, Britain, Switzerland and Sweden are parties.
The 2000 tonnes include the remaining 365 tonnes of British sales and 1300
tonnes of previously proposed Swiss sales, leaving only 335 tonnes of possible new sales.
The
announcement, made in Washington following the IMF/World
Bank annual meeting, is ironically christened the "Washington
Agreement" although the government in Washington played no role.
However, the BIS, IMF, U.S. and Japan are all expected to abide by it, and the
BIS is expected to monitor it.
…the
agreement was hammered out secretly among the members of the EMU, the BIS and
Switzerland, that
the British were given a chance to sign on after the fact, and that the U.S. was not
informed until just before the Sunday announcement. For
references to European press commentary on the genesis of the agreement, see W.
Smith, "Operation Dollar Storm," www.gold-eagle.com/editorials_99/wsmith111099.html.
…
The
notion, shared by many, that the EMU
would forever acquiesce in the trashing of its gold reserves by
bullion banks operating in the largely paper gold markets of London, New York
and Tokyo appears in retrospect to have been incredibly naive. … With the euro
successfully launched, they quickly lost reason to continue capping the gold
price…
… Currently the European central banks through
the BIS and within the limits
of the Washington Agreement are engaged
in a tightly controlled feed of modest amounts of gold into the market.
…
Verifying timing through gold lease rate data
The gold lease rate data going back to 1990 can be found by visiting the
LBMA's website (LBMA = The London Bullion Market Association), as seen
below.
Image may be NSFW.
Clik here to view.
By graphing this data, we see the gold leasing really took off in the
1990s. However, after the 1999 Washington agreement, the flow of leased
gold started to die off until it ended completely in the 2001/2002 period.
(Remember: The gold lease rate is
an indicator of how much central bank gold is being leased out. The higher
the lease rate, the more leased gold is being sold.)
Image may be NSFW.
Clik here to view.
Full Resolution
SUMMARY OF THE NAKED SHORT SELLING CONSPIRACY
Deedcapture explains that miscreants
are selling billions of dollars of stock that simply does not exist (phantom
stock).
The Story of Deep Capture
You can download
a printable version of The Story of Deep Capture here.
By Mark Mitchell, with reporting by the Deep Capture Team
Introduction - by Mark
Mitchell
…
August 12, 2005…the proudest day
of Patrick Byrne’s life. … Patrick is on a
conference call with 500 blue chip investors and a few journalists. He tells his telephone
audience that he’s been talking to this fellow named Bob …, and … he’s laid out
this scheme, he’s made some predictions… so everybody please download Patrick’s
computer generated slide show and follow along from home.
The first slide reads, “The Miscreants’ Ball.” Patrick says the
miscreants are selling billions of dollars of stock that simply does not exist – phantom
stock. They have destroyed hundreds of public companies for profit.
Some journalists, meanwhile, are “crooked.” They’re “lickspittles.”
They are famous journalists and they cover up the miscreants’ crimes. They attack all who oppose them. …
And that’s not all, follow along please with the slides — they show how the
miscreants and the journalists have ties to government agencies and private
investigators, maybe the Mafia, and also an arms dealer, an undercover mole, a
corrupt law firm, and Eliot Spitzer. …
…
The crimes are the work of Wall Street hedge fund managers
and brokers who engage in a common trading strategy known as short-selling. A short sale is a way
of making money when the price of a stock goes down.
You borrow shares from someone else and immediately sell them off. If the price
drops, you buy the shares back and return them to the original owner, pocketing
the difference. If a company goes out of business, short-sellers hit the
jackpot.
This is perfectly legal and unobjectionable. But some short-sellers do not play
by the rules. A small group of powerful hedge fund
managers stop at nothing to annihilate the companies they sell short. Their tactics include:
blackmail, smear campaigns, espionage, fraud, harassment, extortion, bribery,
rumor-mongering, sabotage, off-shore money laundering, political cronyism,
frivolous lawsuits, witness tampering, biased financial research, false
identities, bogus credit ratings, bribery, libelous blogs, bad science, forgery,
wiretapping, counterfeiting, collusion, lying, cheating, threats and theft.
Their most egregious trick is to sell
“phantom stock.” By exploiting a glitch in Wall Street’s
computerized trading system, and a loophole in federal regulations, some hedge
funds sell virtually unlimited
amounts of stock that they have not yet borrowed or purchased. This is often referred
to as “NAKED SHORT SELLING.” Hedge funds use this
tactic to flood the market with supply and drive down prices – which
is blatantly illegal.
Patrick has written a blog
explaining how this works in laymen’s terms. An economist has
written a detailed
history of “FAILURES TO DELIVER” (i.e. stock sold and
not delivered, because it is phantom stock) for Regulation magazine, published by the Cato Institute. A
former SEC Chairman has spoken
extensively against the problem. Many other researchers, several
professors, a former SEC economist, and a former deputy secretary of commerce
have also written papers on the subject. If you are interested in the mechanics of
the crime, read some of those papers here,
here,
here,
here,
here,
and here.
…
In addition to the 300-plus companies on the SEC’s list, as
many as 1,000 companies have already been wiped off the map by illegal
short-selling, according to some experts.
…
Understanding
the mechanics of stock “failures-to-deliver” (naked short selling)
Deedcapture describes the
process through which naked short selling is used to destroy US companies.
It was in October 2004, and the
Easter Bunny [Patrick Byrne's anonymous Wall Street
informant] … made some predictions. He said that Gradient
would continue to publish outrageous information at Rocker’s behest. He said the
same information that had ended up in The Wall Street Journal, would soon get
into the hands of specific reporters at Fortune, Forbes, MarketWatch.com,
Barron’s magazine, and TheStreet.com – all of whom would
call in the coming weeks. And he said that Overstock
would soon become the target of a nonsensical federal investigation.
The Easter Bunny also laid out THE MECHANICS OF
SOMETHING CALLED "NAKED SHORT SELLING." He predicted that OVERSTOCK
WOULD SUDDENLY BE LISTED, WITHOUT ITS AUTHORIZATION, ON A BUNCH OF FOREIGN
STOCK EXCHANGES—making it easier for hedge funds to sell phantom
stock. And he predicted that Overstock would appear on the SEC’s
Reg SHO list of victim companies, scheduled to appear for the first time in
January, 2005.
Over the next two weeks, Patrick received calls from precisely
the predicted journalists at Forbes magazine, Barron’s, The Wall
Street Journal, The New York Post, and Fortune magazine – all of them
reading the same list of questions supplied to them by Gradient. …
Within a few weeks, the Federal Trade Commission in San
Francisco began a bizarre investigation into Overstock that went nowhere. Within a couple of
months, OVERSTOCK HAD
MYSTERIOUSLY APPEARED ON EXCHANGES IN STUTTGART, MUNICH, FRANKFURT, BERLIN, AND
AUSTRALIA. And come January, the company was
indeed on the SEC’s victim list (along with three other companies that
Rocker had just hammered in a column for Barron’s magazine).
“The power of any theory is its ability to
make predictions,” Patrick later says in his “Miscreants’
Ball” presentation. “It doesn’t matter how
wacky a theory sounds, if it makes predictions that are confirmed, you’ve got
to pay attention to it.”
There are two important points to note here about the naked
short selling crimes outlined above:
1) The targets of naked short sellers
get listed on foreign exchanges
Before companies are
attacked by naked short selling, they are listed on foreign exchanges without their
knowledge. This 2005 Euromoney article offers confirmation of this process.
Naked
shorting: Stung by the German connection
April 2005
by Peter Koh
Thousands of US stocks are being traded on a little-known
Berlin exchange, without the knowledge of many of the companies involved. …
A YEAR AGO Ted Noble, chief financial officer at Advanced ID Corporation, a
Calgary-based microchip-tracking company, received some surprising news.
"We were congratulated
by a third party who saw that our shares
were trading on the Berlin Stock Exchange,"
he recalls. "That came
as news to us because WE'D NOT DONE
ANYTHING TO GET LISTED IN GERMANY. I talked to a
few people and we couldn't figure out whether it was good or bad."
Noble soon found out when his company's shares started behaving oddly on the US
OTC bulletin board. "April 29 [2004] was a slow day, and only about 10,000
of our shares had traded. Then
370,000 shares traded in the last 20 minutes before the close. It knocked our
stock price down from 58 cents to 41 cents, before closing nearly 20% down at
48 cents. That
was very unusual for our stock. I'd never seen anything...
2) The money from
selling "phantom shares" doesn’t go to the naked short sellers
When stock IOUs are sold by naked short sellers, the money paid by the buyer
goes into collateral (US treasuries) to backup the stock IOUs. This
letter to the SEC confirms that “phantom shares” are
collateralized.
Ms. Florence
Harmon Acting Secretary Securities and Exchange Commission 100 F. Street, NE
Washington, DC 20549-9303 Re: Release No. 34-58773; File No. 87-30-08 Amendment
to Regulation SHO Interim Final Temporary Rule
Dear Sirs,
…
The foundation for the DTCC-administered clearance and settlement system in use
in the U.S. has been illegally converted to one based upon mere
“collateralization versus payment” or “CVP” wherein the seller of securities is
only asked to collateralize the monetary amount of the failed delivery
obligation on a daily marked to market basis.
This policy invites abusive naked short selling activity in that the failures to
deliver shares results in the procreation of what are referred to as
“securities entitlements” that are allowed to be readily sellable as if they
were legitimate “shares” of a corporation due to the
wording unfortunately incorporated into the text of UCC Article
8-501.
…
So
when "phantom shares" of US companies are sold “on exchanges in Stuttgart,
Munich, Frankfurt, Berlin, and Australia”, the money collected from buyers is transferred
to the US and put into treasury securities. The more "phantom
shares" are sold abroad, the more demand is created for dollars and US treasuries.
Time Frame of the naked short selling fraud
Naked short selling wasn’t a major problem during the 1990s. It was only
more recently that companies started getting wiped out of existence by “phantom
shares”. To see exactly when, we need to look at the data.
While the DDTC only started releasing failures-to-deliver (naked short selling)
data for stocks after 2006, it is possible to get an idea when naked short
selling started to be a problem by looking at the failures-to-deliver data for
treasury securities, agency debt, and MBS. This data is readily available
on the
Fed's website going back to 1990, as seen below.
Image may be NSFW.
Clik here to view.
By graphing this data, we see that naked short selling problem started in the 2001/2002
period.
Image may be NSFW.
Clik here to view.
Full Resolution
Comparing the gold lease rate and failure-to-deliver data
If we combine the gold lease rate and failure-to-deliver data into one graph,
we get a pretty interesting result, as seen below.
Image may be NSFW.
Clik here to view.
Full Resolution
The graph above shows how naked short selling sprung up after the 1999
Washington agreement and became epidemic as gold leasing died out. The
odds of this being a coincidence are astronomically low. Essential, the
gold leasing fraud was replaced by the naked short selling fraud.
Motive behind gold manipulation and naked short selling
To find the connection between gold leasing and naked short selling, all you
need to do is "follow the money".
Gold leasing: Investors around the
world pay billions in foreign currencies to buy the thousands of tons of gold
being leased out. These foreign currencies are than converted into
dollars (helping keep the US currency strong) and used to buy US treasuries
(helping the US treasury finance the federal deficit) to serves as collateral
for the loaned gold.
Naked short selling: Investors
around the world pay billions in foreign currencies to buy the millions of
phantom stock in midsize companies listed on foreign exchanges. These
foreign currencies are then converted into dollars (helping keep the US
currency strong) and used to buy US treasuries (helping the US treasury finance
the federal deficit) to serves as collateral for the phantom stock.
The naked short selling fraud, which began after the 1999 Washington Agreement,
was meant to replace the enormous flow of money into the dollar and US treasury
market that was about to be lost due to the end of gold leasing.
The party responsible for both frauds
Since gold leasing and naked short selling both support the dollar and the US
treasury market, the obvious party responsible is the Treasury's Department's Exchange
Stabilization Fund (ESF) which is officially in charge of defending the dollar.
The ESF role in gold manipulation has long been recognized by GATA and others, as explained by the Golden
Sextant.
February 1,
2000. Two Bills: Scandal
and Opportunity in Gold?
…
Evidence is accumulating that … the Clinton
administration has effectively
capped the gold price by using the ESF to backstop the selling of gold
futures and other gold derivative products by politically well-connected
bullion banks. …
…
The odd behavior of the gold
price over the past five years, including
massive gold leasing and heavy bouts of futures
selling apparently timed to abort threatened rallies, has generated considerable speculation regarding
intentional manipulation by governmental authorities. …
The
Fed and the ESF are the only arms of the U.S. government with broad statutory
authority "to deal in gold" and thus by reasonable extension in gold
futures and derivatives. Were the Fed to engage in such
activities, it would of necessity have to do so subject to all the
institutional safeguards that govern its more important functions. Unlike the Fed, the ESF is virtually without institutional structure
or safeguards. It is under the exclusive control
of the Secretary of the Treasury, subject only to the approval of the
President. Indeed, direct control and custody of the ESF must rest at all times
with the President and the Secretary. The statute further provides (31 U.S.C.
s. 5302(a)(2)): "Decisions of the Secretary are final and may not be
reviewed by another officer or employee of the Government."
Originally funded out of the profits from the 1934 gold confiscation, the little known
ESF is available for intervention in the foreign exchange markets.
…
… the allegation that knowledgeable gold market participants and observers are
making … is that the ESF -- by writing gold call options or
otherwise -- is making sufficient gold cover available to certain
bullion banks to allow them safely to take large short positions in gold,
thereby putting downward pressure on the price and in the process
making huge profits for themselves.
…
While
the ESF’s role in gold manipulation is recognized, its role in naked short
selling, on the other hand, is not.
Patrick Byrne and Deep Capture unfortunately seem to believe that naked short
selling is a wall street crime motivated by greed. That isn't
right. It isn't the government regulators (SEC, etc...) that have been
"deep captured" by Wall Street Interest. It is Wall Street
(DTCC, primary dealers, hedge funds, etc) that has been corrupted by the
treasury department (specifically the ESF).
Conclusion: It is all ONE conspiracy
The gold manipulation conspiracy alledged by GATA
and the naked short selling conspiracy alledged by Deepcapture
are one and the same, and the Treasury's Exchange Stabilization Fund (ESF) is
the force behind gold leasing and "phantom stocks".
(for the more about the Treasury's ESF, see my entry *****What
I have been afraid to blog about: THE ESF AND ITS HISTORY*****)