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The Strange Case of German Gold - An Interview with Peter Boehringer

y: Andrew Schiff, Director of Communications and Marketing

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A June 23 Bloomberg News story entitled "German Gold Stays in New York in Rebuff to Euro Doubters" made the seemingly straight-forward case that the German authorities had decided to reverse course on a plan announced in 2012 to bring home some 300 tonnes of German gold that had been on deposit at the New York Federal Reserve since the 1960s. According to the article, German representatives had gone to New York, saw their gold, were convinced that it was in good hands, and decided that the hassle of putting it on a plane and sending it back to Germany was simply unnecessary. The article quoted a spokesman for Chancellor Merkel who said "the Americans are taking good care of our gold" and even quoted Peter Boehringer, one of the leading private advocates of the repatriation movement, as saying their campaign to pressure German authorities "is on hold."

When the Germans originally asked for their gold back, the Federal Reserve had countered with a painfully slow eight-year delivery period. This struck many as strange given that the total request only represented 5% of the gold reportedly held at the Fed's New York vaults. The delay severely whipped up concerns that long-held theories about imaginary gold were actually true. The Bloomberg article appeared to dismiss all these concerns and bring the case to a close. Or did it? Almost immediately,people close to the matter cried foul.

I caught up with none other than Peter Boehringer of the German Precious Metals Society for this exclusive interview.  

AS - The apparent reversal by the German government to no longer look to repatriate its gold from the United States failed to raise any interest in the American press or the financial establishment. Did the move create much of a stir in Germany? Are any mainstream politicians there actively picking up the issue.

PB - The "reversal" has indeed been only apparent - the Bundesbank has not in any way officially changed its repatriation plan that was announced in January 2013 (a plan that I believe was too slow and too little anyway-- 700 tonnes by end 2020 - of which. 300 tonnes from the New York Fed). The primary source for the confusion, especially in the non-German media, came from a factually wrong Bloomberg story. That story began with a completely unfounded headline "German gold stays in NY." I tried to set the record straight in the English-language press, but it is hard to fully "call back" wrong mainstream reports like that one.(via Bloomberg BusinessWeek on June 23, 2014)

Having said this, it is quite possible that the politicians cited in the story (such as Mr. Barthle, a Merkel spokesman) actually intended to "test the waters" of how the German public would react. In that respect, statements like "The Americans are taking good care of our gold. Objectively, there's absolutely no reason for mistrust." could indeed have some significance, as they might be intended as a first step towards stopping even the already painfully slow repatriation process of gold from the Fed. Still, Barthle, or Merkel for that matter, are not in charge of the gold, the Bundesbank is, and they have said nothing.

It is noteworthy that in 2013, a mere 5 tonnes were actually delivered from NY to Frankfurt. And even for these miniscule volumes there is no evidence, either by an external auditor or by video documentation, that real gold bars (allegedly untouched in the Fed´s vaults since the 1960s) have been moved across the Atlantic. Bundesbank has even melted down and allegedly re-cast these bars for no apparent reason! We have not received any audit report of this process, no report from the (unknown) performing smelter, and no bar lists from "old" or newly cast bars.

But to date, no mainstream politician has publicly questioned this strange behavior. It has been left to concerned private organizations like ours to press these concerns. Fortunately our national media has picked up on some of this which may have prompted Mr Barthle´s blind and unfounded "pledge of allegiance" to the U.S.

AS - Is the issue something that is discussed or understood by the average German?

PB - These details are of course not being discussed by the "average German" - soccer seems to be far more important these days. But both the gold community, the financial community, and the international media are taking ever more notice of our continued struggle. A full two and a half years after the initiation of our campaign, I receive at least two interview requests per week.

The Fed´s unwillingness to provide information, Bundesbank's obvious evasions and obfuscations, and Bloomberg´s misleading article are leading to completely unintended reactions by the general public and the independent media: Rather than putting this issue to bed as these authorities may have hoped, we are seeing ever MORE questions being raised.

AS - Officially, at least, what was responsible for convincing German officials that their gold is safely stored and accounted for by the Federal Reserve?

PB - I can of course only speculate here. Given the decade-long mis-information by the Fed and the Bundesbank regarding our national gold, there is no apparent reason for these officials to now call this case "closed" - quite the opposite would be logical. We must therefore assume that the Fed is unwilling or unable to quickly put Germany´s gold at the Fed (1,500 tonnes) on a few planes, thereby sending our property to where it belongs (Frankfurt). It's become harder to not reach the conclusion that  our officials are not complicit in some kind of U.S. led cover-up. So far, due to our public responses, this approach has not worked but rather increased the pressure on Bundesbank to repatriate.

One reason that the gold was unavailable for quick delivery could be multiple ownerships of our bars at the Fed. Given today´s global fractional gold banking scheme, an (allegedly physically existing) bar in a central bank vault could have 10+ owners - and could thereby show up in 10+ central bank balance sheets as either "physical gold" or "gold claim". These two (completely different!) balance sheet items have not been properly differentiated for many decades now. We are potentially talking about non-existent physical bars at a magnitude of tens of thousands of tonnes!

Without proper physical audits, repatriations and allocated storage, no gold "owner" today can be certain that "his" bar in one of these unallocated gold storage vehicles is actually his exclusive property! Our campaign is therefore not only a "German" one - but could have international repercussions of unknown scale.

It is not by accident that since the launch of the first two campaigns in 2011/12 (Germany and Switzerland) - more than ten similar national initiatives have been launched all over the world. The responses of the arrogant central bankers are the same everywhere: Ignore them, call them "conspiracy theorists", insist that "everything is in order with the gold", but give not a shred of evidence (bar lists, audit reports, bar transport to owners). And act only if public pressure forces you to...

AS - How did the Bloomberg article, which is really the only story published by a mainstream American outlet about the reversal, quote you incorrectly or out of context? Has the reporter explained his actions?

PB - I had a friendly 30+ minute conversation with the Bloomberg reporter, explaining all I could. But the only so-called "quotation" of mine which was ultimately used (published months later!) was "Right now, our campaign is on hold". Of course, I never said this sentence. All I did is (truthfully) explain that, unfortunately, nobody in Germany -including our campaign- can legally ENFORCE the dissemination of information from Bundesbank or a quicker repatriation of our gold. When the interview was conducted in May, we had no opportunity for putting even more pressure on BuBa (which we had done several times opportunistically and partly successfully since 2011). The Bloomberg hack somehow twisted this to mean that we were satisfied and that we were no longer pressing the issue.

In hindsight, I however have to THANK  the reporter for involuntarily opening up this new and great opportunity for spreading our message. Since the Bloomberg piece, I am giving interviews on a daily basis - now even to international radio and TV broadcasters with millions of listeners. This gold issue will not go away.

Gold is money. And central bank gold is a potential cornerstone of future currencies which might well HAVE TO be (partially) gold-backed, especially if there is a crash of today´s un-backed paper-currencies. The central banks all over the world therefore have to quickly become much more transparent and have to audit and repatriate their / OUR gold!

Peter Boehringer is the founder and president of "German Precious Metal Society" (est. 2006) - an NGO dedicated to spreading independent information on the relevance of gold and silver as both investment vehicles and as basis for sound money and in turn a sound society. Mr. Boehringer is one of the main initiators of the German public's "Repatriate our Gold" campaign, which is being supported by many prominent signatories as well as by 15,000+ national and international activists. Peter has been writing Germany´s most popular (German language) gold blog since 2003 with a focus both on economic and political implications of gold and silver prices. He is a book author, speaker at liberal and economic conferences, and a frequent writer of articles critical towards the current, credit-based monetary system and its negative implications. He is a fellow of the liberal "Hayek-Society".

Neither Mr. Boehringer nor German Precious Metal Society is affiliated with Euro Pacific Capital or any of its affiliates.  The opinions expressed above are those of the writer and may or may not reflect those held by Euro Pacific Capital.

http://www.europac.net/research_analysis/newsletters/global_investor_newsletter_summer_2014

The dollar's 70-year dominance is coming to an end

http://www.telegraph.co.uk/finance/comment/liamhalligan/10978178/The-dollars-70-year-dominance-is-coming-to-an-end.html

Within a decade, greenback's could be replaced as the world's reserve currency

By Liam Halligan5:30PM BST 19 Jul 2014

In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.

The US was already the world’s commercial powerhouse, having eclipsed the British Empire several decades earlier. America was also on course to be among the victors of “Europe’s conflict”, even though its economy was largely unscathed by war. As such, Bretton Woods was US-dominated and produced a settlement largely on US terms.

Seventy years ago this week, that fateful summit ended. Its close marked the moment the dollar’s unquestionable supremacy was secured. Since then, global commerce has been conducted largely in dollars and leading economies have held the greenback as their primary reserve currency.

The same system remains intact today, with the lion’s share of commercial settlements worldwide still clearing the US banking system – even if the parties involved have nothing to do with the States.

The dollar’s hegemony continues to be cemented, meanwhile, by the operations of the International Monetary Fund and World Bank. Founded at Bretton Woods, they’re both Washington based, of course, and controlled by America, despite some Francophone window-dressing.

The advantages this system bestows on the US are enormous. “Reserve currency status” generates huge demand for dollars from governments and companies around the world, as they’re needed for reserves and trade. This has allowed successive American administrations to spend far more, year-in year-out, than is raised in tax and export revenue.

By the early Seventies, US economic dominance was so assured that even after President Nixon reneged on the dollar’s previously unshakeable convertibility into gold, amounting to a massive default, dollar demand kept growing.

So America doesn’t worry about balance of payments crises, as it can pay for imports in dollars the Federal Reserve can just print. And Washington keeps spending willy-nilly, as the world buys ever more Treasuries on the strength of regulatory imperative and the vast liquidity and size of the market for US sovereign debt.

It is this “exorbitant privilege” – as French statesman Valéry Giscard d’Estaing once sourly observed – that has been the bedrock of America’s post-war hegemony. It is the status of the dollar, above all, that’s allowed Washington to get its way, putting the financial squeeze on recalcitrant countries via the IMF while funding foreign wars. To understand politics and power it pays to follow the money. And for the past 70 years, the dollar has ruled the roost.

This won’t change anytime soon. Something just took place, though, which illustrates that dollar reserve currency status won’t last forever and could be seriously diluted. Last week, seven decades on from Bretton Woods, the governments of Brazil, Russia, India and China led a conference in the Brazilian city of Fortaleza to mark the establishment of a new development bank that, whatever diplomatic niceties are put on it, is intent on competing with the IMF and World Bank.

It’s long been obvious the BRICs are coming. The total annual output of these four economies has spiralled in recent years, to an astonishing $29.6  trillion (£17.3 trillion) last year on a PPP-basis adjusted for living costs. That’s within spitting distance of the $34.2 trillion generated by the US and European Union combined.

America’s GDP, incidentally, was $16.8 trillion on World Bank numbers, and China’s was $16.2 trillion – within a whisker of knocking the US off its perch. The balance of global economic power is on a knife-edge. Tomorrow is almost today.

Consider also that the BRICs collectively hold sway over 50pc of global currency reserves, rising to almost three-quarters if you take the emerging markets as a whole. The G7 nations between them control only 20pc – and less than 8pc if you exclude Japan.

Based on such balance sheets, we’re now seeing institutional change. The new BRICs Development Bank, modelled on the IMF, will have a $100bn currency reserve available to lend around the world, giving distressed debtor nations an alternative to the “Washington consensus”.

For a long time, the BRICs have been paying in to the IMF, yet been denied additional influence over what happens to the money. Belgium has more votes than Brazil, Canada more than China.

The institutions governing the global economy have failed to keep pace with reality. Modest reforms giving the large emerging markets more power, agreed with much fanfare in 2007 and again in 2010, have been stalled by Washington lawmakers. The BRICs have now called time, setting up their own, rival institution based in Shanghai.

The key to the dollar’s future is petrocurrency status – whether it’s used for trading oil and other leading commodities. Here, too, change is afoot. China’s voracious energy appetite and America’s increased focus on domestic production mean the days of dollar-priced energy look numbered.

Beijing has struck numerous agreements with Brazil and India that bypass the dollar. China and Russia have also set up rouble-yuan swaps pushing America’s currency out of the picture. But if Beijing and Moscow – the word’s largest energy importer and producer respectively – drop dollar energy pricing, America’s reserve currency status could unravel.

That would undermine the US Treasury market and seriously complicate Washington’s ability to finance its vast and still fast-growing $17.5  trillion of dollar-denominated debt.

In May, Beijing and Moscow signed a huge multi-decade gas supply contract, to sit alongside a similar oil deal agreed in 2009. No one knows what share of this energy trade will be on a yuan-rouble basis – and the two governments aren’t saying. This question, seemingly inane, is among the most important diplomatic issues of our time.

At the moment, although Russia’s export partners do sometimes settle in roubles, most Sino-Russian trade is still in dollars. But the combination of this new gas deal, and western sanctions on Russia – has seen Moscow and Beijing step up bilateral efforts to facilitate large-scale non-dollar settlement.

With western anti-Russia sanctions likely to be tightened again after the tragic shooting of a Malaysian passenger plane over Ukrainian airspace, Beijing’s response will be closely scrutinised. I, for one, expect the Chinese to say little until it’s clearly established who grounded the plane and why.

Although the dollar’s reserve status won’t end overnight, the global payments system is now moving inexorably towards that outcome. The US currency accounted for just 33pc of all foreign exchange holdings in 2013, on IMF numbers, down from 55pc in 2001.

Within a decade or so, a “reserve currency basket” may emerge, with central banks storing wealth in a mix of dollars, yuan, rupee, reals and roubles, as well as precious metals. Perhaps some kind of synthetic bundle of the world’s leading currencies will be developed, with emphasis placed, after years of western money-printing, on assets backed by commodities and other tangibles.

I also believe central banks may include cyber-currencies (such as bitcoin) in their reserves. If you think that’s mad, consider that mankind has long sought scarcity – be it with shells, stones or metallic elements – to store wealth. Now the money-printing taboo has been broken by yet another generation, it makes sense to use complex computer algorithms to ensure that only a certain amount of a particular currency unit can ever exist.

The dollar’s status is a big question. Judging the outcome is more akin to star-gazing than scientific economics. But the establishment of this BRIC Development bank, timed to coincide with the anniversary of Bretton Woods, is an audacious and significant move. The world’s emerging giants now have thumbscrews on the West.

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RTS bourse to start trading oil, oil products, gold on June 8

16:03 22/05/2006

MOSCOW, May 22 (RIA Novosti) - The Russian Trading System, Russia's premier stock market, announced Monday that it would start trading in gold, oil and oil products on June 8.

The announcement comes in the wake of President Vladimir Putin's state of the nation address May 10, when he said Russia, as a leading oil exporting nation, should establish its own oil exchange to trade crude and petroleum products for rubles.

"The first trading in contracts for gold will commence in Russia on June 8," the RTS said in a statement.

The stock exchange also said it would start trading in futures and options on oil and oil derivatives, including Urals brand, diesel fuel, jet fuel and fuel oil. Trade will be in rubles based on prices calculated by the Platts agency. The settlement period for a contract is one month and the minimum security guarantee on a contract is 10% of its overall value.

The derivatives section of the RTS, known by its Russian acronym Forts, will trade futures and options on gold in rubles based on the London Stock Exchange evening fixing rate. The settlement period for a contract is one month and the minimum security guarantee on any contract is 5% of its overall value.

The statement said RTS would collect a 1-ruble commission for each concluded contract.

http://scgnews.com/s/13366/lay?utm_source=dlvr.it&utm_medium=twitter

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EU officials plotted IMF attack to bring rebellious Italy to its knees

By Ambrose Evans-Pritchard Economics Last updated: May 15th, 2014

The revelations about EMU skulduggery are coming thick and fast. Tim Geithner recounts in his book Stress Test: Reflections on Financial Crises just how far the EU elites are willing to go to save the euro, even if it means toppling elected leaders and eviscerating Europe’s sovereign parliaments.

The former US Treasury Secretary says that EU officials approached him in the white heat of the EMU crisis in November 2011 with a plan to overthrow  Silvio Berlusconi, Italy’s elected leader.

"They wanted us to refuse to back IMF loans to Italy as long as he refused to go," he writes.

Geithner told them this was unthinkable. The US could not misuse the machinery of the IMF to settle political disputes in this way. "We can't have his blood on our hands".

This concurs with we knew at the time about the backroom manoeuvres, and the action in the bond markets.

It is a constitutional scandal of the first order. These officials decided for themselves that the sanctity of monetary union entitled them to overrule the parliamentary process, that means justify the end. It is the definition of a monetary dictatorship.

Mr Berlusconi has demanded a parliamentary inquiry. “It’s a clear violation of democratic rules and an assault on the sovereignty of our country. The plot is an extremely serious news which confirms what I've been saying for a long time," he said.

There has been a drip-drip of revelations. Italy’s former member on the ECB’s executive board, Lorenzo Bini-Smaghi, suggested in his book last summer that the decision to topple Berlusconi (and replace him with ex-EU commissioner Mario Monti) was taken after he started threatening a return to the Lira in meetings with EU leaders.

I have always found the incident bizarre. Italy had previously been held up an example of virtue, one of the very few EMU states then near primary budget surplus. It was not in serious breach of deficit rules. It was in crisis in the Autumn of 2011 because the ECB had raised rates twice and triggered what was to become a deep double-dip recession.  Yet the blame for this disastrous policy error was displaced on to Italy’s government.

Fresh details emerged this week in a terrific account of the crisis by Peter Spiegel in the Financial Times.

The report recounts the hour-by-hour drama at the G20 Summit in Cannes  as the euro came close to blowing up. It culminates in the incredible scene when President Barack Obama takes over meeting and tells the Europeans what to do, causing Chancellor Angela Merkel to break down in tears: “Ich bringe mich nicht selbst um.” I won’t commit suicide.

That particular spasm of the crisis – and there have been three episodes (May 2010, Nov 2011, and July 2012)  when the would have splintered without drastic action – was set off by the shock decision of Greek premier Georges Papandreou to call a referendum on the austerity terms of his country’s bail-out. He thought a vote was needed to stop Greece spinning out of control, and to pre-empt a possible military coup (as he saw it).

Papandreou was hauled before the star chamber and literally crushed into silence by French leader Nicolas Sarkozy, who was waving his “Position commune sur la Grèce” like an indictment sheet.

The FT report then reveals that the Commission’s  Jose Manuel Barroso took charge of the executive details, orchestrating the Putsch that ousted Papandreou in Greece. In this case the EU picked ECB veteran Lucas Papademos to take over.

Parliamentary formalities were upheld in both Italy and Greece. The presidents appointed the new leaders in each of the two countries. Both Monti and Papademos are honourable and dedicated public servants. Yet these were clearly coups d’etat in spirit, if not in constitutional law.

David Marsh from the financial body  OMFIF has called for a “Truth and Reconciliation Committee” to expose the abuses that have occurred in EMU affairs from the beginning. Something must be done to hold accountable those responsible for the fateful error of launching monetary union, and for the chronic mismanagement of the project thereafter.

We are told that the euro crisis is now over. I do not see how one can safely reach that conclusion when Italy and Portugal are contracting again, and France is back to zero growth; or when lowflation/deflation is causing the debt trajectories of Southern Europe to spiral ever higher; all against a background of G2 monetary tightening in the US and China.

There will be another spasm to this crisis. So who will Europe’s  elites topple next, and what other conspiracies will they hatch to perpetuate a monetary venture that serves no worthwhile moral purpose? They must be stopped.

The FT’s Peter Speigel has a follow-up in today’s edition, with lots more details. These include confirmation that  EU leaders not only broached the subject of Greek exit/expulsion from the euro at Cannes, but that this was followed up by a secret Plan Z.

A GREXIT task-force under Germany’s ECB’s board member Jorg Asmussen worked on emergency plans with four clandestine teams and EU lawyers in Brussels. They were careful enough not to reveal anything in emails, which could be leaked.

Merkel’s advisers in Germany were split into the “domino” camp that feared contagion from GREXIT, and the “infected-leg” camp headed by finance minister Wolfgang Schauble that pushed for amputation.

It seems as if Angela Merkel was finally persuaded by Jorg Asmussen that kicking Greece out of the system might snowball and lead all too quickly to a “eurozone of 10”. Greece got its €34bn bail-out in the nick of time.

Though I should not say this about a competing newspaper, it is worth spending £2.50 today on the pink sheet for the story.

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100027284/eu-officials-plotted-imf-attack-to-bring-rebellious-italy-to-its-knees/

London Gold Vaults are Empty

Glenn Greenwald: how the NSA tampers with US-made internet routers

The NSA has been covertly implanting interception tools in US servers heading overseas – even though the US government has warned against using Chinese technology for the same reasons, says Glenn Greenwald, in an extract from his new book about the Snowden affair, No Place to Hide

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For years, the US government loudly warned the world that Chinese routers and other internet devices pose a "threat" because they are built with backdoor surveillance functionality that gives the Chinese government the ability to spy on anyone using them. Yet what the NSA's documents show is that Americans have been engaged in precisely the activity that the US accused the Chinese of doing.

The Rogers committee voiced fears that the two companies were enabling Chinese state surveillance, although it acknowledged that it had obtained no actual evidence that the firms had implanted their routers and other systems with surveillance devices. Nonetheless, it cited the failure of those companies to cooperate and urged US firms to avoid purchasing their products: "Private-sector entities in the United States are strongly encouraged to consider the long-term security risks associated with doing business with either ZTE or Huawei for equipment or services. US network providers and systems developers are strongly encouraged to seek other vendors for their projects. Based on available classified and unclassified information, Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems."The drumbeat of American accusations against Chinese internet device manufacturers was unrelenting. In 2012, for example, a report from the House Intelligence Committee, headed by Mike Rogers, claimed that Huawei and ZTE, the top two Chinese telecommunications equipment companies, "may be violating United States laws" and have "not followed United States legal obligations or international standards of business behaviour". The committee recommended that "the United States should view with suspicion the continued penetration of the US telecommunications market by Chinese telecommunications companies".

The constant accusations became such a burden that Ren Zhengfei, the 69-year-old founder and CEO of Huawei, announced in November 2013 that the company was abandoning the US market. As Foreign Policy reported, Zhengfei told a French newspaper: "'If Huawei gets in the middle of US-China relations,' and causes problems, 'it's not worth it'."

But while American companies were being warned away from supposedly untrustworthy Chinese routers, foreign organisations would have been well advised to beware of American-made ones. A June 2010 report from the head of the NSA's Access and Target Development department is shockingly explicit. The NSA routinely receives – or intercepts – routers, servers and other computer network devices being exported from the US before they are delivered to the international customers.

The agency then implants backdoor surveillance tools, repackages the devices with a factory seal and sends them on. The NSA thus gains access to entire networks and all their users. The document gleefully observes that some "SIGINT tradecraft … is very hands-on (literally!)".

Eventually, the implanted device connects back to the NSA. The report continues: "In one recent case, after several months a beacon implanted through supply-chain interdiction called back to the NSA covert infrastructure. This call back provided us access to further exploit the device and survey the network."

It is quite possible that Chinese firms are implanting surveillance mechanisms in their network devices. But the US is certainly doing the same.

Warning the world about Chinese surveillance could have been one of the motives behind the US government's claims that Chinese devices cannot be trusted. But an equally important motive seems to have been preventing Chinese devices from supplanting American-made ones, which would have limited the NSA's own reach. In other words, Chinese routers and servers represent not only economic competition but also surveillance competition.

http://www.theguardian.com/books/2014/may/12/glenn-greenwald-nsa-tampers-us-internet-routers-snowden

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Goldman keeps its ‘Flash Boys’ under wraps

By John Crudele

April 7, 2014 | 11:04pm

Yep , the stock market is rigged.

I’ve been explaining this to you for nearly 20 years. But thanks to best-selling author Michael Lewis’ intriguing book “Flash Boys,” which comes to the same conclusion, a much wider slice of America is talking about it now.
But Lewis’ book — as well-written and riveting as his best-seller “Moneyball” — only touched on one way the stock market was rigged: through high-frequency traders (HFTs).

And the book only deals with how manipulation has been occurring in recent years.

I can’t do justice to “Flash Boys” ’ storytelling here, but Lewis explains in depth how HFTs use faster computers, better cable lines and closer access to stock markets to jump in front of regular people’s trades.
But to me, the very first line of “Flash Boys” introduction is the most intriguing thing in the whole book.

Why do I think that? Because it’s a topic I wrote about a number of times in 2009 when a guy named Sergey Aleynikov, who developed high-frequency trading programs, was arrested by the FBI for stealing computer code from his employer, Goldman Sachs.

Lewis writes: “I thought it strange, after the financial crisis, in which Goldman had played such an important role, that the only Goldman Sachs employee who had been charged with any sort of crime was the employee who had taken something from Goldman Sachs.”

And — this is the drumroll moment — Lewis (as I did in my 2009 columns) quotes an FBI agent who said that in the wrong hands, the computer code Aleynikov allegedly stole could be used to “manipulate markets in unfair ways.”

“Goldman’s were the right hands?” Lewis asked. As Lewis points out, everything the FBI agent knew about high-frequency trading he learned from Goldman.

My question back then, as it is now, is: What was Goldman doing with this code? Why did it react so aggressively to the theft?

And why did the FBI — which has important stuff like murder and terrorism on its to-do list — jump into the Aleynikov case within 48 hours of Goldman’s complaint when the computer geek’s actions really should have been handled in civil court by Goldman’s lawyers?

And did Goldman think there was a “fair way” to manipulate markets?

Did Goldman think only it could manipulate markets?

Lewis doesn’t get into this, but I think Goldman by 2008 had been using its high-frequency trading program to rig the stock markets. And — this is the most important part — it was doing so with the blessing of Uncle Sam, hence the FBI attentiveness.

That’s how Goldman could have made the case that there was a fair way to manipulate the markets. And that’s probably what Goldman CEO Lloyd Blankfein meant when he oddly proclaimed in early November 2009 that he (or his company, he wasn’t clear) was “doing God’s work.”

What evidence do I have of this? Back in 2009, I looked through the phone logs of then-Treasury Secretary Hank Paulson, formerly the chief executive of Goldman, and discovered many, many calls between him and Blankfein during the financial crisis.

In a Sept. 29, 2009, column I reported that Paulson spoke almost as frequently with Blankfein during the worst part of the crisis as he did with Federal Reserve Chairman Ben Bernanke. And he hardly spoke to any other Wall Street executives.

In the column, I wrote: “On Wednesday, Sept. 17, 2008 … the stock market performed horribly. By the end of the session, the Dow Jones industrial average tumbled 449 points as investors worried about the nation’s financial system.

“The next morning, Sept. 18, Paulson placed his first call of the day at 6:55 a.m. to Lloyd Blankfein, who succeeded Paulson as CEO of Goldman. It’s unclear whether the two connected because Blankfein called Paulson minutes later.

“And then Blankfein placed another call to Paulson at 7:05 a.m. for what looks like a 10-minute conversation.

By 9 a.m., 30 minutes before the markets opened, the two had connected or tried to connect three times.

On Sept. 17 — the day the market was collapsing — there were five calls between the pair. It would have been extremely odd if Paulson and Blankfein hadn’t talked about wanting to see market strengthen during those three calls early Sept. 18 morning.

But the market didn’t open strong on Sept. 18.

Stock prices did, however, begin a miraculous recovery around 1 p.m. that day.

By then, rumors were starting to spread about a government bailout of banks, and the market turned on a dime.

Market rigging? Probably, done in a number of ways — through leaked information and heavy trading through HFT. Wall Street pals who could have purposely changed the momentum of the market.

Was the computer code that Sergey Aleynikov was accused of stealing used during that day’s trading? Is that why Goldman knew the code could manipulate markets? Is that why the FBI responded so quickly? I don’t have answers, but those are all legitimate questions.

Tim Geithner, who was head of the New York Federal Reserve Bank at this time (and later became Treasury Secretary) was quoted later in an interview that Washington “was forced to do extraordinary things and, frankly, offensive things to help save the economy.”

Was rigging the stock market one of them?

Stay tuned.

http://nypost.com/2014/04/07/goldman-keeps-its-flash-boys-under-wraps/

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How to Corner the Gold Market

Posted March 30, 2010By Janet Tavakoli

First, let your greed overcome all regard for the stability of the global market, and overcome your aversion to illegal activities. Stay away from people like me, and fly under the radar, because I’d like to see you thrown in jail. Most Washington officials, regulators, and Wall Street managers are probably safe to hang around, especially if you cut them in for a piece of the action or give them vague promises of a future lucrative job.

Next, cultivate relationships—or plant someone—on as many as the gold exchanges as possible in London, New York, Chicago, Hong Kong, Sydney, and Dubai. Get to know key people at one or more of the bullion banks: JPMorgan Chase, UBS AG, ScotiaMocatta, Barclays Bank, and Deutsche Bank AG. Get to know as many mine producers as possible (China has been buying gold mines), and watch the sales of mines, particularly to China. Get to know all of the refiners.

Set up some new offshore corporations, subsidiaries of existing corporations, and a hedge fund or two of your own to engage in some gold trading.

Get to know as many hedge fund buyers as possible, and encourage everyone to buy physical gold. Remove the gold from custodian banks, and stash it in a vault solely under the control of the hedge fund. Use your network of people with net worth of $1 billion or more to get them to buy gold, too. Then work on the “small” investors with only $100 million or more net worth. Keep the key decision making group as small as possible to make it harder for anyone in your group to try to back out.

Pump up the gold story. Get your friends to tell retail investors to buy some gold every month. Get your buddies in the financial business to offer exchange traded gold funds (ETFs) that claim to buy physical gold. This will sound safe to retail suckers investors, but in fact, the ETFs are very risky. This will serve your purpose when you are ready to start a panic. These particular ETFs will allow the “gold” to be commingled with the custodian’s gold, and the custodian can lease out the gold. Moreover, the “gold” custodian can give it to a sub custodian that the manager doesn’t know. The sub custodian can give it to yet another sub custodian unknown to the original custodian. The manager will never audit the gold, and the gold is not “allocated” to a particular investor. Since this is an “exchange traded” gold fund, investors will probably assume the gold is regulated by the Commodities Futures Trading Commission (CFTC), but it isn’t. By the time investors wake up to the probability that there is very little actual gold backing their investment, your plan will be ready to execute.

Locate the naked shorts, the bullion dealers whose short positions are greater than their long positions. After you complete your plan, the naked shorts will have to pay whatever you can squeeze out of them to cover the contracts they have with you.

Now you are ready to execute your plan.*

Step 1: Let everyone in the futures markets know you are buying gold, speculating in gold, and want to take physical delivery. It helps that China openly announced it wants to increase its gold reserves; the market isn’t looking too hard at you. At first, act like you’re naïve. Buy on margin and pyramid up by reinvesting your profits when you have them. This part is legal, but you don’t want to draw too much attention to yourself. Your buddies in the market will distract attention from you by buying gold and putting on straddles (selling the near months and buying in future months). No one will suspect collusion.

Step 2: Get the banks to let you finance your gold. They will lend you most of the value of your gold, especially if you do not argue about the interest rates they charge. Since they are borrowing from the Fed or another Central Bank at nearly zero, they consider the difference they get from you (backed by your gold) as gravy. As the price of gold rises, they will lend you more, and you can add to your gold position.

Be careful with the loans, though. In March, 1980, Paul Volcker was Chairman of the Federal Reserve. As the Hunts tried to corner the silver market, Volcker inadvertently ruined their plans. Volcker raised interest rates to fight inflation and issued a special credit restraint to banks admonishing banks not to provide financing for speculators in gold and silver. Borrowing costs rose, while silver prices dropped. The former billionaires were bankrupted by Volcker’s prudence. Fraud is not for sissies. But don’t worry too much. No one in Washington is really listening to Paul Volcker today. They just trot him out for a photo-op, and then dilute any “rules” he suggests to render them totally ineffective.

Step 3: Book up all of the space at gold refiners, so that no one else can do it. Buy as many gold mines as possible, and do not hedge (sell gold forward). Since the price of gold is going up, persuade other mines to keep as much of new production as possible off the market, while you execute your plan to push up prices. Keep the part about your attempt to manipulate gold prices a secret. You won’t be 100% successful with all the mines, but you don’t have to be, and every bit helps. Besides, if these other mines insist on hedging (by selling gold forward), your plan may drive them into bankruptcy, and then you can buy them cheap.

Step 4: Create credit derivatives contracts that give you the option to ask for your pay-off in gold. Make the reference credit the United States or the United Kingdom and create extra triggers like credit downgrades or other events that make it easier for you to demand payment in gold. The steps you use here to manipulate the gold market can be adapted to the credit derivatives market, so even if you can’t trigger the event, you can make the spreads move in your favor and demand collateral in gold. Hide the credit default swap contract from the eyes of the clearing exchanges by embedding them in a securitization, a credit-linked note, or a sovereign fund product. The suckers investors that invest in these products never read the documentation, so when you trigger the event, they won’t realize they are caught in a short squeeze—scrambling for your gold at the high prices you set—until it is too late.

Step 5: Pick the future month to make your big move. You will go long gold futures and demand physical delivery. Your buddies will all go long, too. Mix it up a little by buying some straddles to make it appear you are just a regular speculator, and throw everyone off the scent. Balance your straddle so it is relatively neutral, and the initial long position continues to apply pressure. When the long side of your straddle becomes due, demand physical delivery (this will be before your other long position) to keep up the pressure.

Step 6: Secretly and habitually start making some large early purchases in non-U.S. markets. That way, when the U.S. markets open, gold should follow the upward trend. Create chaos by doing as many as the following as possible in the shortest time possible. Move any remaining gold you have in trading depositories to private storage. Get some banks to issue research reports on how the bullion banks don’t have enough gold to cover their massive short positions, and talk about the tight gold supplies. Trigger some of those credit default swaps. Inform the suckers investors in non-allocated “paper” gold ETF’s just how stupid it is to give their money to a “manager” that doesn’t audit the gold, insure the gold, prevent leasing of the gold, allocate the gold, or otherwise prove the gold is backing the fund.

Step 7: The bullion banks and dealers that have over-hedged their physical gold with short positions will now be squeezed and have to meet margin calls. You and all of your speculator friends will look bad, so now is the time to use a ruse. Offer to cancel some of your forward contracts in exchange for early delivery of gold. This will temporarily relieve the bullion dealers’ pain on their short positions, and give you control over even more of the gold supply.

Step 8: You and you friends have pinched off the gold supply and control most of the free gold supply having locked it up in your own vaults and warehouses. You are all long a lot of futures contracts, and you will all demand physical delivery. You now have the naked shorts exactly where you want them.

Step 9: Rely on bankruptcy and bailouts to get what you want. Normally, you would be afraid that you would never get paid, because your demands would bankrupt the naked shorts. But the naked shorts are likely to be unwary hedge funds or other sophisticated investors, and no one cares if you bankrupt them. Other naked shorts are likely to be the bullion banks, and they are all being bailed out by the Central Banks who will lend them what little gold they have left and then beg the IMF for whatever they have. In lieu of that, you can set a very high cash price and take cash. In the gold feeding frenzy you have created, you can gradually unload some of your physical gold. If you managed to bankrupt any gold mines, circle back and see if you can scoop them up for a song.

China is a wild card. If it is not part of your scheme and decides to lend its gold, it could dampen your profits or even upset your short squeeze. But China may not want to help out your victims. Why should they? If China buys enough gold mines and increases its reserves enough, it may be in its interest to befriend you. Your combined ownership will have made the futures markets irrelevant. Together you will not only have cornered the gold market, you will have cornered gold.

* The Hunt Brothers used a similar earlier strategy in an attempt to corner the silver market in 1979-80 as recounted by Stephen Fay in The Great Silver Bubble Coronet, 1982). This book was also published under the title: Beyond Greed.

See also: “Structured Finance: Price Manipulation Includes Silver and Gold” – August 17, 2013

Read more finance articles by Janet Tavakoli

http://www.tavakolistructuredfinance.com/2010/03/corner-gold-market/#.UzlbuRoNugY.twitter

Real Price of Gold

http://visualizingeconomics.com/blog/2014/3/25/real-price-of-gold-since-1791-updated-to-2013