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Here Is The FT’s Gold Price Manipulation Article That Was Removed | Zero Hedge
Here Is The FT’s Gold Price Manipulation Article That Was Removed | Zero Hedge.
Two days ago the FT released a clear, informative and fact-based article, titled simply enough “Gold price rigging fears put investors on alert” in which author Madison Marriage, citing a report by the Fideres consultancy, revealed that global gold prices may have been manipulated on 50 per cent of occasions between January 2010 and December 2013.
To those who hve been following the price action of gold in the past four years, gold manipulation is not only not surprising, but accepted and widely appreciated (because like the Chinese those who buy gold would rather do so at artificially low rather than artificially high fiat prices) and at this point, after every other product has been exposed to be blatantly and maliciously manipulated by the banking estate, it is taken for granted that the central banks’ primary fiat alternative, and biggest threat to the monetary status quo, has not avoided a comparable fate.
What is surprising is that where the FT article once was, readers can now find only this:
And since we can only assume the article has been lost to FT readers due to some server glitch, and not due to post-editorial consorship or certainly an angry phone call from the Bank of England or some comparable institution, we are happy to recreate it in its entirety. Just in case someone is curious why gold price rigging fears should put investors on alert.
Gold price rigging fears put investors on alert
By Madison Marriage
Global gold prices may have been manipulated on 50 per cent of occasions between January 2010 and December 2013, according to analysis by Fideres, a consultancy.
The findings come amid a probe by German and UK regulators into alleged manipulation of the gold price, which is set twice a day by Deutsche Bank, HSBC, Barclays, Bank of Nova Scotia and Société Générale in a process known as the “London gold fixing”.
Fideres’ research found the gold price frequently climbs (or falls) once a twice-daily conference call between the five banks begins, peaks (or troughs) almost exactly as the call ends and then experiences a sharp reversal, a pattern it alleged may be evidence of “collusive behaviour”.
“[This] is indicative of panel banks pushing the gold price upwards on the basis of a strategy that was likely predetermined before the start of the call in order to benefit their existing positions or pending orders,” Fideres concluded.
“The behaviour of the gold price is very suspicious in 50 per cent of cases. This is not something you would expect to see if you take into account normal market factors,“ said Alberto Thomas, a partner at Fideres.
Alasdair Macleod, head of research at GoldMoney, a dealer in physical gold, added: “When the banks fix the price, the advantage they have is that they know what orders they have in the pocket. There is a possibility that they are gaming the system.”
Pension funds, hedge funds, commodity trading advisers and futures traders are most likely to have suffered losses as a result, according to Mr Thomas, who said that many of these groups were “definitely ready” to file lawsuits.
Daniel Brockett, a partner at law firm Quinn Emanuel, also said he had spoken to several investors concerned about potential losses.
“It is fair to say that economic work suggests there are certain days when [the five banks] are not only tipping their clients off, but also colluding with one another,” he said.
Matt Johnson, head of distribution at ETF Securities, one of the largest providers of exchange traded products, said that if gold price collusion is proven, “investors in products with an expiry price based around the fixing could have been badly impacted”.
Gregory Asciolla, a partner at Labaton Sucharow, a US law firm, added: “There are certainly good reasons for investors to be concerned. They are paying close attention to this and if the investigations go somewhere, it would not surprise me if there were lawsuits filed around the world.”
All five banks declined to comment on the findings, which come amid growing regulatory scrutiny of gold and precious metal benchmarks.
BaFin, the German regulator, has launched an investigation into gold-price manipulation and demanded documents from Deutsche Bank. The bank last month decided to end its role in gold and silver pricing. The UK’s Financial Conduct Authority is also examining how the price of gold and other precious metals is set as part of a wider probe into benchmark manipulation following findings of wrongdoing with respect to Libor and similar allegations with respect to the foreign exchange market.
The US Commodity Futures Trading Commission has reportedly held private meetings to discuss gold manipulation, but declined to confirm or deny that an investigation was ongoing.
h/t Noel
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Banks Aid U.S. Forex Probe, Fullfilling Libor Accords – Bloomberg
Banks Aid U.S. Forex Probe, Fullfilling Libor Accords – Bloomberg.
UBS AG’s signage is displayed outside the company’s Finsbury Avenue offices in London…. Read More
Banks bound by cooperation agreements in an interest-rate rigging probe are providing a windfall of information to U.S. prosecutors investigating possible currency manipulation, according to a Justice Department official and a person familiar with the matter.
“We’ve seen tangible, real results,” Mythili Raman, the acting head of the Justice Department’s criminal division, said in an interview. The cooperation “expanded our investigations into the possible manipulation of foreign exchange and other benchmark rates,” said Raman, who declined to name the banks or comment further on the probe.
The accords have compelled some lenders to conduct internal examinations of their foreign-exchange businesses and share findings with the Justice Department, speeding the government’s criminal probe into the $5.3 trillion-a-day market, according to a person with knowledge of the investigation.
Some banks are handing over lists of potential witnesses, making employees available for interviews and giving up documents without subpoenas, said the person, who asked not to be identified because the inquiry is confidential. Investigators are holding weekly and sometimes daily phone calls with the banks, the person said.
UBS AG (UBSN), Barclays Plc (BARC) and Royal Bank of Scotland Group Plc resolved a Justice Department investigation into how the London interbank offered rate, or Libor, was set, paying more than $800 million in criminal fines and penalties and agreeing to cooperate in other inquiries. The three lenders are among the largest currency traders in the world.
Dominik von Arx, a spokesman for UBS, Nichola Sharpe at Barclays and Sarah Small at RBS, declined to comment.
Libor Probe
Rabobank Groep, which also paid the U.S. a $325 million criminal penalty to settle Libor-rigging allegations in a deferred-prosecution agreement, doesn’t rank among the top 20 currency traders in the world, according to Euromoney Institutional Investor Plc. (ERM)
“Rabobank fully cooperates with regulators pursuant to the deferred-prosecution agreement,” Roelina Bolding, a spokeswoman for the Utrecht, Netherlands-based firm, said in an e-mail. “Rabobank does not otherwise comment on pending investigations of Rabobank or of any other person or entity.”
In addition to the settlements with the four banks, the U.S. Libor probe, which is continuing, has led to criminal charges against eight individuals.
Without the cooperation agreements, the banks would have been less motivated to come forward about currency trading, said Laurie Levenson, a professor at Loyola Law School in Los Angeles.
“I don’t think they would have as much incentive and you’d have pushback from individuals at the bank who are saying ‘Why are we doing this?’” Levenson said in an interview. “‘This is our own business and we’re being overly cautious.’”
Cooperation Agreements
The cooperation agreements also allow the government to advance the probe without overtaxing law enforcement resources, which have been stretched by budget cuts, hiring freezes and furloughs in recent years. In addition to the Justice Department’s criminal and antitrust divisions, European Union antitrust regulators, the U.K. Financial Conduct Authority and the Swiss Competition Commission are probing rigging of currency benchmarks. The Federal Reserve also is examining the matter, Bloomberg reported earlier this month.
“You could be talking about potentially millions of e-mails and thousands of hours of tape,” said Douglas Tween, a former Justice Department lawyer, now at law firm Baker & McKenzie LLP in New York.
The Justice Department “doesn’t have the resources to cull through all of that times 10 banks or 20 banks. They really to a large extent rely on the banks to cooperate and essentially give them all this evidence on a silver platter.”
Financial Benchmarks
Authorities around the world are investigating alleged abuse of financial benchmarks by companies that play a central role in setting them. Other rates under investigation include the ISDAfix, used to determine the value of interest-rate derivatives. European and U.S. regulators also are reviewing allegations of collusion in crude oil and biofuels markets in scrutinizing how the Platts oil benchmark is set.
Financial institutions have paid about $6 billion so far to resolve criminal and civil claims in the U.S. and Europe that they manipulated benchmark interest rates.
To resolve the Justice Department’s charges, UBS, RBS and Barclays signed deferred-prosecution or non-prosecution agreements within the past two years that effectively put the banks on probation and obliged them to report possible misconduct and cooperate in benchmark-rigging investigations. The banks risk indictment if the government decides they aren’t being cooperative, Tween said.
‘Criminal Conduct’
“Once they’ve got you on one thing, they’ve really got you,” said Tween. “They’ll say ‘You haven’t been cooperative and haven’t lived up to the terms of your deferred-prosecution agreement, and we’re going to pull the plug on that and indict you.’”
Barclays, based in London, agreed to notify the Justice Department of “all potentially criminal conduct by Barclays or any of its employees that relates to fraud or violations of the laws governing securities and commodities markets.” Zurich-based UBS agreed to similar terms.
Edinburgh-based RBS promised to cooperate in “any and all matters” related to “manipulation, attempted manipulation, or interbank coordination of benchmark rate submissions.”
Front-Running
Bloomberg News reported in June that currency dealers said they had been front-running client orders and attempting to rig foreign-exchange rates for at least a decade by colluding with counterparts and pushing through trades before and during the 60-second windows when the benchmarks are set.
The world’s seven biggest foreign-exchange dealers have now all taken action against their employees: at least 17 traders have been suspended, put on leave or fired.
The Justice Department’s use of deferred- and non-prosecution agreements has been rising over the past decade from an average of four per year between 2000 and 2004 to 27 in 2013, according to data compiled by the law firm Gibson, Dunn & Crutcher LLP. Last year was the fifth consecutive year with at least 20 such settlements, the firm said.
Broader Investigations
“These agreements are now a fixture in the federal corporate law enforcement regime, and all indications point to their use holding steady for the foreseeable future,” the firm said.
The agreements help the government conduct broader investigations faster, said Robertson Park, a former federal prosecutor who worked on the Libor investigation.
“If suddenly you have an institution that is effectively giving you the information and documents and data you need, if they’re motivated to provide it in formats that are immediately available and useful to you and if they’re making witnesses available, that can be a significant time savings,” said Park, a lawyer at Murphy & McGonigle in Washington.
To contact the reporters on this story: David McLaughlin in Washington atdmclaughlin9@bloomberg.net; Tom Schoenberg in Washington attschoenberg@bloomberg.net
To contact the editor responsible for this story: Sara Forden at sforden@bloomberg.net
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German Gold Manipulation Blowback Escalates: Deutsche Bank Exits Gold Price Fixing | Zero Hedge
German Gold Manipulation Blowback Escalates: Deutsche Bank Exits Gold Price Fixing | Zero Hedge.
Germany’s blowback against gold manipulation is accelerating. Following yesterday’s report that Bafin took a hard line against precious metals manipulation, after its president Eike Koenig said possible manipulation of precious metals “is worse than the Libor-rigging scandal“, today the response has trickled down to Germany and Europe’s largest bank, Deutsche Bank, which announced that it would withdraw from the appropriately named gold and silver price “fixing”, as European regulators investigate suspected manipulation of precious metals prices by banks. As a reminder, Deutsche is one of five banks involved in the twice-daily gold fix for global price setting and said it was quitting the process after withdrawing from the bulk of its commodities business. The scramble away from gold fixing was certainly assisted by the recent first (of many) manipulation expose in the legacy media, when Bloomberg revealed “How Gold Price Is Manipulated During The “London Fix.” And sure enough, with Germany already very sensitive to the topic of its gold repatriation, and specifically why it is taking so long, it was only a matter of time before any German involvement in gold manipulation escalated to the very top.
“Deutsche Bank is withdrawing its participation in the gold and silver benchmark setting process following the significant scaling back of our commodities business. We remain fully committed to our precious metals business,” it said in a statement.
In mid-December, German banking regulator Bafin demanded documents from Deutsche Bank under an inquiry into suspected manipulation of benchmark gold and silver prices by banks, the Financial Times reported, citing sources.
Bafin declined to comment on Friday, but its President Elke Koenig said the previous day that it was understandable that the topic was attracting widespread concern.
“These allegations (about currencies and precious metals) are particularly serious, because such reference values are based – unlike LIBOR and Euribor – typically on real transactions in liquid markets and not on estimates of the banks,” she said in a speech
Needless to say, manipulation of the gold market would not be exactly novel to a bank which has also been named in cases related to the sub-prime crisis, credit default swaps, mortgages, tax evasion and a decade-old lawsuit suit brought by the heirs of late media mogul Leo Kirch, who accuse the bank of undermining the business.
Reuters also reports that Deutsche is now actively marketing its gold and silver fixing seats to another LBMA member, however now that the cat is out of the bag on the gold fixing manipulation scheme (the first of many), it is likely that others will seek to follow in Deutsche’s footsteps and seek to put as much distance between themselves and the wood-paneled room once located in theRothschild office on St. Swithin’s Lane in London.
We wonder which of these five gentlemen is from Deutsche?
So if everyone exits the London fixing market, what happens then?
“It wouldn’t surprise me if the other banks were looking at pulling out as well. Why would they want the aggravation?” said the source, who declined to be named.
“The more worrying point is that, if you don’t have the fixing, what do you have? There’s a lot of contractual business done on the gold fix, and if you’ve got no basis for where the price is, someone is going to lose out.”
Well considering that the fixing process over the years was manipulation pure and simple, those who will lose out are the… manipulators? it would seem rather logical. And speaking of manipulation, if indeed Germany is so keen on breaking the manipulators’ back, perhaps it can demand that the pace of its gold returns from the NY Fed and Paris accelerates. It may be surprised at what it finds.
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Precious Metals Manipulation Worse Than Libor Scandal, German Regulator Says | Zero Hedge
Precious Metals Manipulation Worse Than Libor Scandal, German Regulator Says | Zero Hedge.
Remember when banks were exposed manipulating virtually everything except precious metals, because obviously nobody ever manipulates the price of gold and silver? After all, the biggest “conspiracy theory” of all is that crazy gold bugs blame every move against them on some vile manipulator. It may be time to shift yet another conspiracy “theory” into the “fact” bin, thanks to Elke Koenig, the president of Germany’s top financial regulator, Bafin, which apparently is not as corrupt, complicit and clueless as its US equivalent, and who said that in addition to currency rates,manipulation of precious metals “is worse than the Libor-rigging scandal.” Hear that Bart Chilton and friends from the CFTC?
More on what Eike said from Bloomberg:
The allegations about the currency and precious metals markets are “particularly serious, because such reference values are based — unlike Libor and Euribor — typically on transactions in liquid markets and not on estimates of the banks,” Elke Koenig, the president of Bafin, said in a speech in Frankfurt today.
Actually, what makes the most serious, is that precisely because they are on liquid markets means they implicitly have the blessing of the biggest New Normal market maker of call – the central banks, and their own “regulator” – the Bank of International Settlements (hello Mikael Charoze).
“That the issue is causing such a public reaction is understandable,” Koenig said, according to a copy of the speech. “The financial sector is dependent on the common trust that it is efficient and at the same time, honest. The central benchmark rates seemed to be beyond any doubt, and now there is the allegation they may have been manipulated.”
Bafin has also interviewed employees of Deutsche Bank AG as part of a probe of potential manipulation of gold and silver prices, a person with knowledge of the matter has said.
We wonder how long until this particular investigation is stopped based on an “executive order” from above, because Bafin is now stepping into some very treacherous waters with its ongoing inquiry of gold manipulation: what it reveals will certainly not be to the liking of the financial “powers that be.”
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Define “Market” Irony: When JPMorgan’s Chief Currency Dealer Is Head Of An FX Manipulation “Cartel” | Zero Hedge
Now that everyone is habituated to banks manipulating every single product and asset class, and for those who aren’t, see this explanatory infographic…
Foreign Exchanges
Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.
Energy Trading
Banks have been accused of manipulating energy markets in California and other states.
Libor
Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.
Mortgages
Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.
…revelations that this market and that or the other are controlled by a select group of criminal bankers just don’t generate the kind of visceral loathing as 2012’s Libor fraud bombshell.
As much was revealed when the second round of exposes hit in the middle of 2013, mostly focusing on manipulation in the forex market, and the general population largely yawned, whether due to the knowledge that every market is now explicitly broken (explaining the abysmal trading volumes and retail participation in recent years) or because nobody ever gets their due punishment and this kind of activity so not even a perp-walk spectacle can be enjoyed, this is accepted as ordinary-course action.
Nonetheless, we are glad that the actions of the FX cartel continue to get regular exposure in the broader media, in this case Bloomberg who, among other things, reminds us that it was none other than JPM’s Dick Usher who was the moderator of the appropriately titled secret chat room titled “The Cartel” which we noted previously. It is this alleged criminal who “worked at RBS and represented the Edinburgh-based bank when he accepted a 2004 award from the publication FX Week. When he quit RBS in 2010, the chat room died, the people said. He revived the group with the same participants when he joined JPMorgan the same year as chief currency dealer in London.”
Yes, the chief currency dealer of JP Morgan, starting in 2010 until a few months ago when he quietly disappeared, was one of the biggest (allegedly) FX manipulators in the world. Define irony…
What are some of the other recent revelations?
Here is a reminder of the prehistory from Bloomberg. First came the chat rooms:
At the center of the inquiries are instant-message groups with names such as “The Cartel,” “The Bandits’ Club,” “One Team, One Dream” and “The Mafia,” in which dealers exchanged information on client orders and agreed how to trade at the fix, according to the people with knowledge of the investigations who asked not to be identified because the matter is pending. Some traders took part in multiple chat rooms, one of them said.
The allegations of collusion undermine one of society’s fundamental principles — how money is valued. The possibility that a handful of traders clustered in a closed electronic network could skew the worth of global currencies for their own gain without detection points to a lack of oversight by employers and regulators. Since funds buy and sell billions of dollars of currency each month at the 4 p.m. WM/Reuters rates, which are determined by calculating the median of all trades during a 60-second period, that means less money in the pension and savings accounts of investors around the world.
…
One focus of the investigation is the relationship of three senior dealers who participated in “The Cartel” — JPMorgan’s Richard Usher, Citigroup’s Rohan Ramchandani and Matt Gardiner, who worked at Barclays and UBS — according to the people with knowledge of the probe. Their banks controlled more than 40 percent of the world’s currency trading last year, according to a May survey by Euromoney Institutional Investor Plc.
Entry into the chat room was coveted by nonmembers interviewed by Bloomberg News, who said they saw it as a golden ticket because of the influence it exerted.
And after that came unprecedented hubris and a sense of invincibility:
The men communicated via Instant Bloomberg, a messaging system available on terminals that Bloomberg LP, the parent of Bloomberg News, leases to financial firms, people with knowledge of the conversations said.
The traders used jargon, cracked jokes and exchanged information in the chat rooms as if they didn’t imagine anyone outside their circle would read what they wrote, according to two people who have seen transcripts of the discussions.
Since nobody investigated, next naturally, come the profits and the crimes:
Unlike sales of stocks and bonds, which are regulated by government agencies, spot foreign exchange — the buying and selling for immediate delivery as opposed to some future date — isn’t considered an investment product and isn’t subject to specific rules.
While firms are required by the Dodd-Frank Act in the U.S. to report trading in foreign-exchange swaps and forwards, spot dealing is exempt. The U.S. Treasury exempted foreign-exchange swaps and forwards from Dodd-Frank’s requirement to back up trades with a clearinghouse. In the European Union, banks will have to report foreign-exchange derivatives transactions under the European Market Infrastructure Regulation.
A lack of regulation has left the foreign-exchange market vulnerable to abuse, said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business in Manhattan.
“If nobody is monitoring these benchmarks, and since the gains from moving the benchmark are possibly very large, it is very tempting to engage in such a behavior,” said Abrantes-Metz, whose 2008 paper “Libor Manipulation” helped spark a global probe of interbank borrowing rates. “Even a little bit of difference in price can add up to big profits.”
… along with a lot of banging the close:
Dealers can buy or sell the bulk of their client orders during the 60-second window to exert the most pressure on the published rate, a practice known as banging the close. Because the benchmark is based on the median value of transactions during the period, breaking up orders into a number of smaller trades could have a greater impact than executing one big deal.
… and much golf and “envelopes stuffed with cash”
On one excursion to a private golf club in the so-called stockbroker belt beyond London’s M25 motorway, a dozen currency dealers from the biggest banks and several day traders, who bet on currency moves for their personal accounts, drained beers in a bar after a warm September day on the fairway. One of the day traders handed a white envelope stuffed with cash to a bank dealer in recognition of the information he had received, according to a person who witnessed the exchange.
Such transactions were common and also took place in tavern parking lots in Essex, the person said.
Personal relationships often determine how well currency traders treat their customers, said a hedge-fund manager who asked not to be identified. That’s because there’s no exchange where trades take place and no legal requirement that traders ensure customers receive the best deals available, he said.
In short – so simple the underwear gnomes could do it:
- Create a cartel
- Corner and manipulate the market
- Profit.
And that’s why they (and especially Jamie Dimon) are richer than you.
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Deutsche Bank Investigated In Gold Manipulation Probe | Zero Hedge
Deutsche Bank Investigated In Gold Manipulation Probe | Zero Hedge.
A month ago, regulators in Europe began their investigation into manipulation of the “London gold fixing” (and we explained the methods here). While the complete history of gold manipulation goes a lot deeper than just banging the close on this crucial benchmark (which goes back to first world war); the decision by Germany’s financial regulator (BaFin) to probe Deutsche Bank signals greater concerns over the precious metals markets. As The FT reports, BaFin has demanded emails and documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.
Germany’s financial regulator has demanded documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.
…
Deutsche Bank is one of five banks that take part in the twice-daily “London gold fixing”, and one of three banks that take part in the equivalent process for silver.
…
Some bankers believe BaFin has come under pressure to show it is willing to get tough on suspected market manipulation. It was widely seen to have been slow to respond to the concerns over possible manipulation in the forex market expressed by other regulators around the world earlier this year.
Although the gold and silver fixings are, like Libor, set by small groups of banks, they contrast with the process for setting Libor in that they are based on trading activity rather than theoretical quotes.
…
The visit to Deutsche offices signals that BaFin now has greater concerns over the precious metals markets. Officials have asked to observe documents and processes related to precious metals trading as well as to interview bankers, the person said.
…
The other banks that take part in the gold fixing are Barclays, Bank of Nova Scotia, HSBC and Société Générale. The other banks involved in silver fixing are Bank of Nova Scotia and HSBC. As the only German member of either fixing, Deutsche is the only bank to come under BaFin’s remit.
Of course, despite day after day of closing price smackdowns (and the very occasaional vertical ramp), we are sure the regulators will find no wrong doing… for, as we noted here,this manipulation is by design, not malfeasance…it’s for your own good…
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Are The Markets Rigged? | Zero Hedge
Are The Markets Rigged? | Zero Hedge.
Despite being found guilty of and fined for manipulations of every other market in the world (from FX to rates to energy), investors small and large continue to play the markets on the basis that they are fair and balanced. Aside from high-profile insider trades; day after day, the oddly high correlations, the obvious spikes, blips, and front-running are ignored… until now. In this brief documentary,CBC asks the critical question “are the world’s stock markets rigged?” Amanda Lang concludes “there’s a sense among the general public that nobody seems to be maintaining the integrity of the system.” as she highlights case after case “as though everything is rigged!” Conspiracy theory evolves once again into conspiracy fact as the system that’s supposed to benefit many, but actually enriches a few.
“Historically, the system works because people have confidence in the rules and believe they are treated the same as anybody else.
But it’s getting harder and harder to ignore the stories of powerful people cheating the system for their own gain. As the bad apples add up, it gets harder and harder to ignore a troubling realization — “everything is rigged.””
Courtesy of the revelations over the past year, one thing has been settled: the statement “Wall Street Manipulated Everything” is no longer in the conspiracy theorist’s arsenal: it is now part of the factually accepted vernacular. And to summarize just how, who and where this manipulation takes places is the following series of charts from Bloomberg demonstrating Wall Street at its best – breaking the rules and making a killing.
Foreign Exchanges
Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.
Energy Trading
Banks have been accused of manipulating energy markets in California and other states.
Libor
Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.
Mortgages
Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.
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Why the financial system’s fairness matters: Amanda Lang – Business – CBC News
Why the financial system’s fairness matters: Amanda Lang – Business – CBC News.
I didn’t study business before I became a business reporter. I studied architecture, and of all the knowledge I acquired the most important was that I was not destined to be an architect.
Journalism was a lucky accident, born of necessity, and business journalism even more so. The underdog paper that would hire me in 1994 was the Financial Post and so I dove into the world of business.
From the beginning, I admired the untidy elegance of the way an economy functions. I believed in and even came to revere the importance of markets — that is, well-oiled machines whose only real job is to set prices.
Markets work to ensure that resources are allocated efficiently. Accurate prices are at the heart of that efficiency and the result isn’t some remote or arcane thing, it is prosperity and happiness for humans. Well-priced markets are essential. Fairness is essential.
‘Whenever it is possible to fix a price for personal gain, someone is doing it’
Over time, I watched a number of changes take place aimed at levelling the playing field. From the long ago days when stocks were traded by a group of men who met under a buttonwood tree in lower Manhattan, to a game that is pitched to grandmothers — “Manage your own money! You too can be wealthy!” — the rules have changed.
In the late 1990s, as technology stocks bubbled to a temperature that would burn some investors for a decade or more, rules about fairness of pricing were implemented. The point of the most important such rule, known as Regulation Fair Disclosure, was that insiders — or the “smart money,” as professional money managers are sometimes called — shouldn’t have an unfair edge in the form of access to information. Prices are only perfect if all information is priced in and the more participants there are to that process, the more pristine the outcome. Or so the thinking went.
If obscure financial systems are rigged, the backbone underpinning the entire economy is broken, says Amanda Lang. (Maxim Shemetov/Reuters)How naive that view now seems. How innocent. Because for the last two years, as the globe staggered back to its feet in recovery from the body blow delivered by fast moving investment banks that lost sight of basic risk management policies, the number of examples of ways in which the markets are rigged are too numerous to count.
Each one seems more shocking than the last.
Insider trading, as old as the hills, is now a billion-dollar enterprise at certain investment funds and part of the culture of many. Investment banks may be gaming the price of some commodities, with a subsequent cost that reaches every corner of the planet. Currency traders collude with each other to make tiny profit on their trades, writ large over billions of executions.
The system is rigged
Then the most shocking of all, a key international interest rate used to set trillions of dollars of prices, is being manipulated. LIBOR, the London Interbank Offered Rate, is like the foundation of a house that holds billions of people. If that foundation is askew — as we now know it was — what does that say about huge parts of the markets and those prices we thought were based on real information? A mirage.
For this business journalist, the shock of that was intense. There will always be fraudsters — smooth-talking snake oil pitchmen — and regulators are on the lookout for them. But the evidence is mounting that whenever it is possible to fix a price for personal gain, someone is doing it.
That’s not just a disappointment; it undermines the entire system. Tiny price distortions get magnified across the global economy. We all pay, even if we don’t really know it. Most important, if market participants — from a sophisticated bond trader trying to price a bond based off a benchmark rate, to your grandmother putting her life savings into a stock — don’t believe in its fundamental soundness, don’t believe that prices are as fair as prices can be, the entire thing falls apart.
It happened in Holland in the 17th century, when tulip bulbs became an irrational bubble. It has happened often in fact, in tiny pockets, from land in Florida to London Bridge. The outcome of those incidents is distrust and an unwillingness to invest there again.
So what is the outcome if those kinds of mispricings are everywhere? That’s a thought too stark to contemplate. Better that investors — the “dumb money” that is you and me — sit up and take notice before it’s too late. If indeed it isn’t already.
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The Complete And Unabridged History Of Gold Manipulation | Zero Hedge
The Complete And Unabridged History Of Gold Manipulation | Zero Hedge.
On November 1st, 1961, an agreement was reached between the central banks of the United States and seven European countries to cooperate in achieving a shared, and very clearly stated, aim.
The agreement became known as the London Gold Pool, and it had a very explicit purpose: to keep the price of gold suppressed “under control” and pegged regulated at $35/oz. through interventions in the London gold market whenever the price got to be a little… frisky.
The construct was a simple one.
The eight central banks would all chip in an amount of gold to the initial “kitty.” Then they would sell enough of the pooled gold to cap any price rises and then replace that which they had been forced to sell on any subsequent weakness.
*Statement is subject to standard terms and conditions and is not necessarily reflective of any evidence. Government entities are excluded from inclusion based on the fact that we can’t really do anything about them and anyway; they could put us out of business; and it would make things really, really bad for them. Also, bullion banks are not covered under this statement because we were told to turn a blind eye; but individual investors are, and we can categorically confirm that, to the best of our knowledge, no individuals are manipulating the precious metals markets (at this time).
But, as Grant Williams explains in this excellent and complete summary of the history of Gold price manipulation, things don’t always go as planned…
Human beings, when given means and motive, have rather a poor history of eschewing the easy profit in favour of doing the right thing. Governments, when faced with dilemmas, have a rather poor history of doing the right thing as opposed to whatever they think they need to do in order to cling to power. It’s quite simple.
Libor, FX rates, and mortgages trades are all fiat in nature. The contracts that are exchanged have no tangible value. (Yes, technically speaking, mortgages have houses underneath them, but the houses are so far down the securitization chain as to be invisible). Such contracts can be created at the push of a button or the stroke of a pen and manipulated easily right up until the point where they can’t.
Gold is a different beast altogether.
The manipulation of the gold price takes place in a paper market — away from the physical supply of the metal itself. That metal trades on a premium to the futures contract for a very good reason: it has real, intrinsic value, unlike its paper nemesis.
If you want to manipulate the price of a paper futures contract lower, you simply sell that paper. Sell it long, sell it short, it doesn’t matter — it is a forward promise. You can always roll it over at a later date or cover it back at a profit if the price moves lower in the interim.
And of course you can do it on margin.
If the trading were actually in the metal itself, then in order to weaken the price you would have to continue to find more physical metal in order to continue selling; and, as is welldocumented, there just isn’t so much of it around: in recent years what little there is has been pouring into the sorts of places from which it doesn’t come back — not at these price levels, anyway.
The London Gold Pool had one thing in common with the rigging of the FX, Libor, and mortgage markets: it worked until it didn’t.
The London Gold Pool proved that central banks can collude cooperate to rig maintain the price of gold at what they deem manageable levels, but it also proved that at some point the pressure exerted by market forces to restore the natural order of things becomes overwhelming, and even the strongest cartels groups (whose interests happen to be aligned) — which are made up of the very institutions granted the power to create money out of thin air — can’t fight the battle any longer.
…The problem now is that currently there arealmost 70 claims on every ounce of gold in the COMEX warehouse and serious doubts about the physical metal available for delivery at the LBMA.
Which leads us to today…
The London Gold Pool was designed to keep the price of gold capped in an era when the world’s reserve currency had a tangible backing. In defending the price, the eight members of the Pool were forced to sell way more gold than they had initially contributed in order to keep the price from going where it desperately wanted to go — higher.
This time around, the need for the price to be capped has nothing to do with any kind of gold standard and everything to do with the defense of the fractional reserve gold lending system, about which I have written and spoken many times.
Gold is moving to ever stronger hands, and when the dam does inevitably break again, the true price will be discovered by natural market forces, free of interference.
This time, however, those chasing what little gold is available will include all those central banks that have kept their holdings “safe” in overseas vaults.
The Bundesbank has seen the writing on the wall and demanded its gold back. They were told it would take seven years before their 30 tonnes could be returned to them.
My guess is, this little scheme doesn’t have seven years left to play out.
Everybody outta the pool!
Full Grant Williams letter here:
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EU Commission fines banks $2.3 billion for benchmark rigging | Reuters
EU Commission fines banks $2.3 billion for benchmark rigging | Reuters.
1 OF 2. European Union Competition Commissioner Joaquin Almunia addresses a news conference at the EU Commission headquarters in Brussels December 4, 2013.
CREDIT: REUTERS/YVES HERMAN
(Reuters) – EU antitrust regulators fined six financial institutions including Deutsche Bank, Royal Bank of Scotland and Citigroup a record total of 1.71 billion euros ($2.3 billion) on Wednesday for rigging financial benchmarks.
The move confirms what a source familiar with the matter had previously told Reuters.
The penalty is the biggest yet to be handed down to banks for rigging the benchmarks used to determine the cost of lending, one of the most brazen violations of conduct since the financial crisis. It is also the highest antitrust penalty ever imposed by the Commission, the EU’s competition regulator.
The other banks penalized are Societe Generale, JPMorgan and brokerage RP Martin.
Deutsche Bank received the biggest fine of 725.36 million euros.
The European Commission said it would continue to investigate Credit Agricole, HSBC, JPMorgan and brokerage ICAP for similar offences.
The benchmarks involved are the London interbank offered rate, or Libor, the Tokyo interbank offered rate and the euro area equivalents. They are used to price hundreds of trillions of dollars in assets ranging from mortgages to derivatives.
“What is shocking about the Libor and Euribor scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other,” EU Competition Commissioner Joaquin Almunia said in a statement.
LIKELY SANCTIONS
RP Martin and ICAP could not be immediately reached for comment. Deutsche Bank said it has set aside enough money to cover most of the 725 million euro fine.
JPMorgan confirmed its 79.9 million euro penalty in the Libor case but said it would defend itself in the Euribor case. [ID:nWNBB037YI]. Societe Generale declined to comment.
Unlike the six banks which admitted liability in return for a 10 percent reduction in their fines, Credit Agricole has refused to settle and will likely face sanctions next year. HSBC has also contested the EU’s proposed penalty.
Both banks are expected to be formally charged on Wednesday.
A spokesman for HSBC said the bank would defend itself vigorously in the Euribor case, while Barclays confirmed its cooperation with the Commission which helped it stave off a 690 million euros sanction.
RBS said its 391 million euro penalty had been fully provisioned for.
Authorities around the world have so far handed down a total of $3.7 billion in fines to UBS, RBS, Barclays, Rabobank and ICAP for manipulating rates, while seven individuals face criminal charges.
UBS paid a record fine of $1.5 billion late last year to the U.S. Department of Justice and the UK’s Financial Services Authority for rate-rigging.
EU fines can reach up to 10 percent of a company’s global turnover.
UBS blew the whistle on the Libor and Tibor cases and will not be fined as a result. Barclays will escape a fine in the Euribor case because it alerted the Commission to the offence.
(Additional reporting by Matthias Blamont in Paris, Steve Slater and Kirstin Ridley in London, Ludwig Burger and Clare Hutchison in Frankfurt, Lionel Laurent in Paris; Writing by John O’Donnell; Editing by Luke Baker and David Holmes)
Olduvaiblog: Musings on the coming collapse 