Ted Butler Calls Out the CFTC On Silver Market Manipulation

Considering how patient and understated he has been for so long, and so often the voice of reasonableness, this latest piece from Ted Butler is a bit surprising in the directness and strength of his language.

Illegalities
By Ted Butler
May 25, 2012

The Commodity Futures Trading Commission (CFTC) has been negligent in failing to terminate the obvious manipulation ongoing in silver. Furthermore, the agency may be complicit in this manipulation. Worse, it has lied to the public and elected officials. This all goes back to the time when Bear Stearns was taken over by JPMorgan in March of 2008.

It is well known that Bear Stearns went under as a result of a sudden loss of liquidity amidst a run by creditors and customers. What is not well known is that those problems were greatly exacerbated by a $2 billion margin call on silver and gold short positions from the end of December 2007 to March 2008. I believe the silver and gold margin calls were at the heart of Bear Stearns’ failure.

We know now (from CFTC correspondence to lawmakers in 2008) that JPMorgan took over Bear Stearns’ giant silver and gold short positions on the COMEX. Up until that time, we did not know that Bear Stearns was the concentrated silver and gold short. Using Commitment of Traders Report (COT) data, Bear Stearns had a COMEX silver short position of no less than 35,000 net contracts and a COMEX gold short position of no less than 60,000 net contracts from the end of December 2007 to their takeover by JPMorgan two and a half months later. From December 31, 2007 to mid-March 2008, the price of silver rose by $6 (from $15 to $21) and the price of gold rose from $850 to over $1000. Based upon the number of contracts held short by Bear Stearns and the price movement at that time, that resulted in margin calls of $2 billion. I would contend that was the real reason for Bear Stearns’ demise.

So where do I get off claiming that the CFTC is complicit in the silver manipulation and lied about it to the public and to lawmakers? This is easy to prove...

Read the rest here.

Gold Daily and Silver Weekly Charts - Fed Will Backstop a Run On the Exchange

The situation remains rather volatile and open to an exogenous event.

Gold has not yet broken its downtrend. We do have the option expiration under our belts at least and are entering a heavy delivery season.

I thought it was interesting that the US government has directed the Fed to backstop the Comex and ICE in the case of a liquidity event or a run on the exchange.

In that event be ready to accept a forced settlement in paper, and to possibly forsake any metal held in custody at an exchange depository to a soft confiscation, ie it was not there in the first place and will be lost in a wave of defaults.

SP 500 and NDX Futures Daily Charts - Tiptoeing Into the Long Holiday Weekend

Concerns about Greece and its potential impact on the global banking system continue to dominate the financial trade.

Some think that there will be some resolution this week because of the US holiday on Monday. That is possible.

If there is a positive resolution the equity markets will rally very hard. On the other hand if Greece withdraws from the euro, and perhaps even the EU altogether, there may be bank runs which the authorities will work very hard to circumvent and ring fence.

Most likely outcome is nothing will happen just yet although one must respect the possibilities for some exogenous event.

US to Backstop the Anglo-American Derivatives Exchanges with Fed Dollars - 'Too Big To Fail'

It sounds like the principle of keeping AIG whole on its obligations so that it can pay off to the banks at 100 cents on the dollar. This should make Jamie feel a little better about his bad derivatives trades.

And Blythe should rest easy knowing that Benny has her back on those massive metals shorts.

Sounds like they even plan to have the Fed backstop the derivatives trade in London.

Heads the banks win, tails those holding US dollars lose.

How will they support the next bailout? Austerity!

Wall Street Journal
A Mess the 45th President Will Inherit
Thursday, May 24, 2012

Taxpayers Now Stand Behind Derivatives Clearinghouses

...Little noticed is that on Tuesday Team Obama took its first formal steps toward putting taxpayers behind Wall Street derivatives trading -- not behind banks that might make mistakes in derivatives markets, but behind the trading itself. Yes, the same crew that rails against the dangers of derivatives is quietly positioning these financial instruments directly above the taxpayer safety net.

As we noted in May 2010, the authority for this regulatory achievement was inserted into Congress's pending financial reform bill by then-Senator Chris Dodd. Two months later, the legislation was re-named Dodd-Frank and signed into law by Mr. Obama. One part of the law forces much of the derivatives market into clearinghouses that stand behind every trade. Mr. Dodd's pet provision creates a mechanism for bailing out these clearinghouses when they run into trouble.


Specifically, the law authorizes the Federal Reserve to provide "discount and borrowing privileges" to clearinghouses in emergencies. Traditionally the ability to borrow from the Fed's discount window was reserved for banks, but the new law made clear that a clearinghouse receiving assistance was not required to "be or become a bank or bank holding company." To get help, they only needed to be deemed "systemically important" by the new Financial Stability Oversight Council chaired by the Treasury Secretary.

Last year regulators finalized rules for how they would use this new power. On Tuesday, they began using it. The Financial Stability Oversight Council secretly voted to proceed toward inducting several derivatives clearinghouses into the too-big-to-fail club. After further review, regulators will make final designations, probably later this year, and will announce publicly the names of institutions deemed systemically important.

We're told that the clearinghouses of Chicago's CME Group and Atlanta-based Intercontinental Exchange were voted systemic this week, and rumor has it that the council may even designate London-based LCH.Clearnet as critical to the U.S. financial system.

U.S. taxpayers thinking that they couldn't possibly be forced to stand behind overseas derivatives trading will not be comforted by remarks from Commodity Futures Trading Commission Chairman Gary Gensler. On Monday he emphasized his determination to extend Dodd-Frank derivatives regulation to overseas markets when subsidiaries of U.S. firms are involved...

Read the rest here.