AIG Gets Away With It

Do you think the paper shredders and 'delete keys' were working overtime?

Do you think the Justice Department was highly motivated to nail the guy who could probably implicate the biggest of the TBTF banks and their enablers in the government?

Do you think the American President was just playing you when he said, "I did not run for office to be helping out a bunch of fat cat bankers on Wall Street."

Do you think Joe knows where a lot of the bodies are buried - on Wall Street and in London and Washington?

Do you think it pays to be a 'Friend of Lloyd' and a feeder source of campaign contributions to most of the Congress?

Do you think the people are just itching to vote out every incumbent in November?

Do you think the spineless lack of serious investigation and reform is setting the US up again for another, even bigger, fianncial scandal and crisis?

You might be right.

CBS News
No Criminal Charges Likely in AIG Collapse
By Armen Keteyian
April 2, 2010 6:43 PM

CBS NEWS has learned that former AIG executive Joseph Cassano - the prime focus of the investigation into its collapse - will meet with Department of Justice attorneys next week in what will likely be an end to the two year criminal investigation into the company.

Sources tell CBS News that the criminal case against Cassano - once called "the Man who Crashed the World" - has "hit a brick wall" - meaning that it is likely no one will be held criminally liable for the downfall of the company that triggered a $182 billion dollar federal bailout.

Sources tell CBS News federal investigators have been unable to uncover any evidence that Cassano lied to his bosses or shareholders about financial problems at AIG.

In recent months, Cassano's lawyers - citing internal documents - argued that he never broke the law. Instead, he simply got caught up in a financial tsunami that engulfed Wall Street.

Net Asset Value of Certain Precious Metal Funds and Trusts

The Sprott Physical Gold Trust continues to add bullion, and is now almost on a par with the Central Gold Trust, which is several years old.

SP Futures Daily Chart - Nasdaq 100 Futures Daily

Still reaching for that high note. Looks like 1200 may just be out of reach, and a big inhale is coming soon, maybe short of resistance at 1190.

The Fed still seems to be following the policy of blowing an asset bubble, and then using monetary policy to clean up afterwards. I had hoped they would have learned their lesson after the housing bubble, but that is apparently not the case.

The Fed is doing the same thing over and over, and each time they run through a cycle of bubble and collapse, more wealth is transferred from the real economy to a few oligarchs, and the result of the collapse is more debilitating on real production and jobs.

I don't think the Fed can stop, because they are fearful of the results. And their owners like the status quo. Obviously I cannot know how far the bubble can go this time, and it may just be an 'echo bubble' since the real economy seems incapable of responding to it. The next leg down will shake things up.

I am thinking they will do a 'wash and rinse' with short term reversals in stocks and bonds to churn up the specs and generate some fees and some food for the trading desks. But it will probably not break key support unless 'something happens.'

The Wall Street demimonde in the financial media is drooling all over themselves for Dow 11,000 which is an essentially meaningless number, but important as a lure to bring mom and pop back in for another shearing. Wall Street is the very definition of 'useless eaters,' but what they consume is the vitality of the nation.



Addendum at 3 PM EDT

The NDX is failing to surmount resistance.

I just put some shorts back on the US stock indices to balance my metals longs.

Is the Fed Likely to Act If There Is Another Stock Market Bubble?

That title is a bit of a rhetorical question, because I think the stock market bubble has already arrived, and the Fed is pumping the bellows. But let us not allow that detail to impede the progress of our discussion. Let's assume that only the next leg up in this monetary experiment will be breaching the limits of the bubblesphere.

Mark Thoma has 'reblogged' a review of Dean Baker's book False Profits from Brad DeLong Site at his own, The Economist's View.

Brad, the blogging professor from Berkley, takes issue with Dean Baker's book, concluding:

"But let me start by saying how I disagree with the book. I think that its story of the linkages between our current crisis and Federal Reserve policy is significantly overstated. Its argument about how excessively-low interest rates caused the housing bubble is exaggerated. I think that its belief that the Federal Reserve could have taken much more action to curb the housing bubble while is underway is also exaggerated..."

Well, at least he is consistent. In censuring my criticisms of Mr. Greenspan's monetary policy back in 2004 which I made as comments on his blog, Mr. DeLong said that Greenspan "never made a policy decision with which I disagreed." Although I was incredulous, I took him at his word.

Not even Greenspan apparently is willing to say that anymore. Although he is very willing to forget the activist role he took in promoting banking deregulation and the expansion of leverage and derivatives, and the rough treatment measured out to those who dared to disagree with the powerful bureaucrats at the Treasury and the Fed. Reich Levels Broadside at Greenspan, Rubin, Summers and Phony Financial Reform

But the comments to this blog were quite interesting and led me to another review of Dean Baker's book by 'Daniel' over a Crooked Timber.

I found the first comment after Daniel's review to be particularly interesting.

kevincure: 04.03.10 at 6:21 PM

"I was at the Fed in 2006. Everybody at the Fed was aware that there was a housing bubble. The fact that rents and house prices had diverged was known to all of the policymakers I interacted with.

The question was not, is there a bubble, but rather, can monetary policy improve welfare by popping that bubble. The general opinion was no. First, monetary policy is an economy-wide hammer, and housing in only one sector. Second, housing bubbles were prevalent worldwide, and in fact were stronger in many other countries than the US, so it was difficult to imagine that non-extreme changes in policy would affect the bubble. Third, “use policy to clean up the mess after the bubble pops” was, I think, absolutely the right policy in 1987 and 2000, so a model of housing bubbles would have needed to explain what was different this time – even now, lost wealth from housing price declines are not, as far as I know, greater than the wealth decline of the dot-com bubble. That is, the housing bubble in and of itself required no different monetary policy, even with perfect hindsight.

The difference was in the financial markets, where for a variety of reasons (high leverage ratios, principal-agent problems, etc.), the decline in house prices led to what was functionally a bank run. The Fed was not the primary regulator of investment banks in the US, and is one of at least five regulators of local banks (OCC, FDIC, OTS, and state regulators among the others). This isn’t to excuse the Fed – they should have had an office looking at systemic risk! – but merely to point out that very few people saw systemic risk as a major problem in 2006, primarily because of a belief that shareholders and managers were capable of taking better care of their own firms and jobs. This was wrong, but the common criticisms of Baker and Shiller and others about Fed policy and housing bubbles completely abstract away from the real cause of the crisis, which was financial.

In any case, a housing bubble – by itself – would have been straightforward to deal with ex post with policy. That was not the problem."

This is not some outlier comment, but an expression of what is a very mainstream thought among a certain class of American economists, especially those who covet positions of power with the US government.

The 'collateral damage' caused by the dot.com and housing bubbles, all those ruined lives and families, is really not a problem and can be addressed by monetary policy (inflation) after the bubble runs its course. The problem in this last financial crisis is that the housing collapse caused a bank run, and the banks themselves were injured, instead of profiting, in the bubble collapse. Talk about an unintended consequence. Good God, not the Banks! This is a fast being remedied by the enormous subsidies granted by the Fed, and their man Timmy at the Treasury, to set the Banks back up again at the roulette tables, bringing home those eight figure paydays.

If you think the Fed has learned anything, that they are somehow more prudent, more aware of the greater economy and the impact of their behaviour on the American people after this latest financial crisis, you are sadly mistaken. Their hubris is boundless, and they are able to rationalize almost any damage to the republic as a minor glitch in their experiments.

The answer to our initial question about a new stock market bubble is of course is "no." The Fed will allow a stock market bubble to develop, run its course, collapse, empty even more of the savings and retirement funds of mom and pop, and go happily along on its way as long as the banking sector is maintained in the manner to which it has become accustomed.

And if you think this latest financial crisis has stilled the animal spirits of the merry pranksters on Wall Street you are sadly mistaken. The sociopaths will continue to gamble the nation's future, and the propeller heads at the Fed will stand idly by waiting to clean up the mess, only afterwards. But the clean up will be carefully targeted to the FIRE sector, and the public will likely have to fend for itself.

And the Congress would like to make the Fed the overarching regulator and the primary owner of an expanded Consumer Protection Agency? Only afer huge amounts of lobbying contributions to assuage their consciences it must be said. To the Fed, the consumer is only grist for the mill from which the bankers obtain their bones to bake their bread.

Asset bubbles are a form of fraud, in that and mispresentation and deception are employed to circumvent genuine price discovery. And like most Ponzi schemes and financial frauds, they are an effective wealth transfer mechanism from the many to the few. And the few will do quite a bit to create them, and then keep them in place.

Some are critical of people like Robert Reich who 'tell it like it is' although in softer terms than they might desire to have them speak. Let me tell you, the establishment in the US is closing ranks, and is going to try to ostracize and silence anyone who speaks out against the status quo. And the intimidation of critics and witnesses continues.

Here is some knowledge, tempered by actual experience, from William K. Black, an economist and regulator involved in the Savings and Loan Scandal.







The banks must be restrained, and the financial system reformed, and the economy brought back into balance before there can be any sustained recovery.

Reich Levels Broadside at Greenspan, Rubin, and Summers, and Phony Financial Reform

"It is impossible to calculate the moral mischief, if I may so express it, that mental lying has produced in society. When a man has so far corrupted and prostituted the chastity of his mind as to subscribe his professional belief to things he does not believe, he has prepared himself for the commission of every other crime." … Thomas Paine

In 1999 I started wondering what Robert Rubin might have said to Alan Greenspan in a private meeting in 1997 to cause him to reverse his policy bias shortly after his famous "irrational exuberance" speech. Greenspan embraced the monetary easing that led to the tech bubble, and joined the fight against regulation of derivatives, and the repeal of Glass-Steagall, in which the Fed was absolutely instrumental.

PBS Frontline - The Warning: The Roots of the Financial Crisis

This was no accident, in my opinion. This was no misplaced belief in 'the efficient market hypothesis.' This was not the culmination of the neo-liberal fascination with a mythology of human nature that would make Rousseau blush in its unthinking naiveté. And for Greenspan to say now, I am sorry, I guess I was mistaken, is more prevarication from the master dissembler.

There were plenty of enablers to this financial fraud. There always are many more people who do not act out of principle, or inside involvement and knowledge, but out of their own selfish bias and greed or craven fear that compels them to 'go with the flow.'

And there is little better example of this than the many people who are even now turning a willful eye away from the blatant government manipulation of the stock and commodity markets, in particular the silver market. They do not wish to believe it, so they ignore it, and even ridicule it depending on how deeply it affects their personal interests. But the overall body of evidence is compelling enough to provoke further investigation, and the refusal to allow audits and independent investigation starts to become an overwhelming sign of a coverup. I am not saying that it is correct, or that I know something, but I am saying to not investigate it thoroughly and to air all the details, is highly suspicious and not in the interests of the truth. I did not know, for example, that Madoff was conducting a Ponzi scheme, but the indications were all there and a simple investigation and disclosure would have revealed the truth, one way or the other.

"Fiat justitia ruat caelum." Let justice be done though the heaven's fall. This is the principle of English law that says that expediency, that appeals to a false 'national security,' that executive privilege and the secrecy of the powerful interests, are not to deter the light of exposure and the consequences of justice for all. This is the difference between a republic and a dictatorship of the oligarchy.

The military industrial complex came to power in the US on the back of the Red Scare and the smears and fear-mongering perpetrated by the Senator from Wisconsin who 'loved to hear the sound of his own voice, more than the truth,' and his minions in Roy Cohn, and the enablers in the press who were cowed into silence.

There will be smears and distractions, ridicule and old prejudices dug deep will be brought newly forward. False flags and scapegoats. Threats and warnings of collapse will be like bluffs run to encourage the people to hand over their liberty for safety. If you do not think this can happen you have not been paying attention.

The perpetrators of this latest fraud, this unleashing of darkness upon the world, will count on the fear and apathy of the many, and the cynical contempt of the fortunate for the disadvantaged, to make them all the unwitting accomplices in their own inevitable destruction. It has worked for them in the past.

One cannot fight this sort of evil with hatred and violence, or hysteria and intemperate accusations, for these are its creatures and it uses them always to further its ends. The only worthy adversary of the darkness is transparency, openness, justice, and truth based on facts, in the light of reason, with the guidance of the light of the world. We are not sufficient of ourselves to stand against it, and if we knock down the law, the Constitution, to chase it with expediency and private justice, what will protect us when it turns around to devour us?

But we should never be a willing victim, and even worse, a silent bystander or mocking accomplice. This is why were you born here and now, to stand witness to the truth, as you can find it and value it above all else.

It is not easy to find the truth, as it is a journey, a way that never ends. And without a proper guide and companionship, it may be all too easy to grow weary or panic, and lose one's bearings and one's heart. But sometimes it is easier to discover what is not the truth by its acts, its results, the fruit that it produces, and the darkness and secrecy in which it dwells.

And the truth is not with the financial system, and the web of deception and fraud, that has served it. "What is Truth?" he asked. And Pilate turned and washed his hands of it, and condemned himself, forever.

Robert Reich
Greenspan, Summers, and Why the Economy Is So Out of Whack
Sunday, April 4, 2010

"I’m in the “green room” at ABC News, waiting to join a roundtable panel discussion on ABC’s weekly Sunday news program, This Week.

Alan Greenspan is now being interviewed. He says he bore no responsibility for the housing bubble that catapulted the nation into a financial crisis in 2008 because no one could have known about the bubble when he chaired the Fed in the years before it burst. Larry Summers was interviewed just before Greenspan. He said the economy is expanding, that the Administration is doing everything it can to bring jobs back, and that the regulatory reform bills moving on the Hill will prevent another financial crisis.

What?

If any single person is most responsible for the financial crisis, it’s Alan Greenspan. He presided over a Fed that lowered interest rates to zero (adjusted for inflation) but failed to prevent banks from using essentially free money to speculate wildly. You do not have to be a brain surgeon to understand that if money is free, banks will take it and lend it out. And if oversight is inadequate, the banks will lend the money to anyone who can stand up straight and to many who cannot. The result will be a giant subprime lending bubble that will burst.

If any three people are most responsible for the failure of financial regulation, they are Greenspan, Larry Summers, and my former colleague, Bob Rubin. In 1999 they advised Congress to repeal the Glass-Steagall Act, which since 1933 had separated commercial from investment banking. By 1999, Wall Street was salivating over such a repeal because it wanted to create financial supermarkets that could use commercial deposits to place bets in the financial casino. That would yield the Street trillions.

At the same time, Greenspan, Summers, and Rubin also quashed the efforts of the Commodity Futures Trading Corporation to regulate derivatives, when its director began to worry that derivative trading already was getting out of control.

Yet Greenspan continues to take no responsibility for what occurred. In the interview he just completed he avoiding saying anything about the failure of the Fed under his watch to adequately oversee the banks, and the absence of sufficient financial regulation to begin with.

I dislike singling out individuals for blame or praise in a political system as complex as that of the United States but I worry the nation is not on the right economic road, and that these individuals — one of whom advises the President directly and the others who continue to exert substantial influence among policy makers — still don’t get it.

The direction financial reform is taking is not encouraging. Both the bill that emerged from the House and the one emerging from the Senate are filled with loopholes that continue to allow reckless trading of derivatives. Neither bill adequately prevents banks from becoming insolvent because of their reckless trades. Neither limits the size of banks or busts up the big ones. Neither resurrects the Glass-Steagall Act. Neither adequately regulates hedge funds.

More fundamentally, neither bill begins to rectify the basic distortion in the national economy whose rewards and incentives are grotesquely tipped toward Wall Street and financial entrepreneurialism, and away from Main Street and real entrepreneurialism. It was just reported, for example, that America’s top 25 hedge fund managers last year earned an average of $3 billion each. They continue to pay a federal income tax of 15 percent on most of that, by the way, because their lobbying efforts have been so successful.

Meanwhile, the so-called jobs bills emerging from Congress and the White House are puny relative to the challenge of restoring jobs in America. Last Friday’s jobs report, read most positively, showed 112,000 jobs added to the economy in March. But that’s below the number needed simply to keep up with an expanding population. In other words, we’re actually worse off now than we were a month ago. At the same time, the median wage of Americans with jobs keep dropping.

The American economy is seriously out of whack. The two people interviewed this morning don’t seem to understand how far."

Five Weekly Charts: Gold, Silver, US Dollar, US Long Bond, and SP 500

Gold's bull trend is intact, but it is facing formidable resistance at $1150.



Silver is in a bull trend, but the $19 level could be difficult to surmount.



The US dollar index is still in rally mode, but has backed off the key 82 resistance level. The Dollar index is a composite of other currency crosses and the recent strength has been largely due to euro weakness. If stocks retreat the dollar rally will likely continue.



The Long Bond looks range bound, and is hanging on to support.



The SP 500 is a good representation of the US equity markets. It has reached the logical conclusion of what might be termed a bear market bounce based on monetary expansion, similar to other recoveries after significant declines. If the SP 500 breaks down from here, the risk is that it might fall to retest the lows. The market rally is thin and not backed by widespread buying, and certainly not the traditional buy-and-hold investor.

To put it simply, the SP 500 and US equities in general are now 'hitting a high note' and it is a good question to wonder how long they can hold it without some backup from the chorus. The 'chorus' of course is evidence of a structural recovery that is not depending on Fed monetization, official sleight of hand, and accounting gimmickry.



Even with the 'good' employment number, the stark contrast is that the median hourly wage continued to decline. This is not deflation, as the CPI and PPI continue to advance, so much as a reflection that the jobs available are largely temporary and of an inferior quality from which to build a sustainable recovery.



As alway, keep an eye on the VIX which is one of the fear indexes along with some of the key spreads.

The Federal Reserve's Veil of Secrecy And Authority Is Being Taken Down, But Slowly

One of the first things that 'put me off' of Obama was the choice he made of key appointments to his Administration, selecting the two Robert Rubin acolytes Tim Geithner and Larry Summers to his team, marginalizing Paul Volcker, and then making no place for Robert Reich. Although I am sure that, like the rest of us, he puts his pants on one leg at a time, he has shown himself to be a remarkably intelligent and competent member of the Washington political world. I admire him.

Make no mistake, the Fed looks to have been abusing its secrecy and its position, and Bernanke and Geithner are culpable. Reich makes the points as well or better than I could so here is his recent piece on the subject. All the blog's are picking it up.

As I recall, the Fed said they were only acquiring 'investment grade' instruments, which would be taken on its balance sheet in support of the US Dollar, in addition to the usual Treasury Debt. The recent exposures of the holdings of Maiden Lane show these to be more like junk bonds, and certainly not as represented.

The Fed must be audited, and it role as the 'master regulator' and as the place where the Office of Consumer Financial Protection would be located is a farce, a cruel joke. Chris Dodd must either be senile, entirely cynical, or believe the American people to be complete idiots. The only reason I could even imagine for considering it is that the Fed is a 'cost plus' agency, meaning that they are self funding out of the mechanism of creating money, taking all their costs out before they turn over the interest income from the public debt back to Treasury.  This is also a source of their growth and power. The problem that public agencies often have is that the industries that are regulated by them use their donations and lobbyists to curb appropriations for the agencies that regulate them in order to hamper and stifle them.

How can you even think of putting an office of reform and consumer protection in the very institution that was at the epicenter of a historic fraud? And shows itself completely willing to mislead the public, and some even believe perjure itself to the Congress to protect its true owners, the big Banks?

There are more things to come. But the frauds yet to be revealed may very well shake this government to its foundations, and very few blogs and almost none of the mainstream media are yet pursuing those stories of market manipulation, secret dealings, insider trading and official protection of corruption.

From The Fed Is In Hot Water by Robert Reich

"First, only Congress is supposed to risk taxpayer dollars. The Fed is not part of the legislative branch. Its secret deals, announced almost two years after they were done, violate the democratic process, if not the Constitution itself. Thomas Jefferson put a stop to Alexander Hamilton’s idea of a powerful central bank out of fear it would be unaccountable to the public. The Fed has just proven Jefferson’s point.

Second, if the Fed can secretly bail out big banks, the problem of “moral hazard” – bankers taking irresponsible risks because they know they’ll be rescued – is far greater than anyone assumed after Congress and the Bush and Obama administrations bailed out the banks. Big banks will always be too big to fail because they know the Fed will secretly back them up if they get into trouble, even if Congress won’t do it openly.

Third, the announcement throws a monkey wrench into the financial reform bill now on Capitol Hill, which gives the Fed additional authority by, for example, creating a consumer protection bureau inside it. Only yesterday, Sen. Jim DeMint (R-S.C.) blasted the Dodd bill for expanding the Fed’s authority “even as it remains shrouded in secrecy.” (When Jim DeMint and I agree on something you know it has to be close to a universal truth. - Jesse lol)

The Fed has a big problem. It acts in secret. That makes it an odd duck in a democracy. As long as it’s merely setting interest rates, its secrecy and political independence can be justified. But once it departs from that role and begins putting billions of dollars of taxpayer money at risk — choosing winners and losers in the capitalist system — its legitimacy is questionable.

That it chose to reveal the truth about its activities during a week when Congress is out of town, when much of official Washington and the Washington media have gone on vacation, and only after several federal courts have held that the Fed must release documents related to its bailout of Bear Stearns, suggests it would rather remain secret than become transparent.

Much of what Ben Bernanke and Tim Geithner did (when Geithner was at the New York Fed) in 2008 was presumably necessary. But the public has no way of knowing. The public doesn’t even know who else the Fed has bailed out, or what entities it will bail out in the future. All we know is the Fed secretly bailed out Bear Stearns and AIG and thereby subjected taxpayers to risks that remain even today, without informing the public. That’s not a record on which to build public trust."

SP Futures Daily Chart

Different Day, Same Drill.

Neither snow, nor rain, nor weaker than expected ADP reports shall keep these bubbles from their appointed highs and the end of month paint job.

It will be interesting to see how the trade goes tomorrow with traders squaring up for a three day weekend, especially with the Non-Farm Payrolls data coming out on Friday while the markets are closed in the US.

I suspect that number will come in rather close to my projection of +75,000 despite the weak ADP jobs number. This is a little light of the consensus view which is +190,000. So a number a little north of 100,000 would be a nice compromise for the propeller heads at the BLS to achieve, by revising some prior months. These are miniscule percentage changes in the bigger picture, but this is how irrational the US markets have become.

ADP only tracks real private payroll data, and does not include government employment and imaginary jobs. The Federal government has a large number of workers that have been hired to concduct the Census which is done every ten years. I would think the number will include them with some other government employment. And this month is a little more favorable in its seasonal adjustment, with the next month even moreso.

The market is also edgy because today is the last day of the Fed monetization of mortgage debt. I do not think this is a practical matter so much as psychological in the short term. The Fed will most likely shift its monetization to another area and allow proxies to continue its work.

King World Interview with Andrew Maguire 'the Silver Market Whistleblower'

"The Biggest Fraud in the World"

I do not know what to think about this, except to just offer it up to you for your own information.

I am disappointed, however, that only the blogs, and almost no one in the mainstream media, have bothered to cover this story and to speak to the principals, and to either debunk them, support them, or even consider what they have to say.

This really is like the Harry Markopolos story, trying to get a hearing on the Madoff ponzi scheme, and being repeatedly ignored, intimidated, and discouraged in every way possible by the establishment, and even fearing for his life.

Even if this is a mistake, a hoax, some conspiracy, it deserves a proper hearing and an airing in the public. Ignoring it raises even more questions, and serious concerns about the integrity of the US markets. If instead of a proper airing there are only the smears, and disinformation, and the usual sly ad hominem attacks, or even worse, I will begin to believe that it is true.

King World News Interview with Andrew Maguire and Adrian Douglas

I cannot believe that testimony is being completely ignored. I do not understand why this is a 'national security' issue. It seems just too bizarre to me.

Do people inside the trade know something that we don't know? Are these fellows frauds or just mistaken? Is this a hoax? Part of some conspiracy?

Or is this something coming right at us, that will end up hurting the public once again, as the rampant fraud in the financial markets has done so thoroughly.

Is there is something going on then it is time to bring it out into the open. If it is national security concern, or more properly the national interest, because it involves the US banking industry, how long do they think they can keep this sort of thing quiet?

If this is something else, why is it not aired, investigated, and nipped in the bud?

I am trying to keep an open mind on this, but it is not being made any easier by what looks like a curtain of silence while the stories and counter-moves are prepared.

I was disappointed that in the interview they never seemed to discuss the hit and run car incident.

I don't want to speculate or get paranoid on this but its not easy. We deserve to know the truth.

Note at night: I have now listened to this tape five times, carefully. It is a bombshell. This has to be dealt with, one way or the other. Bring it out into the light of day, and let the facts be known. This is either the equivalent of the fictionalized testimony on the order of the Salem Witch trials, or one of the most damning accusations of malfeasance in office against quasi-governmental agencies, and probably US officials, since Teapot Dome.

Giving the mainstream media the benefit of the doubt, they are afraid to touch it because it is radioactive. They will wait on the sidelines until something happens. And the strategy seems to be to stonewall, and hope it goes away. The American public is nortoriously fickle and if not reminded of it will move on to the next shiny thing, the next controversy of any type.

But the coverup is always the first mistake of a government in approaching a breaking scandal. But they never seem to learn. You deal with it up front and early. It was not the actual burglary at the Watergate that brought down the government, and took American into its 'long national agony.' It was, and always is, the coverup.

"How to Corner the Gold Market" By Janet Tavakoli

Janet Tavakoli wrote an interesting essay that was just posted over at the Huffington Post called "How to Corner the Gold Market" which can be read in its entirety from her website here. I started to comment at the HuffPost, but the system there limits comments to 250 characters, so I left a brief comment which is probably still being moderated (note: and still is five hours later - J) and will post my entire comment here while it is fresh in my mind.

First I wanted to thank Janet for dropping me a note about this piece. She knows I have an abiding interest on this topic of market imbalances and regulation in general. I find the US markets fascinating these days, in particular where they involve leverage and derivatives. And Janet is one of the most 'on the ball' and smartest people that I know who are looking at this, and making the good calls well in advance of the situation.

What struck me as odd is that I just wrote a blog piece along similar lines on the same topic today, raising many of the same issues, but that is from the opposite perspective. You can read The Case for Position Limits: What is the Spot Price and How Is It Set? here.

I think Janet and I come to the same conclusions but from a very different perspective, the other side of the table in fact, I wanted to reflect at length on her essay because I think it is important, and in some ways a good formula for manipulating a market from either the short of the long side. In the metals markets today, most of the 'gorillas' are the TBTF crowd, and they seem to be on the short side. That does not mean that they are not being sized up for a market showdown that could be destructive if there is a mispricing of risk and market imbalance.

First, and its not really a quibble, I think the Hunt Brothers attempt to corner the silver market back in the 1970's was overturned not only by a pre-emptive action by the Fed (and it was not an accident as I recall but a conscious response to inflation speculation) but also actions by the exchanges that broke the corner by altering the rules. I have not read the essay she references but I recall the situation first hand since my stock broker at Bache, Halsey Stuart was keeping close track of it, and liked to discuss it with me. Since I was not trading that market at such a tender age, it was a interesting voyeuristic experience, being in the stands watching the men in the arena. When I saw a spec silver trader in their office breaking out in hives during the trading day, being crushed and ruined lock limit down, I resolved to stay away from that sort of action.

This is important because today, having apparently learned their lesson, the exchanges are generally willing to increase the margin requirements when there appears to be undue speculation, especially on the long side of the trade by the speculators not in the in-crowd with the exchange. This is probably more common in the commodity markets, but most commodity traders are well aware these margin changes. They have to be since it requires them to put up more capital, and the specs are often thinly capitalized.

Second, I believe that the commodity exchanges already have the ability to force a cash settlement between counterparties in the event of a market imbalance. I think they even have the option to force a settlement in a commodity ETF, including some which Janet discusses as possibly being the objects of manipulation.

So think in sum that there is little evidence that anyone is willing to take on the exchanges, even the big players, and try and force a corner or even a squeeze against what they perceive as mispricing, such as Soros and so many other big players did with the British Pound , and most recently other big hedge funds did with mispriced products from the latest bubble in the debt markets, and financial stocks. They may be vilified after the fact, but they were right and served a valuable market function. Whether they did anything illegal is another matter.

The piece I wrote today and reference above is about a situation in the precious metals markets which has the potential to become another serious problem for almost the same basic reasons as the debt markets in our most recent financial crisis: excessive leverage concentrated in a few TBTF institutions, lack of transparency, regulatory laxity, and a mispricing of risk.

Janet alludes to the same thing. My prescription is position limits and accountability the collateral and any other deliverables backing the trade. If indeed there are excessively naked shorts, then not squeezing them is of course one resolution, but the other is to rein them in. I should add that the major players claim that they are not naked short, and reference hedges which I believe are undisclosed.

It was kind of odd to hear this story told in a conspiratorial way, referencing the Hunt Brothers. Anyone who would take on the government sponsored banks like JPM and HSBC at this point would have to be rather well-heeled and gutsy indeed. And what is most ironic is that a whistle-blower's testimony appeared at the recent CFTC hearing, and seemed to allege that JPM is manipulating the silver market. It was widely covered in the blogosphere, but very little of it in the mainstream media. I don't think it was covered at all at the Huffington Post, so Janet may not have seen it.

And of course there was the subsequent story about the man and his wife being struck by a hit and run driver the next day in London, and the usual fear of smears and intimidation that must accompany all those who testify against the vested interests. That story remains to unfold. I hope it turns out better than that of Harry Markopolos, who was widely ignored until the worst happened and the Madoff Ponzi scheme collapsed. As I recall he was subject to intimidation and fears for his safety, warranted or otherwise. It must be hard to come forward with this sort of knowledge.

But let's cut through the verbage. Here we are again, with TBTF institutions playing the excessive leverage games and possible naked shorting and mispricing of risk in under-regulated markets, and putting the 'global markets' stability at risk.

If Janet has any specific knowledge about a conspiracy to take advantage of this she should immediately contact the CFTC. I recommend Bart Chilton because I hear he is responsive and interested in this very topic, and just helped to sponsor hearings on this topic as I understand it. If I knew anything at all like this I would as well. So far all I see is a market relatively dominated by the usual TBTF suspects. If some longs are sizing them up there is certainly nothing wrong with that, and if they are vulnerable to a default, then we can either ban short selling (or I guess in this case it would be buying what they are short) or we can try and tighten up the market and correct any obvious imbalances that might exist now in an orderly manner.

But based on the last three years experience of financial misdeed exposed, I would hesitate to account for something by a criminal or even conspiratorial intent what can be attributed to short term greed and sheer reckless stupidity, crony capitalism and regulatory capture, and some intelligent market players seeing this and using legitimate means to confront it, and give it the market players a thrashing they may deserve. But there could be things happening well behind the scenes that I, a reasonably intelligent and trying-to-be-informed market participant cannot see. Is the squid on the hunt again? It is hard to imagine anyone big enough to take on the jokers that seem to be batting the US markets around at will these days. But therein lies the problem to my way of thinking - opaque and excessively leveraged markets that favor the big predatory trading desks.

As anyone who reads my blog knows, I do not think the contrarians are at the heart of our issues here, those who were shorting the mortgage bubble and the derivatives associated with them, although there is always that possibility. I am much more concerned about the establishment, those who are pulling the strings of power, and influencing the regulators, and I found a resonant chord in Janet's essay about this.

The markets are in need of reform. And as concerned as I was before, as shown by the blog which wrote earlier today, I am even more concerned now because Janet seems concerned, and we are coming at this from two very different perspectives: her from the possibility of an engineered short squeeze, and I from the dangerous condition I think I see in the market structure as it is today, with many of the same large institutions at the epicenter of the most recent crisis doing the same thing all over again, different day, different market. same players and modus operandi.

If there are elements trying to manipulate the markets from either side of the trade, then I agree with Janet, that I wish nothing to do with them, and want to see them exposed and prosecuted. But so far that does not seem to be happening very much, anywhere in the system except for some relative 'small fry.'

It feels like groundhog day.

Jesse

What is the 'Spot Price' of Gold and Silver And How Is It Set?

When you ask even a relatively experienced and sophisticated precious metals trader "what is the spot price of gold or silver?' you will generally hear a pause, and then they will come back with a price after checking their computer screen for the latest spot price from some ubiquitous and reliable provider of such quotes, or one of the lesser known, diverse providers of this information.

But when you say, "No what I was asking is 'what is the spot price, where does it come from, who sets it?'" you will most often hear that this is the last physical trade, or the current market price of physical bullion.

Well, is it?

Actually despite what you might think or what you might have heard, it is not.

The reason for this is that there is no centralized and efficient market for the sale of physical bullion in the US at anything resembling a 'spot price.' What is their number, where are their prices and trades posted? Who is buying and selling what, TODAY, with the real delivery of bullion as the primary objective?

There are several large markets for physical bullion in the world, where real buying and selling occurs, with delivery given and taken. The most famous is the London Bullion Market Association, which is an dealer association, over the counter market where the price is set twice a day as the 'London fix' but each counterparty stands on their own with no central clearing authority. From the perspective of bullion the LBMA is 'where the action is' and the Comex is a sideshow. Although there are recent revelations and suggestions that the LBMA is also slipping into a paper market with multiple claims on the same unallocated bullion, fractional reserve bullion banking as it were. Nothing new. It just gets more out of hand at certain times in history.

The reason that physical trading in bullion became so highly concentrated in London was best explained to me by one large bullion dealer. "This situation exists because of the gold confiscation in the US in 1933. When that happened, physical metal trading in the US came to a complete stop. When gold ownership was again made legal on December 31, 1974, the physical metal trading had become so developed outside of the US that it stayed there and never really returned."

But once the London Fix is over, and the day moves around the world, the New York markets open and become more dominant. Where and how is that price obtained? Where is the price discovery.

The fact of the matter is that the bullion market in the US is highly fragmented among many, many dealers in bullion. Yes they have their 'wholesale' sources, but even those sources are more fragmented than I would have imagined.

There seems to be no central market for physical gold and silver in the US, except for the largely paper futures markets. Because the fact of the matter is that the spot price of gold and silver are a type of Net Present Value (NPV) calculation based on the futures price in the nearest month, or the front month.

I had not been able to obtain the actual calculation used by any of the principle quote providers. And I am not saying that they are doing anything wrong at all. Or right for that matter, since I do not audit them or look over their shoulder. I do not know how accurate anyone's reportage might be, or how to explain the discrepancies between the futures prices and the spot prices that occur all too frequently these days. How can one without more transparent knowledge?

For those of you that are familiar with it, the spot price would be calculated from the futures in much the same way that the 'Fair Value' price is obtained for a stock index like the SP from the futures trade, essentially an NPV calculation.

FORMULA FOR DETERMINING FAIR VALUE

F = S [1+(i-d)t/360]

Where F = Fair Value futures price

S = spot index price

i = interest rate (expressed as a money market yield)

d = dividend rate (expressed as a money market yield)

t = number of days from the current spot value date to the value date of the futures contract.

So like most net present value calculations we would have some 'cost of money' figure used to discount the time decay from the strike time of the contract to the present. There is no dividend with gold for example, but there is a lease rate, and a proper calculation should include some allowance for this.

The details are not so important, again as I say, unless you wish to start up your own quotations service, or do your own pricing as a large dealer to make sure you know what a fair price might be.

What is important is that almost all retail transactions for physical bullion in the US key off a 'spot price' that is derived from a paper market which is not based in the reality of physical supply, since the futures exchanges explicitly allow for the settlement in cash if physical bullion is not available. In fact, the vast majority of transactions are settled in cash, and are little more than derivatives bets it seems, and often hedges related to other things like another commodity or interest rates.

So that is the truth of the spot price of gold and silver in the US as best as I can determine it. I am not saying that anyone is doing anything wrong or illegal. I am saying the system is inefficient in that it suffers from the lack of a robust physical market to 'keep it honest.'

Also, almost every trader I speak with does not really understand what the spot price really is, or the implications of what price discovery looks like in a fragmented market where the pricing is set by a group of speculators that rarely deal in the actual commodity itself.

I am surprised that indeed some smart entrepreneur has not consolidated the buying and selling of physical bullion on demand into a highly transparent and efficient market which is the real price setter, rather than the commodities exchanges in which arbitrage can be easily crushed by the very rules of the exchange that allow for unlimited position size, extreme leverage, cash settlement as an easy alternative to shortage, unaudited and unallocated stores of supply, and secrecy. We even recently saw the scandal where a large Wall Street broker was selling bullion and even charging the customer annual storage fees without ever having purchased the bullion for them in the first place!

The actual prices for stocks are published on a price by transaction basis on public exchanges whereas gold and silver have no such facility. That is a key difference, and why the futures market has a significant need for tighter reins on speculation including position limits, accountability for deliverables, and limits on leverage and speculation, more so than any other market. The metals markets are thin and small compared to the forex and financial asset markets, and therefore the most vulnerable when they intermix.

The futures market will be efficient and honest the more it takes on itself the rigors of a physical market. Even Alan Greenspan alluded to this, that the dollar reserve currency standard 'would work' as long as the Fed had the discipline to manage it as if it had the rigor of an external standard like gold. Well, you can toss that vain assumption about the self restraints of human nature out the window. Do you really think that bonus hungry traders are more virtuous and selflessly devoted to the public good than the economists at the Fed? Please.

And I have not spent any time discussing it, but when one has a price that is derived from even a publicly available albeit flawed price like the front month futures, without transparency in the derivation and updating the opportunity to skin pennies all day long is there as a temptation, since there is no official or easily calculable method to check its accuracy.

I contacted a few big dealers hoping to get intimations that there was some sort of a private wholesaler network, in which two or three regional distributors set prices based on available supply. There is a 'dealer market' in which prices in lots of twenty five bars of London ready gold is quoted, but that seems to be part of the parallel market in physical bullion centered around the LBMA that is divergent from the continuous paper price and the 'spot price.'

There is always a wholesale cost and a retail price with a markup. That is not an issue. What seems to be the problem is that when a few players can crush price with paper positions, this tends to remove the discpline of arbitrage of market mispricing from the picture. This is the only part of the efficient markets hypothesis that ever made any sense. If there is a price discrepancy, market players will move in to fill it. This is the case against manipulation.

Except they cannot really address any serious market mispricing because the price is set in the paper markets which are not amenable to efficient arbitrage. Unlimited leverage through derivatives, and the willingness of central banks to sell into the gold market to manage price spikes, again as Chairman Greenspan admitted, takes care of that. Not even a motivated buyer with deep enough pockets like China would take on this market openly because all they would do is buy against themselves, and drive a default which would be cash settled by force.

You might ask at this point, why would anyone ever wish to engage themselves in this market, besides those who must obtain supply for industrial or cosmetic uses? Few do actually, except to buy physical bullion at the retail level, and hold it as protection against the devaluation of currency and the monetization of the debt.

There are always professional speculators, but they tend to go with the momentum for the reasons outlined above. Its an easy trade. I sometimes play the arb myself, or at least maintain an awareness of it. You can't fight the Fed in the short term, and the financial engineers and statists hate anything that threatens to rival or even limit their power. But that does not mean that one might not insure themselves against the eventual failure of the new masters of the universe to control the large forces and unintended consequences of world markets. What I find so disappointing is that Greenspan knew all this. and wrote eloquently about it, before he sold himself to those who he had spent the bloom of his intellect opposing. I was never interested in this subject until I started reading his various biographies to understand his thinking better in the late 1990's, and then went on to read his early works on the state and freedom. If he had been a more noble figure his fall might have been a tragedy. As it is, it just seems to be another dishonorable failure of stewardship and conscience.

This is what you have. Whether it works well or not is another matter and it seems a personal opinion heavily biased on where you sit at the playing table. But from a purely economic perspective if I were going to set up a mechanism to allow price fixing and fraud to occur, I could do little better, except perhaps to set up something more like an opaque monopoly such as the Federal Reserve with the ability to create supply out of nothing. The investors and producers are largely at the mercy of those who control the paper markets And this says nothing about the involvement of the central banks in influencing the price, which they admit that they do, if only obliquely.

Sure one can say. If you don't like the price you can keep taking delivery, except that you can't. The price is set on the Comex, which delivers paper dollars at will, and has a history of changing its rules at the drop of a hat to rescue trapped suppliers and speculative shorts. This is the sort of odd market that resolves itself in executive actions precipitated by breakdowns and default.

There is nothing here that could not be greatly improved by position limits and much greater transparency and accountability for counterparty risk. CFTC Commissioner Bart Chilton has shown himself to be remarkably insightful and courageous in promoted these changes to the US futures markets in the metals. Far from an efficient and vigorous market, as Adrian Douglas said at the CFTC hearing the US is merely a "sidehow" to the London market when it is open for trading at least with respect to actual product. But as amenable as this paper based market is to the 'easy skim' one might imagine there is a status quo that would fight any reform vociferously.

To use a poker analogy, I don't mind a 'no limits' game as long as it is table stakes where you put your 'stash' on the table for all to see, which again this is not, and the pot is split if you are raised beyond your bankroll, which this is also not. I would not imagine that a no limits game in which the big players are also often the dealers, and can see the cards that other cannot because of their seating, is the best sort of a mechanism with which to conduct price discovery for the average person in the market, who only wishes to play a few hands on a limited budget, or a small producer who wishes to bring their product to market.

As someone who approaches it as an amateur economist, and has been looking at its dynamics for the past few years, I may be missing something, but this seems less like an efficient market mechanism for price discovery and capital allocation, and more like a carney game.

Banks Come Back For Another Bailout in Ireland While the US 'Manages Perceptions'

The whole notion of bank bailouts is a tremendous injustice when not accompanied by personal bankruptcy and civil and criminal prosecution for those banks managers who created them and are found guilty of fraud.

In addition, the owners of the banks, whether through debt or shares, should be wiped out and the bank placed in a proper receivership while its books are sorted out.

The US is an accounting mirage. The notion that it will make money from its stake in Citi is a sleight of hand. The enormous subsidies to the banks both in terms of direct payments, indirect payments through entities like AIG, and subsidies such as the erosion of the currency and the deterioration of the real economy, will never be repaid.

The real model of how to handle a banking crisis is in the Scandinavian nationalization of the banks, or even better, the disposition of the Savings and Loans in the US. during that crisis.

This pragamatic approach, its cheaper just to pay them all off than to sort them out, is a child of the Rubinomics of mid 1990's in the States, in which it was determined to be better to prop up the stock markets, often by buying the SP futures, than it was to allow the market to reach its level, and then deal with the financial carnage of a market crash. Here is a review of a paper by Rubin's protege, and some might say the government's Thomas Cromwell, Larry Summers.

From the Horse's Mouth: Lawrence Summers On Market Manipulation In Times of Crisis

The fourth position, which Summers calls pragmatic, in his own words, “is the one embraced implicitly, if not explicitly by policymakers in most major economies. It holds that central banks must always do whatever is necessary to preserve the integrity of the financial system regardless of whether those who receive support are solvent or can safely pay a penalty rate. This position concedes that some institutions may become too large to fail. While lender-of-last-resort insurance, like any other type of insurance, will have moral hazard effects, I argue that these may be small when contrasted with the benefits of protecting the real economy from financial disturbances”

This is the very essence of the Rubin doctrine. Pragmatic circumvention of the Constitution and the laws of the land by means of market manipulation and government subsidies cloaked in secrecy, misrepresentation, and a public relations campaign.

In addition to this paper, Mr. Summers is also the author of a paper Gibson's Paradox which seems to prescribe the manipulation the price of key commodities including gold in order to influence longer term interest rates. Indeed, we hear that in some recent FOIA act returns there were refusals to disclose papers from the Fed purporting to set out the 'new gold policy of the US' with many charts and pages of text. Indeed, what is the real policy of the US? I thought it was to allow it to sit, unaudited, in Fort Knox and the various Reserve Banks, while leasing it out to some extent.

And while as Obama's current Economic Advisor is talking a good game, the facts seem to indicate that the US is still pursuing a policy of managed perceptions, accounting deceptions, and old fashioned insider dealing and other forms of corruption that always accompany government, but reach a feverish pitch in times of crisis. It is the establishment's form of looting.

As we can easily see, this policy has spawned a series of tremendous financial bubbles in tech, and housing, and now credit, and corporate debt, and the dollar itself, which will eventually veer completely out of control into the improbability of hyperinflation. Inflicting pain on the common taxpayers for the transfressions of the financiers is beyond moral hazard.

The Banks must be restrained, the financial system reformed, and the economy brought back into balance, before there can be any sustained recovery.

Guardian UK
Ireland Poised for New Bank Bailout
By Jill Treanor
29 March 2010 18.58 BST

Irish taxpayers face pouring billions more euros into their troubled banking sector on what is being dubbed "bailout Tuesday".

The government is expected to take bigger stakes in Allied Irish Banks and Bank of Ireland as the property lending spree that took place before the 2007 credit crunch continues to knock holes in their battered balance sheets.

But while the Irish taxpayer faces taking on a greater burden from the banking sector – perhaps as much as €16bn (£14bn) – the US began to prepare to sell off its 7.7bn shares in Citigroup, into which the authorities pumped $24bn of cash during the 2008 banking crisis. Those 7.7bn shares were worth $32bn last night - implying a profit for the US treasury if the share price can withstand the sale of such a huge amount of shares.

In Ireland, though, the crisis is yet to abate as the economy weakens and the government follows through on an austerity budget that has imposed cuts in public sector pay after €11bn was injected into the banks.

Shares in Allied Irish Banks closed down 19% in Dublin at €1.37, ahead of announcements when the National Asset Management Agency, a toxic loan body, is due to provide details on the price for taking on the bad loans. Financial regulators will also set out the size of the capital cushions the banks will have to hold in preparation for future losses.

The Irish government took control of Anglo Irish Bank last year and holds stakes of 16% in Bank of Ireland, which runs the Post Office bank in the UK, and 25% of Allied Irish.

Local speculation is focused on the government stake rising to more than 70% in Allied Irish and more than 40% in Bank of Ireland while building societies EBS and Irish Nationwide may also need taxpayer involvement as the authorities continue to tackle the losses caused by bad lending.

Fitch Downgrades Illinois and Warns of Further Actions as Budget Gap Widens

Illinois is financially the fifth largest US state with a 2008 GDP of approximately $633 Billion.

To put this in perspective, the 2008 GDP for the nation of Greece was approximately $357 Billion.

The largest state is California with $1.8 Trillion in 2008 GDP, roughly on a par with Russia, Spain, or Brazil,

The US is also considering accounting rule changes that will require the states to more accurately reflect and more fully fund their pension obligations for government employees.

The problem of States' debt is made more problematic by decreasing state tax revenues and the enormous demands of the US Federal government for more tax revenues on their citizens' incomes, and the crowding effect in markets by the record amounts of sovereign debt issuance which is largely short term and must be rolled over regularly.

The Bond Buyer
Fitch Downgrades Illinois to A-minus
By Yvette Shields
March 29, 2010

CHICAGO — Fitch Ratings late Monday downgraded Illinois’ general obligation rating one notch to A-minus and warned of possible further action by leaving the state’s credit on negative watch ahead of $1.3 billion of short- and long-term GO issuance in three deals over the coming weeks.

Gov. Pat Quinn had hoped that the General Assembly’s passage last week of pension reforms would stave off any negative rating actions and buy the state some additional time to address a nearly $13 billion budget deficit and liquidity crisis in the current legislative session.

But Fitch analysts said the state’s challenges are too severe and persistent. They believe it is unlikely the fiscal 2011 budget will “sufficiently address either the annual operating deficit or accumulated liabilities.”

The results of the current session will drive analysts’ decision as to whether Illinois holds on to its current rating level. Fitch dropped the state’s $23.4 billion of GO debt two notches down to its current level last July.

Fitch’s action follows Standard & Poor’s decision on Friday to place the state’s A-plus rating on negative CreditWatch. Moody’s Investors Service on Monday affirmed its A2 rating and negative outlook.

Bernanke Confronts the Kondratieff Winter at His Feast of Malinvestment

Here is some cultural diversion for a slow trading day.

Although this is not the best performance, it has subtitles in English which is a plus when trying to draw parallels for an audience unlikely to be fluent in Italian, or familiar with the libretto. This staging does not quite show it as vividly as some others I have seen, but at the end of the scene the ghost of the Commendatore drags Don Giovanni with him into hell. In this opera Leporello, the common man, escapes the fate of his master. In our analogy, I am afraid Don Bernanke may be dragging the common people along with him.

The SP is suspended in a tight range, with the big resistance at 1180 and support at 1155.

This is a holy week for Christians and Jews, and trading is light. The market is waiting for the Jobs Report on Friday, April 2. It would probably have been more appropriate to bring it on on April 1 (April Fool's Day).

I'm looking for a positive headline number of about 76,000, but it could be higher if they knock down the prior months in revision and move the jobs gains forward.

Discussion of market manipulation in the SP futures is becoming more open, with the noting of the propping in the SP futures becoming very pronounced. An exogenous shock could send the US equities markets into an air pocket. But those are tough odds to play.

The World Gold Council has finally acknowledged that China is becoming a big buyer of gold bullion, and this trend is likely to gain momentum. Despite their name, the WGC is the most timid and reserved of industry associations ever seen, often downplaying their own industry to a fault.

Memories of a Walk on the Appian Way, Some Years Ago

About 18 years ago during a trip to Rome with my wife, who was then pregnant with my son, I visited the room in which the English poet John Keats died of consumption, just off to the left of the Spanish Steps, looking down into the Piazza di Spagna. The year before I visited the house in Hampstead Heath at which he is said to have written, "Ode to a Nightingale."

Later that day we visited his gravesite in the Cimitero degli Inglesi, and read the inscription on his tombstone.

This Grave contains all that was mortal, of a Young English Poet, who on his Death Bed, in the Bitterness of his heart, at the Malicious Power of his enemies, desired these words to be Engraven on his Tomb Stone: Here lies One Whose Name was writ in Water.

I think we may afterwards have taken a bus, because I remember being vaguely scandalized at the disorder of the ticket process, which was apparently used only by tourists on their way to the catacombs. But at some point we reached the ancient wall of the city, and continued walking through the Porta San Sebastiano, south on the Via Applia in search of an old restaurant at which I desired to have our customary late lunch after a morning of rigorous walking. After a little while on the road we came to a small but very charming church, the Chiesa di Santa Maria in Palmis, but more commonly known as Chiesa del Domine Quo Vadis. I went inside, and to my surprise, this was the place referenced by Henryk Sienkiewicz in his famous book, Quo Vadis.

Old cities and places are full of a mixture of legend and history. I imagine that the story upon which the novel was based was one of those oral traditions that are handed down and embellished over time, not having been codified and fixed into a proper text, which as you may recall is how the Bible was brought together from a myriad of writings and authors.

I have to admit that it was a moving experience, to visit the places where these things are likely to have occurred in whatever particular way. The scoffers have a little less swagger since Heinrich Schliemann found the site of Troy from the text of Homer. It reminds us that Keats, and Peter, and Nero, and Petronius, and so many other figures remembered were real people, making decisions with confusion, worries, concerns, fears, and the rest of the issues that we all have today.

Here is the relevant section from Synkewicz's book.

"About dawn of the following day two dark figures were moving along the Appian Way toward the Campania.

One of them was Nazarius; the other the Apostle Peter, who was leaving Rome and his martyred co-religionists.

The sky in the east was assuming a light tinge of green, bordered gradually and more distinctly on the lower edge with saffron color. Silver-leafed trees, the white marble of villas, and the arches of aqueducts, stretching through the plain toward the city, were emerging from shade. The greenness of the sky was clearing gradually, and becoming permeated with gold. Then the east began to grow rosy and illuminate the Adban Hills, which seemed marvellously beautiful, lily-colored, as if formed of rays of light alone.

The light was reflected in trembling leaves of trees, in the dew-drops. The haze grew thinner, opening wider and wider views on the plain, on the houses dotting it, on the cemeteries, on the towns, and on groups of trees, among which stood white columns of temples.

The road was empty. The villagers who took vegetables to the city had not succeeded yet, evidently, in harnessing beasts to their vehicles. From the stone blocks with which the road was paved as far as the mountains, there came a low sound from the bark shoes on the feet of the two travellers.

Then the sun appeared over the line of hills; but at once a wonderful vision struck the Apostle's eyes. It seemed to him that the golden circle, instead of rising in the sky, moved down from the heights and was advancing on the road. Peter stopped, and asked, --

"See thou that brightness approaching us?"

"I see nothing," replied Nazarius.

But Peter shaded his eyes with his hand, and said after a while,

"Some figure is coming in the gleam of the sun." But not the slightest sound of steps reached their ears. It was perfectly still all around. Nazarius saw only that the trees were quivering in the distance, as if some one were shaking them, and the light was spreading more broadly over the plain. He looked with wonder at the Apostle.

"Rabbi. What ails thee?" cried he, with alarm.

The pilgrim's staff fell from Peter's hands to the earth; his eyes were looking forward, motionless; his mouth was open; on his face were depicted astonishment, delight, rapture.

Then he threw himself on his knees, his arms stretched forward; and this cry left his lips, --

"O Lord! O Lord!"

He fell with his face to the earth, as if kissing some one's feet.

The silence continued long; then were heard the words of the aged man, broken by sobs, --

"Quo vadis, Domine?" (Where are you going, Lord?)

Nazarius did not hear the answer; but to Peter's ears came a sad and sweet voice, which said, --

"If you desert my people, I am going to Rome to be crucified a second time."

The Apostle lay on the ground, his face in the dust, without motion or speech. It seemed to Nazarius that he had fainted or was dead; but he rose at last, seized the staff with trembling hands, and turned without a word toward the seven hills of the city.

The boy, seeing this, repeated as an echo, --

"Quo vadis, Domine?"

"To Rome," said the Apostle, in a low voice.

And he returned.

Paul, John, Linus, and all the faithful received him with amazement; and the alarm was the greater, since at daybreak, just after his departure, praetorians had surrounded Miriam's house and searched it for the Apostle. But to every question he answered only with delight and peace, --

"I have seen the Lord!"

And that same evening he went to the Ostian cemetery to teach and baptize those who wished to bathe in the water of life.

And thenceforward he went there daily, and after him went increasing numbers. It seemed that out of every tear of a martyr new confessors were born, and that every groan on the arena found an echo in thousands of breasts. Caesar was swimming in blood, Rome and the whole pagan world was mad. But those who had had enough of transgression and madness, those who were trampled upon, those whose lives were misery and oppression, all the weighed down, all the sad, all the unfortunate, came to hear the wonderful tidings of God, who out of love for men had given Himself to be crucified and redeem their sins.

When they found a God whom they could love, they had found that which the society of the time could not give any one, -- happiness and love..."

Quo Vadis, by Henryk Sienkiewicz, 1905

It is too bad that it is not read much today, because it is a really charming book. I think it has been made into several movie versions. I liked the one with Klaus Maria Brandauer, although the earlier epic with Robert Taylor and Deborah Kerr is more famous and probably more popular. The novel was a worldwide best seller in its day from about 1906 to 1930. I remember at the time I read it in 1968 enjoying it because of the portrayal of T. Petronius, Nero's Arbiter Elegantiae, who is said to have written the first western novel, The Satyricon. Such as I was, the budding classicist and natural scientist, a new modern man as my teacher and mentor would say.

The world turns to such things, but especially during times of suffering and trouble, when the great men and the masters rise up once again and proclaim their dominion. Perhaps it, or some things like it, will have a revival when the madness is once again unleashed, and The New Rome falls, and the New Temple is sacked.

And where is the Emperor Nero now, the lord of the world, but a memory, returned to the earth as the dirt and dust beneath some young child's fingernails, to be plucked out and discarded with a 'tut tut' by an observantly doting mother.

Whistleblower to CFTC in JPM Silver Manipulation Struck by Hit and Run Car In London

I am glad that although Mr. Maguire and his wife are shaken they will apparently be all right.

The related story on his allegations regarding manipulation in the silver market is here.

It appears they have 'the perp in hand' as the say. This should provide some light. I am prepared to accept this as an accident, of course, but it is one hell of a coincidence if so. It could also be the act of some trader who had a bit too much to drink, and a grudge to bear after the testimony the day before. Or something else altogether.

I hesitate to say anything more at this point, except curiouser and curiouser.

As reported by Adrian Douglas, the Director of GATA who has been the contact for Mr. Andrew T. Maguire, and on the GATA website

"On March 25th at the CFTC Public Hearing on Precious Metals GATA made a dramatic revelation of a whistleblower source, Andrew Maguire, who has first hand evidence of gold and silver market manipulation by JPMorganChase, and who had tipped off the CFTC in advance of manipulation in gold and silver some months ago.

On March 26th while out shopping with his wife in the London area, Mr. Maguire's car was hit by a car careening out of a side road. The driver of the vehicle then tried to escape.

When a pedestrian eye-witness attempted to block the driver's escape he accelerated at him and would have hit him had the pedestrian not jumped out of the way. The car then hit two other cars in escaping. The driver was apprehended by the police after police helicopters were used in a high speed chase.

Andrew and his wife were hospitalized with minor injuries. They were discharged from hospital today and should make a full recovery."

Guest Post: Grading Alan Greenspan

The Maestro and the Hundred Year Flood
By Keith Hazelton, The Anecdotal Economist

Alan Greenspan’s self-serving “The Crisis,” a 66-page white paper outlining exactly why no part of the extant global financial/liquidity/credit/solvency/deleveraging crisis was the fault of the Federal Reserve whose board he chaired for 18 year or anyone or any other entity for that matter, contains among the many exculpatory assertions, a fascinating, if not stupefying, revelation that, in setting capital adequacy levels, reserves and leverage limits, policymakers:

“…have chosen capital standards that by any stretch of the imagination cannot protect against all potential adverse loss outcomes. There is implicit in this exercise the admission that, in certain episodes, problems at commercial banks and other financial institutions, when their risk-management systems prove inadequate, will be handled by central banks. At the same time, society on the whole should require that we set this bar very high. Hundred year floods come only once every hundred years. Financial institutions should expect to look to the central bank only in extremely rare situations.” (p16-17, all emphasis added.).

No sir, Sir Alan. Hundred year floods come on average only once every hundred years, as any undergraduate who has completed Statistics 101 would recognize, presumably based on many centuries of flood observations in a particular locale.

Now we know if one flips a coin 100 million times, a tabulation of heads/tails results likely will yield a result infinitesimally close to 50/50, so that one may conclude, on average, the actual observation results would prove the statistical probability for each flip that the coin lands heads-up is 50 percent (we conveniently are excluding any possibility of the coin landing, say, balanced vertically on edge.)

We also can be confident in such a large observation, however, that low-probability strings of 10, 20 or 30 consecutive heads-up or tails-up results – while extremely unlikely in 100 flips – would, in fact, be commonplace.

That such occurrences have low probabilities, even extremely low probabilities in smaller observation samples, is immaterial. Regardless of the number of observations, even low probability events are bound to occur, and they are neither randomly nor evenly distributed.

Similarly, nature has no constraints as to the frequency of hundred-year floods, only that on average they should occur once every century, but if it pleases nature to generate 10 hundred-year floods in a century, and none for the next 900 years, albeit a low-probability event, such an observation is completely within the framework of reality.

Neither are there constraints, apparently, on the frequency of meltdowns in the complex, deregulated financial environment we have invented and unleashed upon ourselves, even though, unlike nature, we completely are in control of the frequency and regularity of hundred-year financial disasters.

Which is what is so self-serving about the former Fed chief’s term paper. By defaulting to a “stuff-happens-once-every-hundred-years-so-there’s-no-point-in-trying-to-prevent-it-since-the-negative-effects-of-prevention-would-outweigh-the-flood-cleanup-cost” defense, Sir Alan absolves himself, his fellow FOMC decision-makers and Fed economists, successive Congresses and Administrations, the banking and financial system, China, Japan, Germany and, yes, the American “consumer” from any culpability in the generation-long, debt-fueled party which has induced this hundred-year hangover.

It’s also what’s wrong with economics in general. Since macro-economic theories and policies cannot be experimentally verified – we can’t go back in time to see how different decisions in the past would have altered the present and future – Mr. Greenspan expects to get a pass when he essentially observes that removing the Fed’s easy-money punchbowl earlier in decades past, or perhaps merely serving smaller portions of credit-debt-leverage punch along with deregulation cookies, somehow would have created a worse outcome than the present mess, and he concludes his term paper with an untestable assertion:

"Could the breakdown that so devastated global financial markets have been prevented? Given inappropriately low financial intermediary capital (i.e. excessive leverage) and two decades of virtual unrelenting prosperity, low inflation, and low long-term interest rates, I very much doubt it. Those economic conditions are the necessary, and likely the sufficient, conditions for the emergence of an income-producing asset bubble. To be sure, central banks have the capacity to break the back of any prospective cash flow that supports bubbly asset prices, but almost surely at the cost of a severe contraction of economic output, with indeterminate consequences." (All emphasis added.)

Which is followed by a monstrous, ominous, “be-glad-we-only-have-a-mess-of-this-hundred-year-severity-to-clean-up” whopper:

"The downside of that tradeoff is open-ended."

Cue scary music. Of course the consequences are indeterminate, Sir Alan, and we never will know what our present and our children’s future would have been like had other, more prudent fiscal and monetary policies had been adopted by all participants, but in parsing Mr. G’s conclusion above, we find exactly where, and with whom, the fault resides:

• Excessive leverage of financial institutions? Congresses, Administrations, the Federal Reserve, FDIC, OCC and OTS, without question.


• Two decades of virtual unrelenting prosperity? Apparently is was virtual prosperity, not real prosperity, because it came at a price of excessive, unsustainable leverage among individuals, businesses and governments.


• Low Inflation? An obsession with consumption of low-cost goods imported from low-cost, overseas manufacturers, again fueled with leverage, instead of savings.


• Low long-term interest rates? Why Alan, you remember, it’s the Federal Reserve which sets interest rates, and you were its chairman for 18 years.

The fault then, it would seem, dear Alan, “lies not in our stars, but in ourselves,” and certainly not in the hundred-year flood, to badly paraphrase William Shakespeare’s Caesar.

And it would be amusing – this whole “it’s nobody’s fault, stuff happens” bit about hundred year floods coming only once every hundred years – if not for the physical, emotional and national wealth-destroying carnage of “The Crisis” of the last three years.

Not to mention the many years, if not decades, in our now less prosperous future which will be required to rebuild ourselves from the ground up after such an easily avoidable catastrophe, unlike nature’s hundred-year floods, of our own design.

OK, so it’s only the second draft of his term paper – maybe he’ll revise the final publication to attribute at least some culpability, but don’t count on it. Right now, I give it a "D+."

The Maestro and the Hundred-Year Flood