Category Archives: Kleptocracy

More on Zerohedge at the NY Post

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New York Magazine posted this on Sept. 27th, the same day I posted on ZeroHedge and the questions being raised about its principal writer. The piece answers a question I had, which was when did Zerohedge begin blogging? Spring, 2008. That’s about two years after my Goldman pieces… and several months after my round up on Goldman’s sins on Lew Rockwell (“Paulson Putsch and The Financial Disappearing Act of 2008 – when I claimed that Goldman was siphoning off profits).

Notice that I have done a few blog posts on Zerohedge and its credibility, asking when it began, shortly before this piece (scroll down and check out the post):

“Last spring, in a far corner of the Internet, an unknown blogger began to piece together a conspiracy theory: The investment bank Goldman Sachs was using sophisticated, high-speed computers to siphon hundreds of millions of dollars in illegitimate trading profits from the New York Stock Exchange, invisibly undercutting the market and sidestepping the regulatory reach of the Securities and Exchange Commission.

Only a few loyal readers paid attention to the blog called Zero Hedge, a no-frills site full of arcane analysis decipherable only by finance professionals. But when a former Goldman Sachs computer programmer was arrested for allegedly stealing software codes used for the firm’s electronic trading arm, and a federal prosecutor was quoted saying the codes could be used to “manipulate markets in unfair ways,” the once-obscure blog ignited a chain reaction. While on a golf outing, an editor at the New York Times learned from a friend who worked on Wall Street that the Zero Hedge allegation was the talk of the industry, and an assignment ensued. On July 24, the Times published a front-page article on so-called high-frequency trading and its potential abuses, which in turn prompted Chuck Schumer, a member of the Senate Finance Committee, to draft a letter to the SEC that same day. Twelve days later, the SEC signaled that it was considering a ban on the very computerized trading that Zero Hedge had attacked….”

And, coincidentally, just after my long post on blogger credibility and naked short-selling, here’s Taibbi, with a HuffPo sneak peak at an upcoming piece on Goldman lobbying for “naked short selling.”

Well, he is on the money on that. It makes sense that GS would want naked short-selling to continue, via favored hedge funds. It’s the way the big boys control the market. Naked short-selling, as Taibbi correctly points out, is NOT short-selling.

We will forgive Taibbi for not attributing Byrne or anyone else, and also for profound ignorance about 9-11. Naked shorts have gotta go.

Meanwhile, Taibbi’s piece uses the term “captured” to describe the regulators being captive to the hedge funds. It’s curiously like  Byrne’s blog title, “Deep Capture.”

But with Taibbi, the focus shifts from the media’s subversion by the financial industry and centers more on the regulators’ subversion by the financiers.

How  is this important? One possible explanation: because increasing regulation is consonant with the establishment agenda. Exposing the media’s complicity with hedge funds isn’t. (Note: I think regulations are in order, but what kind, at what level, and with what safeguards against further corruption is the issue.. )

Correction (October 26): I’ve since had time to check more of Taibbi’s pieces and Byrne’s writing/interviews. It seems that in fact Byrne is mentioned far down in Taibbi’s piece – but not Bagley or Mitchell (which some might say is fair enough). Also, Byrne comes from a minarchist rather than a purely libertarian position, so that he too is interested in regulatory capture. In which case, Taibbi’s emphasis on the term seems in keeping with his sources and doesn’t constitute a “shift,” as I argued above.

The Fed’s Market Manipulation Scheme…

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The St. Louis Federal Reserve Bank has a document on file, marked confidential, taken from the papers of William McChesney Martin Jr. (Chairman of the Board of Governors of the Federal Reserve from 1951-1970, the longest tenure). The collection is housed at the Missouri Historical Society. The paper was discovered by researcher Elaine Supkis and is cited by James Turk at the Gold Anti-trust Action Committee’s website.

Note the following:

“There can be little question that the interconvertibility of gold and the dollar at a fixed price will have to remain the keystone of the international currency structure. At the same time, foreign exchange dealings by the United States monetary authorities, when judiciously applied, can serve to reduce capital flows, to dampen speculation, to minimize potential reserve effects, and hence, to minimize the impact on the United States gold stock.
The basic purpose of such operations would be to maintain confidence in the dollar* Foreign exchange operations would, of course, not be a substitute for other appropriate and basic actions to maintain the integrity of the dollar* but would serve as a highly useful and flexible addition to other monetary and fiscal policy measures..”

Golden Goose Down – IMF Gold Swaps

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GATA (The Gold Anti Trust Action Committee, the leading gold activist group that charges gold market manipulation) has just forced an admission from the Federal Reserve that it engaged in gold swaps.
In that context, I wanted to repost this old article of mine from three years ago, where I highlighted a news item that the media in the US had not bothered to cover:

Golden Goose Down: Was the IMF Involved in Gold Price Manipulation (Dissident Voice, June 8, 2006)

“The latest evidence is an IMF report that shows how IMF rules wink — if they do not actually blow kisses — at central banks which double count gold reserves they have actually lent out for sale in the open market.

Apparently, being a central bank means never having to say you’re short.

Aha, says GATA, which has charged all along that the IMF along with the US Federal Reserve and other government banks have done a financial two-step that has kept down gold prices until recently. The shady rules suggest that when they lent gold out for cash, the banks actually got to double their reserves by counting the leased gold as an asset too. Which means they got to lend, or sell, more gold than showed up on their books. That was pretty sweet both for the lenders — the central banks, who got a small return for their gold — and for the borrowers, the bullion banks that got to sell and reinvest the proceeds for a higher return in what’s called a carry trade.

Of course, it’s dollar holders who’ve done the real carry trade — carrying water for the lucky sods at both ends of the deal by clutching the ever diminishing paper that allows the lucrative game to go on at their expense. Sort of as if you or I or the rest of the peons who supply the tax funds for this financial musical chairs were to blow our money at Las Vegas and then write our losses down as collateral when we asked for a loan at the local credit union. Sounds good, huh?

Or as the IMF report admits delicately, IMF rules have encouraged overstating reserve assets because both the funds received from the gold swap and the gold are included in reserve assets.”

Vulture Funds Prey on Third World Debt..

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Johann Hari has a critical piece on “vulture funds” at The Independent that is sure to be polarising:

“Would you ever march up to a destitute African who is shivering with Aids and demand he “pay back” tens of thousands of pounds he didn’t borrow – with interest? I only ask because this is in effect happening, here, in British and American courts, time after time. Some of the richest people in the world are making profit margins of 500 per cent by shaking money out of the poorest people in the world – for debt they did not incur.

Here’s how it works. In the mid-1990s, a Republican businessman called Paul Singer invented a new type of hedge fund, quickly dubbed a “vulture fund.” They buy debts racked up years ago by the poorest countries on earth, almost always when they were run by kleptocratic dictators, before most of the current population was born. They buy it for small sums – as little as 10 per cent of its paper value – from the original holder and then take the poor country to court in Britain or the US to demand 100 per cent of the debt is repaid immediately, plus interest built up over years, and court costs.”

My Comment

I’ve been interested in these lucrative public-private philanthropic ventures for some time. “Doing good” has become the avenue for “doing well.” This is touted by some people as the “markets working for people.” But the markets work for…and against..people all on their own. They don’t need the bells and whistles of public philanthropy added.

And when philanthropy been added, as my earlier post on Jeffrey Levitt indicates, it’s usually been added for an ulterior motive. Thus Hari’s activism against vulture funds.

Having made that point, I have a few problems of my own with Hari’s post that I’ll come back later.

First, here’s a response from the object of Hari’s criticism –  one Michael Sheehan, the founder of Debt Advisory International (DAI) (which manages several vulture funds) and a Republican donor to George Bush’s campaigns.  Sheehan’s letter is cited by Felix Salmon at his Reuter’s blog. The crux is at the end:

“At the end of the day, then, the anti-vulture legislation will accomplish exactly the opposite of what it set out to do. It will have increased the debt burden of all HIPC countries, increased the cost of credit for all HIPC countries, increased the barriers to foreign direct investment for all HIPC countries and increased the amount that will be demanded from the OECD countries in support of aid budgets for all HIPC countries. There won’t be any savings. The costs will be in the billions and will be annual costs you won’t get rid of.
You will, of course, in the process have increased the power and leverage of the development set, but then that was the intention all along, wasn’t it.”

There’s more on Sheehan and the creator of the concept – Paul Singer – in this piece, which also sheds some light on just how influential vulture funds are:

“Debt Advisory International are very generous to their lobbyists in Washington. They have been paying $240,000 a year to the lobby firm Greenberg Traurig – although recently they jumped ship to another firm after Greenberg Traurig’s top lobbyist was put in jail.

Paul Singer has more direct political connections. He was the biggest donor to George Bush and the Republican cause in New York City – giving $1.7m since Bush started his first presidential campaign.”

Many of the debt purchases are also corrupt, as this BBC piece indicates:

“The Zambian deal with Donegal for instance involved an official in former President Frederick Chiluba’s administration who was later found – along with the president – to have stolen £23m from Zambia.”

From Third World Traveler come further details:

“The debt, originally owed to Romania for agricultural machinery and services, was accrued during the cold war. The amount claimed by Donegal was far more than Zambia is due to receive this year in debt relief – as agreed at the G8 meeting in Gleneagles in 2005. It is equivalent to more than six months of Zambia’s health budget.

Since qualifying for debt relief, Zambia has introduced free primary rural healthcare and announced plans to employ 4,500 teachers and hundreds of nurses. But one in three children in Zambia still does not go to primary school, nearly 80% do not receive secondary education and the average income is barely $1 a day. Donegal International’s claim threatens to undermine Zambia’s plans for poverty reduction.”

My Comment:

The vulture funds are, of course, behaving unconscionably. But moral outrage after the fact is less effective in stopping such things as not providing the incentives that entice unscrupulous people in the first place.

And these incentives are usually put in place by the state…in this case, by the global financial organizations, the IMF and World Bank, which were behind the economic policies that turned the once relatively prosperous country of Zambia into a basket-case, where half the population is malnourished.

So yes, the vulture funds are predators – but their predation is secondary and far smaller than the predation of the scavengers of the first order – the global managers whose “aid” has a strange way of devastating its recipients...

Johns Lanchester on Neo-Feudal Bad Times to Come

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John Lanchester in The London Review of Books cited by Chris Hedges at Truthdig:

“The cost of daily living, from buying food to getting medical care, will become difficult for all but a few as the dollar plunges. States and cities will see their pension funds drained and finally shut down. The government will be forced to sell off infrastructure, including roads and transport, to private corporations. We will be increasingly charged by privatized utilities—think Enron—for what was once regulated and subsidized. Commercial and private real estate will be worth less than half its current value. The negative equity that already plagues 25 percent of American homes will expand to include nearly all property owners. It will be difficult to borrow and impossible to sell real estate unless we accept massive losses. There will be block after block of empty stores and boarded-up houses. Foreclosures will be epidemic. There will be long lines at soup kitchens and many, many homeless. Our corporate-controlled media, already banal and trivial, will work overtime to anesthetize us with useless gossip, spectacles, sex, gratuitous violence, fear and tawdry junk politics. America will be composed of a large dispossessed underclass and a tiny empowered oligarchy that will run a ruthless and brutal system of neo-feudalism from secure compounds. Those who resist will be silenced, many by force. We will pay a terrible price, and we will pay this price soon, for the gross malfeasance of our power elite.”

Major Market Move in Offing

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Looks like there’ll be a good deal of volatility ahead in the markets this coming week and through the fall:

*From Monday last week onward, New York has been riled up by the news out of China that Chinese SOEs (State Owned Enterprises) might walk away on derivative contracts that they think have been deeply manipulated. (They’re right on that). The SOEs involved are Air China, China Eastern, and Cosco.

*The derivatives are not mortgage-backed securities (the cause of the 2008 melt-down) but – likely- hedged oil futures in the OTC (over the counter) market, which is unregulated (that is, the SEOs hold synthetic longs).

*The threat – if it is that – has forced gold out of its summer trading range to within points of the $1000 mark, before falling back..and it pushed up the Chinese market by about 5%.(Sept 3)

*The counter-parties are 6 foreign banks, said to include Goldman Sachs, UBS, and JP Morgan. Goldman could take a hit on the contracts for around $15 billion, it’s rumored.

Note: The Chinese have been buying IMF bonds (50 billion) and watching the US meltdown and “stimulus” hocus-pocus with a good deal of warranted alarm, because all it means is their investments are being manipulated and driven down.

Obama’s reappointment of Bernanke was also taken as a bad sign by the Chinese. (correctly).

*Rumors have been swirling of further defaults of major US banks.

*The G20 has a preliminary meeting this weekend and the Chinese are said to have put the purchase of off-market gold on the table.

*The Chinese are pushing gold and silver on their populations, probably in anticipation of a currency meltdown.

*Meanwhile, Hong Kong has asked for all its gold to be returned from London.

*Last week, Germany asked for all its gold to be returned from London.

*Meanwhile, Abu Dhabi Commercial Bank and King County, Washington State have brought suit against Moody’s, S&P, and Morgan Stanley on fraud charges for the contracts they wrote, a case that would have massive implications for how other contracts are treated.

*[Oddly (?), Washington State is also where the earliest swine flu cases in the US were detected and where one of the largest outbreaks on campus just surfaced today – with some 2000 students at Washington State University coming down with the virus. Washington State had previously received large grants from Homeland Security for emergency preparations for pandemics, had TV Public Service Ads in place, had written up plans and practiced exercises].

SEC Shuckin’ and Jivin’ on Madoff Report…

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Pam Martens at Counterpunch:

“U.S. District Court Judge Jed Rakoff smelled something fishy in the August 3rd deal the SEC cooked up with Bank of America…….

That was the same view held by the Congressional questioners in the Madoff matter at the February 4, 2009 dust up with top SEC officials. After many rounds of pointed questions produced unresponsive answers, round tripper Andrew Vollmer, then Acting General Counsel of the SEC, explained why. He and his fellow SEC panelists were claiming executive privilege. This position elicited the following outburst from Congressman Ackerman: “Your value to us is useless…Our economy is in crisis, Mr. Vollmer. We thought the enemy was Mr. Madoff. I think it’s you…you were the shield…You come here and fumble through make believe answers that you concoct and attribute it to executive privilege….”

On April 2, 2009, another of Wall Street’s favorite law firms, WilmerHale, announced that Andrew Vollmer would be returning to the firm as a partner. According to the press release, before joining the SEC, Vollmer was a vice-chair of WilmerHale’s Securities Department…….

…And just what does the Madoff fraud have to do with the big firms on Wall Street? The multi billion dollar proceeds of the fraud were wired in and out of JPMorgan Chase where Madoff maintained his firm’s account. Also, Madoff partnered with Citigroup’s Smith Barney, Morgan Stanley, Merrill Lynch and Goldman Sachs to compete head on with the New York Stock Exchange in a venture called Primex Trading as reported here at CounterPunch on January 15, 2009.