The term
“derivative” has become a dirty, if not evil word. So much of
what ails our global financial system has been laid-at-the-feet of this
misunderstood, mischaracterized term – derivatives. The purpose of this
paper is to outline the origin, growth and ultimately the corruption of the
derivatives market – and explain how something originally designed to
provide economic utility has morphed into a tool of abusive, manipulative
economic tyranny.
Definition of Derivatives
Derivatives are
financial instruments whose values depend on the value of other underlying
financial instruments or objects. The main types of derivatives are futures,
forwards, options and swaps.
The original
intended use of derivatives was to manage risk [hedge]; however, now they are
often traded as investments whether hedged, un-hedged or as component of a
spread trading strategy. The diverse range of potential underlying assets and
pay-off alternatives leads to a wide range of derivatives contracts available
to be traded in the market. Derivatives can be based on different types of
assets such as commodities, equities (stocks), residential mortgages,
commercial real estate loans, bonds, interest rates, exchange rates, or
indices (such as a stock market index, consumer price index (CPI) — see
inflation derivatives — or even an index of weather conditions, or
other derivatives). In recent years, much has been written about credit derivatives - which have become an
increasingly visible part of the derivatives complex. However, the largest
component of the derivatives complex remains interest rate products which the
U.S. Office of the Comptroller of the Currency tells us constitute more than
82 % of all outstanding bank held notionals.
Interest rate derivatives have a great effect on interest rates as will be
discussed later.
Origin of Derivatives
Derivatives
have their roots in the agri-complex. From an historical context, it
was agricultural commodities futures [mainly grain] that first gained
traction as viable financial instruments. The genesis of these products dates
back to the founding of the Chicago Board of Trade [CBT] in the mid-eighteen
hundreds.
Back in the
eighteen hundreds large scale farming enterprises were difficult [risky] to
“bank”. The risk was embodied by the known costs associated with
planting seed, fertilizing and subsequent growth and harvest – versus
the often volatile, unpredictable final selling price of a perishable commodity.
Futures removed this this “unknown” from the banking/farming
relationship and transferred it to speculators for a nominal fee or cost.
From 1850 - 59, American
agricultural exports were $189 million/year [81% of total exports]. With
agriculture occupying such a huge percentage of exports and GDP it was only
natural that business of this scale [potential fees and profits] would and
did attract the attention of the money changers. The advent of futures and
forward contracts in the agri-complex was
productive: giving a higher degree of predictability to farm income making
the business of farming more bankable. Making farm income more predictable
enabled the growth of corporate agri-businesses which brought with it
economies of scale, the freeing-up of human capital which enabled /
translated into mass migration [urbanization] of farmers into cities in part
assisting with the rise of the human capital pool essential for the
industrialization of America.
Early Growth – the Commodity Futures
In the
beginning, as with users in the agri-complex
– there were IDENTIFIABLE END USERS [farmers] for these products. Over
time, futures and forwards were developed to meet demand in other
predominantly natural resource based commodities like coal, crude oil,
lumber, cattle and others. Similar commodity futures markets for these
products and trade volumes were driven primarily by end users and it’s
important to distinguish that for the entire 1800s and virtually all of the
1900s – the growth in derivatives was primarily tied to the commodity
trade.
Commodities Law Dictates that Futures Only Aid In Price
Discovery
Definition of Price Discovery:
A method of
determining the price for a specific commodity or security through basic supply
and demand factors related to the market.
According to William J. Rainer, former Chairman of the Commodities Futures
Trading Commission [CFTC] back in 1999, Section 3 of
the Commodities Exchange Act espouses three basic purposes for the regulatory
structure currently administered by the CFTC: (1) to protect the price
discovery function; (2) to prevent the manipulation of commodities through
corners, squeezes and similar schemes; and (3) to assure an effective vehicle
for risk transference. Implicit throughout is the need to provide suitable
customer protection from abusive trade practices and fraud.
The Rise of Financial Engineering: The Genesis of OTC Interest Rate
Derivatives
President Nixon
took America and the world off the gold standard in August, 1971. What ensued
was a dramatic increase in the price of crude oil which led to burgeoning
balances of petro dollars [Euro-dollars] as deposits in the treasuries of
banks involved in international trade and a subsequent bolstering of their
treasury operations to deal with the influx of ‘inflated dollars’.
Interest Rate
Derivatives were developed around 1980. Their basis was the four 3-month IMM
[International Money Market] Eurodollar Futures Contracts [Dec, Mar, Jun,
Sept] on the Chicago Mercantile Exchange [CME]. These futures contracts are
derivatives of 3 month Libor [London Interbank Offered Rate] for Eurodollar
Time Deposits. The 3 month Libor rate is ‘set’ daily by a group
of banks selected by the British Bankers Association and represents where
these ‘reference banks’ are willing to ‘loan’ their
mostly recycled Euro Dollars [petro-dollar] to their most credit-worthy
customers.
These
derivatives/futures gave banks the ability to ‘hedge’ or book
profits on sizable amounts of predictable future cash flows. Up until 1980,
this bank treasury trading business remained largely a cash trade.
The Toronto - Chicago Nexus
In 1980, Canada
revised its Bank Act. In the ensuing few months, Canada had an influx of
foreign banks - dubbed schedule “B” banks. Canada went from
having 5 domestic banks to having roughly 65 banks in a matter of months. To
protect their home turf, the existing domestic banking industry successfully
lobbied Canadian politicos to limit the amount of capital new ‘schedule
B’ banks could have [initially to 5, or in a couple of instances,10
million CAD].
This placed
growth restrictions on foreign banks, new entrants, beginning operations in
Canada; capital ceilings implied severe balance sheet restrictions. 60 new
banks had just opened their doors – but they were substantially limited
in participating in main stream bank treasury operations like lending long
and borrowing short - in the inter-bank market because these activities
bloated balance sheets.
These new
treasury operations needed to find a profitable raison d’etre
or their parent banks would shut them down.
Competition
Breeds Innovation
To
differentiate themselves from the rest of the crowd back in the early
1980’s, particular institutions like Citibank, Toronto and Chemical
Bank, Toronto and Chase, Toronto went on a hiring binge of Ph. D
mathematician types and immersed themselves in ‘financial
engineering’ utilizing then emerging exchange traded futures [cited
above]. These financial engineers conjured into existence two Over-the-Counter
[OTC] products – Future Rate Agreements [FRAs] and Interest Rate Swaps
[IRS]. Trade in these products did not entail the exchange of principal sums
between counterparties – only interest-rate differentials on principal
amounts [referred to as notional underlying amounts]. The beauty of this
“new trade” was a] it was fee based, b] that, for accounting
purposes, it was “off balance sheet” and c] it circumvented
capital ceiling restrictions.
From a customer
standpoint – these products were marketed to corporate customers as a
means to achieve cheaper, more flexible funding or alternatives for funding
in terms [yrs.] they otherwise would not be able to access.
From an
historical perspective - it was during the 1980s when Citibank, Toronto or
Chemical Bank, Toronto traded the very first Inter-bank U.S. Dollar Interest
Rate Derivative – known as an FRA [Future Rate Agreement] which, at its
core – was nothing more than a glorified ‘bet’ on what 3, 6
or 12 month Libor will be at a future date.
It was Citibank
Toronto who first engineered a financial model to successfully book
accounting profits from FRAs and interest rate swaps.
In the
beginning – these trades were ENORMOUSLY profitable – so much so
that Citibank Toronto very quickly became the world’s biggest OTC interest
rate derivatives house and was, in fact, the clearing house for OTC interest
rate derivatives for Citibank worldwide.
This business
absolutely mushroomed!
![](http://www.24hgold.com/24hpmdata/articles/2012/01/img/20120116els110.jpg) ![](../style/all/img/bouton/Zoom_in_6.png)
Source: U.S.
Comptroller of the Currency
Tracking the
evolution of the aggregate derivatives held by U.S. banks, it is apparent
that trade in end-user products has been ABSOLUTELY OVERWHELMED by volumes in
dealer trades – all in a “supposed
market” which is 96% constituted by 5 players [the magnificent 5;
J.P. Morgan, BofA, Citi, Goldman, Morgan Stanley]
– as the U.S. Comptroller of the Currency tells
us in the executive summary of their Quarterly Derivatives Report,
“Five large commercial banks represent 96% of
the total banking industry notional amounts.”
At this rate of
concentration, the derivatives complex appears a lot more like an “old
boys club” than it does “a market”. Therefore, the
derivative market rapidly evolved during the late 1990’s to the early
2000’s from a previously end-user-based to a dominantly dealer-based or
trading market. The parabolic rise of these dealer traded volumes parallels
the rise of market rigging or the movement toward a centrally planned economy.
From Humble Beginnings, How and Why We Got Here
The graph of
outstanding notional amounts above depicts a serious growth curve. To explain
why, let’s take a look at the same graph with some added highlights
explaining “what” is growing so quickly:
![](http://www.24hgold.com/24hpmdata/articles/2012/01/img/20120116els111.jpg) ![](../style/all/img/bouton/Zoom_in_6.png)
Source: U.S.
Comptroller of the Currency
Through the
late 1980’s and early 1990’s – folks at the Fed and U.S.
Treasury – with a little bit of help from academia -
realized that interest rate swaps could be utilized to CONTROL fixed income
[bond] markets and hence – controllers could arbitrarily determine the cost of capital. As such,
it’s no coincidence that institutions like Citibank Toronto had their
‘U.S. Dollar derivatives books’ repatriated back to New York in
this time frame.
The Neutering of Usury or “Neusury”
Historically,
the Federal Reserve/U.S. Treasury ONLY had control of the VERY short end of
the interest rate curve – specifically the Fed Funds rate [the rate at
which banks and investment dealers borrow and lend to each other on an
overnight basis]. With the advent and proliferation of interest rate
derivatives – specifically Interest Rate Swaps [IRS], the Fed/Treasury
gained effective control of the “long end” of the interest rate
curve. Thus the Fed / Treasury has been practicing
an undeclared form of financial repression for a very long time.
In free market
economies the laws of usury dictate that the interest rate mechanism serves
as the arbiter as to where scarce [finite] capital is allocated.
Historically, it was a group of industry professionals known as the bond
vigilantes who enforced this discipline – primarily on spend-thrift
governments – by making them pay more, through elevated interest rates,
when they demonstrated poor stewardship of national finances. Pre “neusury” – when we had truly free markets
– when the bond vigilantes “sold” – interest rates
WENT UP. To illustrate this point look no further than Bill Gross – the
closest thing there is to a bond vigilante today - who heads the
world’s largest bond fund PIMCO. It was CNBC who reported back on March 9, 2011
that,
“Pimco
has dumped all of its US Treasury bond exposure in its flagship Total Return
Fund. The move makes sense given Pimco chief Bill
Gross's public statements that Treasurys are
over-valued.”
![](http://www.24hgold.com/24hpmdata/articles/2012/01/img/20120116els112.jpg) ![](../style/all/img/bouton/Zoom_in_6.png)
Pre “neusury”
– such a pronouncement would have caused a MAJOR SELL OFF in bonds
[higher rates]. Nowadays, the Fed / U.S. Treasury and their
‘captive’ investment banking vassals
high-frequency-trade pre-determined outcomes through the Interest Rate Swap
complex to show folks like Bill Gross who’s really in charge. The
cascade in 10 year yields depicted above just happens to coincide with the
first half of 2011 – when, according to the Office of the Comptroller of the Currency, Morgan Stanley
just happened to grow their swap book from 27.2 Trillion to 35.2 Trillion in
notional – for a cool increase of 8 Trillion in six months at one investment
bank.
The sheer
volume physical U.S. government bond trade created by the interest rate swap
derivative complex has resulted in “neusury”
and OVERWHELMED the bond vigilantes – rendering them either impotent,
extinct or perhaps just plain-old confused and afraid [take your pick?].
The
incapacitation or extinction of the bond vigilantes has enabled the U.S.
government to spend like drunken sailors, prosecute wars and misallocate
resources on a grand scale – all the while lowering and / or keeping interest
rates at or near ZERO. This arbitrary, gross mispricing of capital helped to
spawn further abuses like the real estate and equity bubbles – the
development of which produced new sub-sets of equity derivatives and cdo’s which also enabled the macro-management of
these markets. Economics 101 tells us that capital is scarce and finite. By
arbitrarily rigging interest rates too low – capital markets created
the false impression of abundance – and loose lending practices
resulted.
Control over
the long end of the interest rate curve works as follows: The U.S.
Treasury’s Exchange Stabilization Fund [ESF], a secretive arm of the
U.S. Treasury unaccountable to Congress, began entering the “FREE
MARKET” – deals brokered by the N.Y. Fed - as a receiver of
“all in” fixed rates - in terms from 3 to 10 years in duration.
Interest rate swaps [IRS] trade at a spread – expressed in basis points
– over the yield of the 3, 5, 7 and 10 year government bond yield.
Banks are virtually all spread players. When trades occur between spread
players – one side of the trade sells the other side of the trade the
proscribed amount of U.S. Government bonds. This creates superfluous
settlement demand for bonds. When the U.S. Treasury’s Exchange
Stabilization Fund [ESF] intervenes in this market – they are not
spread players.
When the ESF
trades with “spread players”[Morgan, Citi, BofA,
Goldman, Morgan Stanley] – the banks are forced to purchase cash,
physical U.S. Government bonds in the proscribed terms [3-10 years], almost
dollar-for-notional-dollar – as hedges for each trade they do with the
ESF [because the ESF does not supply them]. This is why – instead of
the hollow, contrived, official excuses
offered by the Fed – despite record, off-the-charts, government bond
issuance – a remarkably large percentage of U.S. Government bond trades
fail to settle.
++The ESF
participates in these trades taking “NAKED INTEREST RATE RISK”
– meaning they do not provide their counterparties with the requisite
amount of bonds to hedge their trades – thus forcing them into the
“free market” to purchase them. This generates UNBELIEVABLE
“stealth” settlement demand for U.S. Government securities. This
is how/why U.S. Government bonds and hence the Dollar can be made to appear
“bid-unlimited” - even when economic fundamentals are SCREAMING
otherwise. The amount of demand for cash government bonds that can be
conjured out-of-thin-air in the derivative interest rate swap complex, which
might be best described as “high-frequency-trade” on steroids -
measured in hundreds of Trillions in notional - literally OVERWHEMS the cash
bond settlement process. This means bond yields are set arbitrarily –
in accordance with Fed / Treasury policy - NOT IN FREE MARKETS. This also
explains why there are no identifiable end-users for the dizzying growth in
interest rate derivatives [swaps] – the trade is all attributable to
the Treasury’s ‘invisible’ ESF – an institution that
is not publicly accountable to ANYONE or ANYTHING. This is why other nations
can and do have, from time to time, failed bond auctions while America never
has and NEVER WILL BE ALLOWED TO. This is all done in stealth to facilitate
and give an air of legitimacy to the U.S. Treasury’s ZIRP [zero
interest rate policy].
With gratitude,
the detailed, documented, inner workings of the Treasury’s Exchange
Stabilization Fund and their unique relationship with the N.Y. Fed trading
desk is best explained by forensic financial researcher Eric deCarbonnel, here.
This is the
real reason why J.P. Morgan Chase and the rest of the magnificent 5 now sport
OTC derivatives books of 50 - 80 TRILLION in notional.
Here’s a
peak of outstanding derivatives for U.S. Bank Holding Cos. as of June 30,
2011:
![](http://www.24hgold.com/24hpmdata/articles/2012/01/img/20120116els113.jpg) ![](../style/all/img/bouton/Zoom_in_6.png)
Source: U.S.
Office of the Comptroller of the Currency
How We Know the ESF is the Other Side of These Trades
Morgan Stanley
[MS] supplies us with the “smoking gun”. MS grew their
derivatives book by 14 TRILLION in notional in the first 6 months of 2011
– virtually all in product [swaps] that requires 2-way / mutual credit
lines. MS is a company with about 30 billion in market cap. who could not find a “dance partner” [anyone
to buy them for a ‘pittance’] back in 2008 during the financial
crisis. The GLOBAL BANKING SYSTEM – in aggregate - does not have
sufficient credit lines to allow Morgan Stanley to conduct this level of
trading activity in these credit dependent products as reported with
legitimate banking counterparties. The notion that this obscene amount of
trade represents legitimate business with banking counterparties that was
bilaterally “netted” is preposterous and a non-starter. Ergo, the
other side of the bulk [if not ALL] of this trade is necessarily the ESF
– being done in the name of “national security” and / or
the perpetuation of ZIRP and global U.S. Dollar hegemony. This obsequious,
crony, insider trade has effectively served as an attempt to re-capitalize an
insolvent MS via the public teat.
The [Mistaken] Promoted and Populist View of Derivatives
When the
sub-prime crisis came to light in August 2007, much of the
“blame” for our financial system melt-down was placed on the
proliferation and reckless use of Credit Derivatives. Our bought-and-paid-for
mainstream financial press was complicit in perpetuating this myth. This was
a conscious effort to deflect attention away from what was being done the value
of capital itself. Take note of the small proportion that Credit Derivatives
[in yellow] contribute to the total outstanding notionals.
Also take note of there being virtually ZERO identifiable end-users [slotted
green line hugging the “x” axis]:
![](http://www.24hgold.com/24hpmdata/articles/2012/01/img/20120116els114.jpg) ![](../style/all/img/bouton/Zoom_in_6.png)
source: U.S. Comptroller of the Currency
The rise in the
use of credit derivatives paralleled the rise in securitization of mortgages.
Credit derivatives were used to “guarantee” the falsified values
of toxic mortgaged-backed securities [MBS].
The growth of
the housing bubble, Credit Derivatives and Credit Default Swaps [CDS] is more
a symptom of systemic debasement of the value of capital – through ZIRP
– than a cause.
Complete Capture of the Derivatives Complex and Defiling of Fiat
Capital
That
irredeemable fiat money is designed to fail – by its very nature
– is laid out very well in Chris Martenson’s,
Crash Course
– a staple which everyone is encouraged to take the time to watch. But
rather than let the “fiat” U.S. Dollar fail, as all irredeemable
fiat currencies are designed to do – the sociopathic miscreants in
charge of the Anglo/American banking edifice have BOUGHT TIME through the
capture of the DERIVATIVES PRICE CONTROL GRID – by blatantly
commandeering the unlimited resources of the U.S. Treasury’s ESF along
with the printing presses of the Federal Reserve. This is done to make
historic alternative currencies, like precious metal, appear unworthy. This
has further endangered the financial wellbeing of all who have acted
prudently and financially responsible.
Physical Precious Metal: The Achilles Heel of Fraud
As the interest
rate swap mechanism is used to corral interest rates – so are gold
futures contracts on exchanges like COMEX and the London Bullion Market
Association [LBMA] used to suppress the price of the U.S. Dollar’s
number one competing currency alternative - gold.
The reality is
that metals exchanges, like those identified above, have sold as much as 100
times, or in some case much more, paper ounces or promises of gold in the
form of receipts than they have physical bullion available for delivery in
their vaults.
There is plenty
of documented proof available [even in the conflicted, dinosaur financial
press] that conduits for procurement of physical precious metal like national
mints have been choked or suspended for prolonged periods of time over the
past few years for investment grade physical gold and silver bullion coins.
These shortages have always been characterized by, or in, the dinosaur
financial press as being the result of issues specific to the retail trade
– like not enough gold or silver “blanks” available –
from which bullion coins are stamped.
These reported
bottlenecks fly in the face of anecdotal reports by the likes of major
industry players such as Sprott Asset Management
principal, Eric Sprott, who has attempted to bring
an air of transparency to these opaque markets. In reporting on difficulties
and delays his firm has encountered, procuring institutional amounts of
physical silver bullion – Eric Sprott has
reported that institutional amounts of silver bullion RECEIVED – was
virtually all smelted AFTER it was bought and paid for.
The delays and
difficulties receiving bought-and-paid-for physical silver bullion relayed by
Eric Sprott over the past year are INCONSISTENT
with the waterfall declines [sewering] of
paper-silver-prices on highly conflicted and suspect exchanges like COMEX and
also inconsistent with the notion that physical silver bullion shortages are
strictly a retail phenomenon. The derivatives that trade on exchanges,
supposed to reflect or aide in price discovery, are increasingly being used
as tools of price manipulation.
Regaining
control and the reinstatement of integrity to our capital markets requires
market participants to continue saying “NO” to paper promises and
yes to physical bullion.
Focus on M.F. Global
The conflicted
nature of the paper derivatives exchanges like COMEX / CME and their
regulators has recently been brought into disrepute through the collapse of
commodity broker M.F. Global and subsequent revelations by the likes of
commodity industry mavens Gerald Celente and Ann Barnhardt.
Celente, as
a client of M.F. Global who wanted to exercise his COMEX gold futures
contracts to take delivery of physical gold bullion – was denied his
contractual rights when M.F. Global declared bankruptcy. He was screwed out
of - not only his money in a supposedly secure segregated brokerage account
– but his contractual rights to procure physical gold bullion at an
agreed price.
Ann Barnhardt had a different experience. She was the
principal of a brokerage firm which specialized in trading cattle futures
– whose expressed purpose was to aide cattle farmers in hedging their
on-the-hoof live cattle exposure. Recognizing the M.F. Global bankruptcy for
what it really is – Barnhardt chose to close
her own brokerage and return her client monies for fear that that the risk of
confiscation of funds was an inherent and unacceptable risk for her to expose
her clients to.
Ms. Barnhardt has become a hero of mine – correctly
identifying the major exchange participants like Jon Corzine – former
head of M.F. Global, former Democrat Senator and Governor of New Jersey and
former Goldman Chairman, along with J.P. Morgan chief Jamie Dimon and regulators at the C.F.T.C. like Gary Gensler – another former Goldman lieutenant under
Corzine, as being criminally responsible for breach of trust to investors and
irresponsible actions threatening to destroy the integrity and confidence in
our financial markets.
Barnhardt
makes special note of how Jon Corzine was complicit in seeing to it that M.F.
Global’s bankruptcy was filed as that of a
securities dealer – with 4 thousand securities clients – versus
that of a commodities dealer – with 40 thousand commodities clients
– ALL so creditors like J.P. Morgan would have first call on the
residual value of liquidated M.F. Global assets – leaving segregated
commodity account holders of M.F. Global – screwed!!!
Ms. Barnhardt emphatically believes that Corzine’s and
J.P. Morgan’s actions were pre-emptive, provocative and implemented
with intentional malice toward commodities clients.
Subsequent to
M.F. Global’s bankruptcy filing, it is a fact
that the aggregate of all of the physical precious metal due to be delivered
by M.F. Global to their clients – almost to the ounce - appeared as a
“book entry” into the registered holdings of none other than J.P.
Morgan.
This would
appear to strongly support the notion that the M.F. Global debacle was
physical, precious metals related or centric.
Ms. Barnhardt states on
her blog,
“It is absolutely amazing to me,
and frankly awful, that these interviews I do are so popular. Most interviews
or radio programs I do wind up being the most popular (or top-three) for
their respective program or host. And we talked about my "Going
Galt" letter being #6 for ZeroHedge yesterday.
Don't think for a second that I relish in any of this. The truth is, I find
it very, very disturbing, as should all of you, that I, relatively
insignificant me, am apparently one of the only people in Western
Civilization who has the stones to simply state the OBVIOUS OBJECTIVE TRUTH. I
am a minor cultural phenomenon because I basically say that one plus one
equals two, and I can say it clearly and directly without a bunch of "uhs" and "ums" and "you knows".
Really? So all a person need do in
this culture to be some sort of a hero is be able to
string three articulate sentences together which state the obvious? God help
us.
I have many detractors who say,
"Who the hell is this chick and why the hell do we care what she
says?" Yep. I'm right there with you. Where are the billion-dollar fund
managers (excepting perhaps Kyle Bass)? Where are the captains and titans of
industry? Where are the so-called "leaders"? WHERE IS THE CLERGY???
I'm cynical, but SURELY there must be SOMEONE ELSE who has a brain in their
head and a pair in the bag who can speak proper English above a mumble
besides me. Anyone? Anyone? My 15 minutes are surely winding down. Someone
else is going to have to step up here.”
All I can say
is, “Ms. Barnhardt, welcome to our
‘systemically polluted’ capital markets. As a staunch supporter
of GATA I’ve been writing about it for at least 8 years. The folks at
GATA are very familiar with and have been documenting the systemic abuse of
our capital markets since 1998 - LONG before ANYONE ever heard of Kyle Bass
and years before the world ever heard of ZeroHedge.”
Maintenance of the Dollar Standard at Any Cost
If anyone still
doubts whether or not the Fed and U.S. Treasury have been active in managing
outcomes in strategically important markets or outright suppressing the price
of gold and rigging the bond market - they might want to take a read of
former Federal Reserve Governor, Kevin Warsh’s
op-ed of Dec. 6, 2011 in the Wall
Street Journal, snippets appended below:
The
'Financial Repression' Trap
“In Capitals Worldwide,
Policy Makers Deliberately Obscure Market Prices and Prevent Informed
Judgments”
“…Markets are not always
efficient, but the market-clearing prices for stocks, bonds, currencies and
other assets (like housing) are critical to informing judgments, in good
times and bad. Market-determined asset prices often reveal inconvenient
truths. But the sooner the truth is revealed, the sooner judgments can be rendered
and action taken.
By contrast, government-induced
prices send false signals to users and providers of capital. This upsets
economic activity and harms market functioning. Markets that rely on
governmental participation will turn out to be less enduring indicators of
value….”
“….ratings agencies have
been rightfully criticized for assigning higher ratings to various financial
products than were justified by their fundamentals, yet now we see a
dangerous irony: Governments are trying to persuade ratings agencies to
assign higher ratings to sovereigns than deserved or justified by market
prices. Blaming the ratings agencies for the dysfunction in funding markets
will not lower funding costs.”
Warsh’s
op-ed reads like a bloody confession! Anyone who reads it should be
OUTRAGED!!!! Kevin Warsh is admitting that the
finger prints of Government [read: the U.S. Treasury] are ALL OVER our
dysfunctional, systemically failing financial markets. Furthermore, it
appears that he is attempting to absolve the Fed and the part it has played
in the subversion of our capital markets – laying the whole pile of
disgusting, corrupt stench at the feet of government. Perhaps this is why Mr.
Warsh announced his resignation from the Board of
Governors of the Federal Reserve back on Feb. 11, 2011 – with his post
not due to expire until January 2018. Who knows, maybe the man grew a
conscience?
In any case,
make no mistake – the Federal Reserve has acted, lock-step, in cahoots
with the sociopaths and sycophants “playing god” at the U.S.
Treasury - aiding and abetting the ESF’s nefarious, ruinous
interventions in our capital markets. Heck, the former President of the New
York Fed, Timothy Geithner, is the sitting U.S. Treasury Secretary.
Manufacturing Is Alive and Well in America
All is not well
in America – not by a long shot. America has been taken over through
subterfuge in a financial, fascist coup and the perpetrators have installed a
police state. America is no longer a nation of laws. Any additional
regulation of the financial services industry would be fruitless. There
already exists “laws on the books” – to prevent the
blatant, criminal price rigging / abuse that has already occurred. The abuse
has been allowed to occur by derelict regulators who have vacated [or been
bought] their fiduciary duties.
While
America’s industrial potential has been largely
“off-shored” – their Constitution and Bill of Rights are in
tatters but their propensity to manufacture is there – it just
manifests itself in different ways:
- Manufactured financial
data
- Manufactured cost of
capital [int. rates]
- Manufactured gold
and precious metals prices
- Manufactured cost of
energy
It’s all
about control. Derivatives products – well intentioned when they were
conceived – have been utilized to prop-up a failing fiat currency /
undermine capital through the establishment of a phony, crony, price control
grid. As such, derivatives have become very dangerous tools in the hands of a
gaggle of miscreant sociopaths – who think, speak and act as if they
are doing god’s work - that now occupy the U.S. Treasury / Fed and rule
Wall Street.
Got physical
gold yet?
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