Author Archives: Lila

Hanky-Panky At The Counting House

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I thought I’d repost a piece that I wrote in Dissident Voice, way back in 2006. It helps give some background to the JP Morgan manipulation story.

And it also adds some background to the ongoing re-valorization of the once discredited IMF. Along with that re-valorization, is the hyping of anyone supporting even further central regulation, although the financial crisis occurred in all sorts of places that have plenty of it.

All this centralization and global government is supposedly for the welfare of the world – but there is no “welfare of the world” that can be safely accepted as gospel from the mouths of the financial industry and its political and media allies.

Note the date of the piece below – back on June 6, 2006, when, dare I say it, most of the financial talking- heads and blogs now being treated as the only legitimate interpreters of reality were doing…well, they weren’t reading GATA or supporting its work, I’m pretty sure. To have done so then would have made them persona non grata in the very same liberal media that is now embracing this research and that GATA, in turn, seems to be endorsing….for its own reasons..

Check it out for yourself.

Here’s an excerpt from the piece: “Hanky-Panky at the Counting House” (June 6, 2006)

Also, at Dissident Voice, you can find “Was The IMF Involved in Gold Price Manipulation” (June 8, 2006) which was also posted at Daily Reckoning and on one of the gold sites.  I think it’s been taken off Daily Reckoning since.

“The unofficial theory is naturally a lot juicier, although described by even sworn enemies of paper currency as conspiratorial. Still, it’s managed to rear its head in the Wall Street Journal, so it can’t be all wet. Here is what widely respected libertarian Congressman Ron Paul had to say on Feb 14, 2002:

While the Treasury denies it is dealing in gold, the Gold Anti-Trust Action Committee (GATA) has uncovered evidence suggesting that the Federal Reserve and the Treasury, operating through the Exchange-Stabilization Fund and in cooperation with major banks and the International Monetary Fund, have been interfering in the gold market with the goal of lowering the price of gold. The purpose of this policy has been to disguise the true effects of the monetary bubble responsible for the artificial prosperity of the 1990s, and to protect the politically-powerful banks that are heavy invested in gold derivatives. GATA believes federal actions to drive down the price of gold help protect the profits of these banks at the expense of investors, consumers, and taxpayers around the world.

GATA has also produced evidence that American officials are involved in gold transactions. Alan Greenspan himself referred to the federal government’s power to manipulate the price of gold at hearings before the House Banking Committee and the Senate Agricultural Committee in July, 1998: Nor can private counterparts restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise. [Emphasis added] (3)

More specifically:

Gold is borrowed by Morgan Chase from the Bank of England at 1 percent interest and then Morgan Chase sells the gold on the open market, then reinvests the proceeds into interest-bearing vehicles at maybe 6 percent.

At some point, though, Morgan Chase must return the borrowed gold to the Bank of England, and if the price of gold were significantly to increase during any point in this process, it would make it prohibitive and potentially ruinous to repay the gold. (4)

In plain English, the strong dollar policy that put the sizzle in the stock market under Clinton was made possible only by manipulating the gold market to keep prices low. The low interest rates which kept the economy on the boil went hand in hand with low gold prices. Investment banks used the low rates to borrow gold from the central banks and sold them short (short selling being the technique of selling assets you don’t actually own in the hope of buying back at a cheaper price because you anticipate a fall in the price). This allowed the banks to make billions from a market rigged to take the risk out of their shorting. And it kept the dollar pumped up. And who was the architect of this strong dollar policy? Why, none other than Robert Rubin of Goldman Sachs — one of the bullion banks most implicated in the gold fixing scenarios.

So, the appearance of another Gold-man at this critical moment is all the proof the gold cartel theorists need that more manipulation is in store to keep the dollar up, gold down, and the bullion banks from losing their . . . er . . .  shorts. (5)

And if this seems conspiratorial, consider what Paul Mylchreest, investment analyst at Cheuvreux, top ranked for its research in Western Europe and part of Credit Agricole, the largest bank in France says today, “Central banks have 10-15,000 tonnes of gold less than their officially reported reserves of 31,000. This gold has been lent to bullion banks and their counterparties and has already been sold for jewellery, etc. Non-gold producers account for most and may be unable to cover shorts without causing a spike in the gold price…” (6)

Or what the Wall Street Journal itself wrote about what took place in the seventies:

Worried the falling dollar was undermining its anti-inflation efforts, the Carter administration announced a multi-part support package on Nov. 1, 1978: The Treasury would use gold sales and foreign borrowing and draw on its reserves with the International Monetary Fund to defend the dollar. At the same time the Federal Reserve raised its discount rate a full point. (7)

And that was in the ’70s, when there was no credible alternative to the dollar, India and China were sleeping giants, Russia was still the Soviet Union, and the United States was not threatening to nuke the Middle East.

How bad is the situation?

[A]s of June 2000, J.P. Morgan reported nearly $30 billion of gold derivatives and Chase Manhattan Corp., although merged with J.P. Morgan, still reported separately in 2000 that it had $35 billion in gold derivatives. Analysts agree that the derivatives have exploded at this bank and that both positions are enormous relative to the capital of the bank and the size of the gold market.

It gets worse. J.P. Morgan’s total derivatives position reportedly now stands at nearly $29 trillion, or three times the U.S. annual gross domestic product. Wall Street insiders speculate that if the gold market were to rise, Morgan Chase could be in serious financial difficulty because of its “short positions” in gold. In other words, if the price of gold were to increase substantially, Morgan Chase and other bullion banks that are highly leveraged in gold would have trouble covering their liabilities. (8)

That was 2000. This is 2006.

So long as gold remains a mere relic . . . a yellow reminder of what used to be money . . . no harm done. Unless something absurd happens, that is. Something absurd like, say, gold doubling to $573 an ounce inside 5 years. If that happened, then the “carry trade” of borrowing gold to invest in paper could become a very expensive way to bankrupt the entire global financial system. (9)

This spring gold hit over $700. And that’s why the hanky-panky is likely to begin in earnest now.

Lila Rajiva is a freelance writer in Baltimore, and the author of the must-read book The Language of Empire: Abu Ghraib and the US Media (Monthly Review Press, 2005) She can be reached at: lrajiva@hotmail.com. Copyright (c) 2006 by Lila Rajiva

NOTES

(1) “Good as Goldman: Bush drafts Hank to bat third,” Daniel Gross, Slate, Tuesday, May 30, 2006.

(2) “Please, Sir, I Want Some More. How Goldman Sachs is carving up its $11 billion money pie,” Duff Mcdonald, New York Metro, Dec 21, 2005.

(3) Speech of Congressman Ron Paul, U.S. House of Representatives, February 14, 2002, www.house.gov/paul

(4) “All That Glitters Is Not Gold,” Kelly Patricia O’Meara, Insight Magazine, March 4, 2000.

(5) According to GATA, the cartel includes J.P. Morgan Chase, Deutsche Bank, Citigroup, Goldman Sachs, Bank for International Settlements (BIS), the U.S. Treasury, and the Federal Reserve

(6) “How Central Banks Have Kept Gold Down,” Adrian Ash, Money Week, February 9, 2006.


(7) “As Dollar Weakens, Hidden Strengths May Stave off Crisis,” Wall Street Journal, January 17 2005.


(8) See Note 4.

(9) See Note 6.

JP Morgan Gets $3.4 Billion For Buying Wa-Mu; Shareholders Get Zip

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At Seeking Alpha, Troy Racki writes about the second rape of Washington Mutual stock-holders and US tax-payers by JP Morgan:

“In the settlement offer WaMu will relinquish all claims against JP Morgan and the FDIC. In return WaMu will be allowed to keep a $3.9 billion dollar deposit it held in its own bank. Most of the $3.9 billion deposit was generated from the sale of preferred securities in 2006 and 2007. Additionally WaMu will be allowed to keep $1.8 to $2.0 billion of its own tax return created from huge losses in 2008. The rest of the projected $5.6 billion return will be split between the FDIC and JP Morgan.

According to the settlement terms JP Morgan will receive $5 billion in HELOC backed securities valued on the open market at 60% of par, $193 million in Visa class B securities, $2.1 billion in cash, and a $20 million wind farm, all from WaMu. Given the initial purchase price of WaMu for $1.9 billion in 2008, these additional assets received means that JP Morgan will pay a negative $3.4 billion for their purchase of the bank.

The loss of these assets will heavily impact WaMu’s balance sheet which now stands to make only the bondholders whole, according to the settlement’s disclosure statement. Currently senior WaMu holding company debt trades at 106 cents on the dollar.

Under the terms of the settlement WaMu shareholders will receive nothing.

In the disclosure statement WaMu’s attorneys stated that the proposed settlement will net the most for all creditors and that further legal dispute would only financially harm the estate. This comes in stark contrast to prior statements by WaMu’s equity counsel that a protracted legal battle with JP Morgan and the FDIC may have returned up to $20 billion to the estate.

Currently the settlement is awaiting the approval of the FDIC, Washington Mutual bank bondholders, WaMu unsecured creditors, WaMu preferred shareholders, and the bankruptcy judge. An incomplete plan of reorganization was also filed on Friday along with the disclosure statement. The incomplete POR lacks a balance sheet meaning that WaMu’s unsecured creditors are left only to guess at what they may eventually recover, if anything.

Despite the negative purchase price, Jamie Dimon, CEO of JP Morgan has indicated that the purchase of WaMu could have been closed for less, much less. In July 2009 he stated that JP Morgan “could have bought WaMu for a dollar” because of the projected losses that would have been taken on the deal.

The losses never materialized. In May 2009, JP Morgan wrote up its WaMu loan portfolio by $25 billion.

Had the $1 purchase price gone through JP Morgan would have eventually been paid $5.1 billion by WaMu and the FDIC to assume the bank.

While the deal may be good for JP Morgan, former WaMu customers are not so fortunate. Nationally many WaMu Providian credit card customers have since experienced dramatic rate increases. In Oregon, WaMu checking clients report that deposits are being held for fourteen days prior to being accredited to accounts. This abnormally long waiting period means that many checking customers are now being hit by multiple $35-a-peice overdraft charges for having insufficient funds. In northern California, out-the-door waiting lines for teller service at one branch sparked verbal outrage and multiple client threats to move deposits to a community bank branch. The branch responded after twenty minutes by temporarily adding a teller.

Meanwhile FDIC chairwoman Sheila Bair is continuing to push for additional powers that would allow the FDIC to not only shutter banks but their holding companies. This authority would allow for the FDIC to avoid future conflicts when it closes a bank but is unable to force a holding company to capitulate, as is in the case with WaMu. It has come under scrutiny after internal JP Morgan e-mails and PowerPoint presentations revealed that as early as March 2008 regulators were in negotiations with JP Morgan on the closure of Washington Mutual, termed “Project West”, six months prior to the bank’s seizure.”

More later…

Headley Spy Case Raises Questions In India About CIA Role

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Asia Times columnist M. K. Bhadrakumar writes that US citizen David Headley, a key player (Indian sources say, the mastermind), in the November 2008 Mumbai  terrorist attack that killed 166  people* has reached a plea bargain with the Federal Bureau of Investigation (FBI) that allows the US Government to hold back from producing evidence against him in a court of law that would have revealed details of his ties to US intelligence. [*163, according to the NY Times, March 26, 2010; 165, according to the Wash Po, March 27, 2010]

Headley will be protected from cross-examination by the prosecutor, and the 166 victims will not be represented by a lawyer at the Chicago trial that’s now commencing.

Nor can he be extradited to India or questioned by Indian agencies about his links to US and Pakistani intelligence.

(Note: He will be accessible to India through video conferencing, deposition, and Letters Rogatory)

Headley, the son of a former Pakistani diplomat and an American socialite from Philadelphia (according to the NY Times piece), was a drug-pusher in the 1990s who then went on to work for the Drug Enforcement Agency.

He’s said to have prepared for the attack with five visits to India between 2006 and 2008, each time returning via Pakistan and meeting with several handlers, some of whom included members of the terrorist group Lakshar-e-Toiba (LeT), which has close ties to Pakistan’s intelligence agency, ISI (Inter-Services Intelligence)

Headley has reportedly named five-six serving officers of the Pakistan army as among the leaders of the Karachi Project, which organizes attacks on India through fugitive Indian jihadis being sheltered in Karachi by the ISI and the LeT.

The Asia Times article goes on to ask some questions about the CIA’s possible involvement that are likely to strain US-Indian relations:

“How much did the CIA know?
The plea bargain details that while working as an American agent Headley attended at least five “training courses” conducted by the LeT in Pakistan, including sessions in the use of weapons and grenades, close-combat tactics and counter-surveillance techniques, from February 2002 until December 2003.

Training courses in April and in December 2003 were each of three months’ duration and in such close proximity to the 9/11 attacks that it stretches credulity to believe the CIA didn’t care to know what their agent was doing in the LeT training camps.

Today, the heart of the matter is how much did the CIA know in advance about the Mumbai terrorist strike and whether the Obama administration shared all “actionable intelligence” with Delhi?

A senior Indian editor wrote on Sunday, “Headley … was convicted on drug charges and sent to jail in the US. We know also that he was subsequently released from jail and handed over to the Drug Enforcement Administration, which said that it wanted to send him to Pakistan as an undercover agent. All this is a matter of public record. What happened between the time the US sent Headley into Pakistan and his arrest at Chicago airport a few months ago? How did an American agent turn into a terrorist? The US will not say.”

Yet, cooperation in the fight against terrorism lies within the first circle of US-India strategic cooperation. The Mumbai attacks led to unprecedented counter-terrorism cooperation between India and the US – “breaking down walls and bureaucratic obstacles between the two countries’ intelligence and investigating agencies”, as a prominent American security expert, Lisa Curtis, underscored in US congressional testimony on March 11 regarding the Mumbai attacks and Headley.

To quote Curtis, “Most troubling about the Headley case is what it has revealed about the proximity of the Pakistani military to the LeT.”

Curtis put her finger spot on the US government’s deliberate policy to view the LeT through the prism of India-Pakistan adversarial ties. This is despite all evidence of the LeT’s significant role since 2006 as a facilitator of the Taliban’s operations in Afghanistan by providing a constant stream of fighters – recruiting, training and infiltrating insurgents across the border from the Pakistani tribal areas.

The US policy is impeccably logical. It prioritizes the securing of Islamabad’s cooperation on what directly affects American interests rather than squandering away Pakistani goodwill by Washington covering for the Indians.

This political chicanery lies at the core of the unfolding Headley drama. What emerges, even if one were to give the benefit of the doubt to the CIA, is that Headley was its agent but he possibly got involved with Pakistan-based terrorist organizations and became a double agent

No doubt, the US administration is behaving very strangely. It has something extremely explosive to hide from the Indians and what better way to do that than by placing Headley in safe custody and not risk exposing him to Indian intelligence?”

Bloomberg: Lehman Lawyers Claim Report Is Misleading

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Bloomberg reports:

“Lehman Brothers Holdings Inc. lawyers said the examiner who reviewed the firm’s collapse included misleading statements in his report about Barclays Plc’s purchase of the Lehman brokerage.

Examiner Anton Valukas’s March 11 report quoted a Lehman lawyer, Weil Gotshal & Manges LLP partner Thomas Roberts, as saying Barclays’s purchase of the brokerage unit was intended to be a “wash,” with neither gains nor losses for the buyer, according to letters filed today in U.S. Bankruptcy Court in New York.

The law firm wrote that Valukas omitted statements that “the wash” was merely theoretical and there was no provision for a break-even deal in the sale agreement.

Lehman is seeking to recover $11 billion from Barclays, claiming the bank received a secret discount when it bought the brokerage. Barclays disputes that claim….”

I’ve thought for a while that the Valukas report was being hyped, and sure enough, Bloomberg, which has been a lot better than the other newspapers, has got some evidence to back that up now.

Here’s what I wrote in a comment at Deep Capture, just a few days ago, about the Valukas report and Bloomberg’s treatment of it (as compared to the uncritical praise at other news outlets):

Comment:
**************
The writer [the Bloomberg reporter] actually undermines [Michael] Lewis at every turn, calling his story loaded and one-sided and ending with this intriguing additional evidence that Lewis somehow doesn’t “get” it – a point I made in my post “Jim Rogers Tells Greeks To Go Bust” [http://mindbodypolitic.org/2010/03/09/rogers-tells-greeks-to-got-bust]

[Lila: Lewis, with Einhorn, has been using the Valukas report as an endorsement of his trader-activist-good-guy thesis]

Quote from end of the Bloomberg piece:

“What Lewis fails to note is that the day prior, Lewis himself had filed a column for Bloomberg News from Davos mocking Nouriel Roubini’s warning “that the risk of a crisis happening is rising.” Such forecasts of doom came from “people with no talent for risk-taking gather(ed) to imagine what actual risk takers might do,” Lewis wrote. The headline described them as “Wimps, Ninnies, Pointless Skeptics.”

Lila:

Like many people close up to the industry, Lewis gets all the details, but misses the overall narrative, maybe because he’s caught up in the activist mystique that traders like to project.

It’s a shame. Because “Liar’s Poker” is such a good book.

I’m afraid this new book and the movie by [Oliver] Stone, probably an upcoming book by [Bethany] McLean, will set the official narrative unless more people work on filling in the picture more accurately and less self-servingly.

Note also that Bloomberg’s heading on the Valukas report, unlike the rest of the MSM, emphasized Citi and JP Morgan’s help in pushing Lehman over.

*******************************

(End of comment)

Hitler’s National Security Courts…and Ours..

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Jacob Hornberger of the Future of Freedom Foundation notes that when people ask for a national security court in the US, they are unwittingly following in the footsteps of Adolf Hitler:

“Hitler established the People’s Court after the terrorist bombing of the German parliament building, the Reichstag. After a trial in a regularly constituted German court, many of the people charged with that terrorist act were acquitted, which, needless to say, outraged Hitler as much as it would have outraged current U.S. proponents of a national security court. After all, Hitler argued, those people who were acquitted were terrorists — otherwise they wouldn’t have been charged and prosecuted — and, therefore, they deserved to be convicted and punished, not acquitted and released.

To ensure that terrorists and other criminals were never again acquitted, Hitler established the People’s Court. Like the national security court that some Americans are now advocating for the United States, the purpose of the court was to create the appearance of justice while ensuring that terrorists and other criminals were convicted and punished.

Proceedings before the People’s Court would easily serve as a model for U.S. advocates of a national security. The trial of Hans and Sophie Scholl was over in less than an hour. Criminal defense lawyers were expected to remain silent during the proceedings, and did so. Defendants were presumed guilty and treated as such. Hearsay was permitted, as was evidence acquired by torture. There was no due process of law. Confessions could be coerced out of defendants. The judges on the tribunal would berate, humiliate, convict, and then swiftly issue sentences, including the death penalty.”

Hornberger points out that Hitler’s regime also included all those kinds of welfare programs that are admired today in America (public schooling, social security, national health care, public-private partnerships, the military industrial complex, the Interstate highway).

Hornberger doesn’t make the point explicitly, but the two things –  popular acceptance of gross violations of law and morality and the rapid expansion of the welfare state – go together. Bluntly, people “sell” their consciences because of the advantages dangled before them.

In “Hitler’s Beneficiaries: Plunder, Racial War, and the Nazi Welfare State,” respected historian of the Third Reich, Goetz Aly of the Fritz Bauer Institut in Frankfurt, suggests that the Nazis had German popular support all through their “final solution” – not because of wide-spread terror or wide-spread anti-Semitism, but because they’d bribed the population with a generous welfare state and “bennies.”

Happy Birthday, Johann Sebastian Bach

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Norwegian soprano Sissel Kyrkjebo (also excellent as a cross-over singer) sings Bach’s well-known Wachet auf, ruft uns die Stimme (BWV 645). I originally had a Michelangeli performance of the D Minor Chaconne up here, but though that felt right as a general reflection on the state of the economic world, it was a tad somber for the vernal equinox, March 21, also Bach’s birthday……

[Correction: this year the vernal equinox was actually on March 20, which makes my greeting belated twice over]

…so I exchanged it for one of the great sacred cantatas.  I think Bach would approve of Sissel’s upbeat version: Sleepers wake, for night is flying…..

The word “sleepers” is a reference to the parable of the ten virigins in the Bible (Matthew 25: 1-13) .

In a bridal party, ten virgins awaiting the bridegroom fall asleep. Five of them have run out of oil in their lamps and ask the others to give them some at the last minute. The parable is pretty fitting for the times. For “oil,” just substitute savings, hard assets, land, precious metals, undervalued stocks.

….And the foolish said unto the wise, Give us of your oil; for our lamps are gone out. But the wise answered, saying, Not so; lest there be not enough for us and you: but go ye rather to them that sell, and buy for yourselves…..

Tocqueville On Morals Versus Laws

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“The best laws cannot make a constitution work in spite of morals; morals can turn the worst laws to advantage. That is a commonplace truth, but one to which my studies are always bringing me back. It is the central point in my conception. I see it at the end of all my reflections.”

—  Alexis de Tocqueville

Blair’s “Oily” Deals Greased His Iraq War-Mongering

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Turns out Tony Blair had his hand in the oil jar, while he was talking up the Iraq war….and after. The Daily Mail (UK) reports:

Last night Tory MP Douglas Carswell said of Mr Blair’s links to UI Energy Corporation: ‘This doesn’t just look bad, it stinks.

‘It seems that the former Prime Minister of the United Kingdom has been in the pay of a very big foreign oil corporation and we have been kept in the dark about it.

‘Even now we do not know what he was paid or what the company got out of it. We need that information now.

“This is revolving door politics at its worst. It’s not as if Mr Blair has even stepped back from politics, because he is still politically active in the Middle East.

‘I’m afraid I have no confidence at all in the committee that vets these appointments. It’s no good telling us these deals may be commercially sensitive – we are talking about the appointment of our former Prime Minister and the public interest, rather than any commercial interests, must come first.’

Liberal Democrat MP Norman Baker said: ‘These revelations show that our former Prime Minister is for sale – he is driven by making as much money as possible.

‘I think many people will find it deeply insensitive that he is apparently cashing in on his contacts from the Iraq war to make money for himself.’

“The committee said yesterday that Mr Blair had taken a paid job advising a consortium of investors led by UI Energy in August 2008. The exact nature of the deal is unknown, but UI Energy is one of the biggest investors in Iraq’s oil-rich Kurdistan region, which became semi-autonomous in the wake of the Iraq war.

“Mr Blair’s fee has not been disclosed but is likely to have run into hundreds of thousands of pounds.

“The secrecy is particularly odd because UI Energy is fond of boasting of its foreign political advisers, who include the former Australian prime minister Bob Hawke and several prominent American politicians.

“Mr Blair successfully persuaded the committee that the appointment was ‘market sensitive’ and could not be made public.”

Read more: http://www.dailymail.co.uk/news/article-1259030/Tony-Blairs-secret-dealings-South-Korean-oil-firm-UI-Energy-Corp.html#ixzz0iduagoIm