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To CFTC Acting Chairman Walt Lukken,
I commend you for your essay/speech of November 27,
2007, titled, "The Keys to Smart Regulation".
In that speech, you argue persuasively about your need to be forward-looking,
and to take future risks into account, as you quote Wayne Gretzky who said,
"A good hocky player plays where the puck is. A great hockey
player plays where the puck is going to be."
Thus, instead of reacting to a crisis, you ought to
be able to anticipate industry trends, and prevent any crisis from taking
place.
The job of the CFTC is to prevent market
manipulation and above all, market default, since a default is usually the
end result of a manipulation, since manipulations tend to fail.
A default is to be avoided at all costs, since a
default will call into question the integrity of the exchange and perhaps all
U.S.
financial markets, and could halt trade, which could lead to disastrous
consequences for civilization itself that is so dependant upon trade to
survive.
Further, you argue that in our increasingly globally
competitive world with many futures markets springing up in diverse places,
and many market participants originating in locations that may be outside the
jurisdiction of the United
States, you have particularly difficult
challenges in today's interconnected world.
I understand that you want the U.S. futures
markets to remain competitive, yet free from manipulative influences from
international global financial terrorists.
These can be conflicting goals, since if you raise
margin requirements to reduce the risk of default, our markets might not be
the most competitive in terms of leverage gained for a given trading amount,
and traders may go elsewhere into less regulated markets.
In the silver market, I understand this is
particularly troublesome, since I know of many unregulated dealers who offer
leverage programs on terms much worse than in the major futures markets,
firms such as Monex, and Goldline.
Beyond protecting the futures markets from default,
your job is to keep traders honest, and to keep the markets fair.
Further increasing the risk of default, the recent
2002 public offerings of CME stock which has acquired the recent and new
NYMEX public offering, creates an additional challenge, since a layer of
protection against market default has been removed given that stock holders
are granted the benefit of limited liability. In the past, since the
exchanges were privately held, the exchanges themselves were ultimately
liable, the last ones liable, in the event that a brokerage house could not
make good on a trader's trade, and now this protection seems to have been
removed.
Since the futures exchanges went public, starting
with the CME in late 2002, and later the NYMEX in late 2006, you must have
felt that the CFTC was more exposed than ever, and at a higher risk of
failing your duty to prevent a market default. But perhaps you were not
so worried as CME stock has continued to rise to a market cap of $33 billion,
as you noted in your essay. However, I believe the large market cap
only provides an illusion of safety, and not real security.
I note that the mighty Bear Stearns went belly up in
one day.
So, in sum, I would say that your uniquely difficult
challenge is to keep the overall market honest, by keeping market
participants honest. And that would include preventing market players
from taking on positions and obligations that they cannot keep, and I would
imagine that to be a very, very, difficult task.
One would think your job to be the equivalent of
making sure that all home mortgage borrowers always pays their mortgage, or
that all credit card borrowers always makes their payments; a truly
impossible task.
I would think that your challenges become
exponentially complex when you discover that a division of the CFTC under
you, is found to be lying.
Recently, the Division of Market Oversight lied
multiple times in their recent "Report on Large Short Trader
Activity in the Silver Futures Market":
It appears they wrote this report because of what I,
and others, have been saying, since they note the occasion of their report
here:
"Recently, silver commentators and a group of
investors that rely upon them have reasserted their allegations that the
silver futures market is being manipulated downward by a small group of
traders on the short side of the market."
Here is their big lie. On page 3, they
reference Michael Gorham's 2004 report , and write:
"In terms of plausibility, the analysis noted
that there is unrestricted access
to the silver cash and futures markets. If prices of silver were in fact
artificially low, there would be nothing to prevent a well-capitalized
trader, or even many small traders, from entering the markets to buy cash
silver or futures contracts at what they believe to be bargain prices. This
openness of the markets tends to render the claim that silver futures prices
had been manipulated downward for more than 20 years implausible. In this
regard, there is no logical explanation as to what, during those 20 years,
has prevented traders from buying cash silver or silver futures and thereby
driving prices up to what those making the manipulation argument would regard
as a reasonable price."
In truth, there is no "unrestricted
access" to the futures market because there are position limits on
traders.
They also lied again on page 3, when they wrote:
"In addition to the implausibility of a
long-term manipulation, advocates of the manipulation argument have also
failed to explain how the alleged manipulators have profited, or will profit,
from such a manipulation."
I and the Gold Anti-Trust Action Committee (GATA.ORG ) and many
others have repeatedly said that the manipulation to keep gold and
silver prices low helps keep the value of the dollar higher. By keeping
silver and gold low, the Fed is able to print up to $350 billion in one
day. Yet the annual investment demand for silver remains a mere $1
billion.
If paper money collapsed, and had to spend silver or
gold to prop up failing markets, the Fed would no longer have the kind of
power it has today.
Since you are a member of the President's Working Group on
Financial Markets , surely you know this, and I just wanted my
readers to know it, too.
I also write this to show why I don't expect you to
act.
The profit motive of keeping a lid on silver and
gold is clear, it keeps the fraud of the dollar alive, and the dollar
printing business is very, very profitable.
I could further refute the many lies in the latest
CFTC report, but why should I bother refuting their fraudulent response?
Perhaps it would be more productive if you were to
review the reasons why the price of silver is poised to skyrocket upwards,
instead?
1. The world is no longer using silver and
gold as money, and thus the primary demand could not be lower.
2. The world started consuming silver in electronics after World War
II, and has continued the pace of silver consumption of about 7 tenths of an
ounce of silver per year, per person, in industrialized nations ever since,
consuming perhaps over 25 billion ounces of silver.
3. With the rise of inflation beyond 20% per year, many people in the
financial world are turning their attention once again to buying gold and
silver.
4. With $14 trillion in M3, according to private sources, and with
annual silver investment demand at barely $1 billion, and with 60-90% of the U.S.
population concerned about inflation and the devaluation of the dollar, we
are on the edge of a tidal wave of investment demand for silver.
Given these fundamentals, how can there not be a
crisis and default in the silver futures market, as there has been in the
past when silver certificates were no longer redeemed for silver in 1968?
The market regulators of the past were very
smart. They simply wrote a law providing for the death penalty for
anyone who was caught debasing the coinage.
As I reminded the CFTC in 2003:
http://www.silverstockreport.com/essays/CFTC_Response_to_Silver_Problem.html
According to the Coin Act of 1792, those who debased
the currency, "or otherwise with a fraudulent intent" were to
suffer the death penalty:
Penalty of Death for de-basing the coins. Section
19. And be it further enacted, That if any of the gold or silver coins which
shall be struck or coined at the said mint shall be debased or made worse as
to the proportion of the fine gold or fine silver therein contained, or shall
be of less weight or value than the same out to be pursuant to the directions
of this act, through the default or with the connivance of any of the
officers or persons who shall be employed at the said mint, for the purpose
of profit or gain, or otherwise with a fraudulent intent, and if any of the
said officers or persons shall embezzle any of the metals which shall at any
time be committed to their charge for the purpose of being coined, or any of
the coins which shall be struck or coined at the said mint, every such
officer or person who shall commit any or either of the said offenses, shall
be deemed guilty of felony, and shall suffer death.
I don't think anyone at the U.S. Mint was ever put
to death for making debased coinage in 1965, nor will they be likely suffer
that for debasing the zinc penny to a steel one again.
But political winds could change to bring such a
penalty back in fashion, especially if people are hurt severely by the CFTC's
actions or lack of actions. I strongly suggest you do a little history
research and see how the public treated officials in France after
they debased the currency.
Consider that risk carefully. I'm making no
threats. I believe in peaceful resolutions to all problems.
And if the pressures of doing your jobs is too
overwhelming and you if you have trouble sleeping at night, perhaps you ought
to resign, perhaps for "personal or health reasons" and let someone
else take responsibility when the short positions blow up.
(And don't forget to buy silver with the cash if
they offer you a severance package.)
May I remind you that Michael Gorham resigned 3
weeks after he penned his letter in May 14th, 2004, that the CFTC is
continuing to quote today.
Perhaps he recognized his hypocrisy, that I pointed
out just today, which I pointed out again above, that the only way there can
be no manipulation is if the markets provide unrestricted access to all longs
who could buy silver, but then again, there are many position limits in place
that prevent just that.
Limits are evidence of shortages. Shortages
are evidence of manipulations. Limits are thus proof of manipulation.
http://www.gold-eagle.com/editorials_08/hommel051408.html
http://news.silverseek.com/GoldIsMoney/1210798485.php
It took Michael Gorham just over a year to write
that letter containing that hypocritical admission of manipulation by the
existence of position limits, after I publicly rebuked the CFTC in my letters
of January, 2003, before I began writing my Silver Stock Reports.
Many of my readers are wondering what they should do
about the silver manipulation. All market manipulations are ultimately
doomed to fail, and can only be temporary.
I offer three suggestions.
1. Buy silver, while you can, if you can find
it. Buying silver is a peaceful action. Many dealers are still
reporting delivery delays of over 1 month. Delivery delays are evidence
of shortages. Many dealers are still short of silver, since they don't
have any. Shortages are evidence of market manipulations, and price
fixing of prices too low.
2. Do whatever you can to earn more money, so
you can buy more silver. The manipulation of silver to below market
prices is a gift. Take advantage of it while it lasts by buying the
real thing. Don't be conned by the leverage offered by paper promises
of silver that may not exist.
3. Tell other people about the gift of silver
at below normal free market prices.
Personally, I have invested in physical silver, and
mining stocks, because I do not trust the integrity of the futures markets,
nor in the people who oversee them.
Walt Lukken, CFTC Acting
Chairman, I expect nothing from you, and need nothing, and no response.
Why? Because I have silver. Do you?
And I'm not complaining. I'm
very happy with where silver has been.
 
And I'm very happy with where silver has recently been going.
And I'm very happy with where silver will probably continue to go.
http://www.silverstockreport.com/email/Future_Gold_and_Silver_Prices.html
Sincerely,
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