Market manipulation is not generally discussed by the commentators on CNBC, but sense can hardly be made of today's wildly unpredictable trading patterns unless the plays of powerful men behind the curtain are factored in. One commentator who does talk about this manipulation is Don Coxe, strategist for the Bank of Montreal. In a weekly conference call on September 5, 2008, he described what has been going on in the markets since July as "the most massive intervention of government into the capital markets or the financial system since Roosevelt closed the banks back in 1933."3
According to the British Globe and Mail, Coxe is "no paranoid conspiracy theorist. As the chairman and chief strategist of Harris Investment Management in Chicago, he is one of the most respected investment authorities in North America."4The unprecedented intervention he described went back to when the financial establishment was facing a very banker-unfriendly market in July. Gold was about to break through the psychologically important $1,000 mark, oil was above $140 dollars a barrel, the dollar was breaking down, the bank stock index had dropped in six months from 90 to 50, and the Federal Reserve had a balance sheet to match, after making huge loans to banks on shaky collateral. Fannie Mae and Freddie Mac were on the verge of collapse, and hundreds of billions of their securities were held abroad. As if by magic, these trends all suddenly reversed, beginning with a dramatic reversal in the swooning dollar. How was it done? The cat was let out of the bag by the Nikkei English News, which reported in late August that finance officials from the U.S., Japan and Europe had drawn up plans to strengthen the dollar following the collapse of investment bank Bear Stearns. The intervention called for the central banks to purchase dollars and sell euros and yen if the dollar's value dropped significantly, with Japan providing the yen for the currency swap.5
As the dollar strengthened, gold, silver and oil plunged. The pundits read the drop in gold and silver as a reaction to the rise in the dollar, since precious metals rise historically when the dollar falls. But what they failed to explain was why the dollar was rising. As Bill Murphy observed, "the dollar rallies sharply whenever the US stock market comes under pressure. It is almost simultaneous." He quoted one of his newsletter contributors:
"Since the [stock market] low on 22 SEP we have lost 8.3 trillion bucks worth of asset value within the equities markets and what happens? The US dollar goes up, and up, and up, and up, and up. From what? 72 to 84 now (up 1.14 just today??!!??)? A non-stop rally that is NEVER adversely affected by news or market events. It's almost been a 45-degree ascent. THAT is pure unmitigated intervention of a huge degree."6
How to explain this dramatic reversal in the dollar's slide? In Coxe's September 5 conference call, he candidly laid out how the Federal Reserve and the Treasury, in conjunction with the CFTC (Commodity Futures Trading Commission) and the SEC (Securities and Exchange Commission), colluded to manipulate this "necessary" bounce in the dollar, along with a corresponding boost to financial stocks and sudden collapse in the commodities markets. Coxe called it "brilliant," but the play was at a cost of millions of dollars to commodities investors and short sellers who were betting on what a "free" market "should" do. Oil plunged more than 50%, from a high of $145 a barrel in July to a low of about $64 on October 24. The same pattern was seen in silver and gold, with gold falling from a high of over $1,000 an ounce to a low of $700 on October 23. It all added up to a massive "pump and dump" scheme, with insiders pocketing the fortunes lost by unsuspecting investors. It's a messy business, but somebody has to rake in these obscene profits for the "greater good" of market stability.
"The Most Sordid Scheme in the History of Finance"
Theodore Butler, writing on SilverSeek.com on September 2, reported that there was more than just central bank collusion going on behind the scenes. He tracked an unprecedented wall of short selling of gold and silver – massive "borrowing" of stock to sell it into the market, forcing down the price, then "covering" by buying the stock back at the lower price. Butler wrote:
"In gold, no more than 3 U.S. banks sold short in one month more than 10% of world annual mine production. This was the largest short position in gold and silver ever recorded by U.S. banks. After the massive and concentrated silver and gold short position was established by these U.S. banks, the [gold and silver] markets experienced a historic decline in price. It all took place during the first widespread retail silver shortage in history. It is completely at odds [with] how the law of supply and demand works."
Butler called it the most sordid scheme in the history of finance. "It makes a mockery of financial regulation and the rule of law," he wrote. "It allows a large financial entity, or entities, to rip off the investing public and gouge them for obscene profits. It is cronyism, back-room dealing, market fixing and inside information at its worst."7
While gold and silver were being shorted to oblivion, the SEC imposed a ban on the short selling of 19 select financial stocks, including Fannie Mae and Freddie Mac. It was blatant favoritism for the privileged few, but Coxe said it was necessary to make financial stock look attractive to potential buyers (particularly sovereign wealth funds), in order to allow the banks to sell their stock and raise the capital necessary to start lending again. At the same time, Treasury Secretary Paulson sought and was granted an unlimited credit line to Fannie Mae and Freddie Mac directly from the U.S. Treasury, as well as the authority to buy the mortgage giants' stock. Fannie and Freddie were put into a form of bankruptcy called a conservatorship; but unlike in the ordinary bankruptcy, in which creditors divide up the debtors' available assets without government help, in this case the claims of the lenders were guaranteed by the Treasury. Foreign lenders were bailed out while the shareholders were wiped out – including banks, pension funds, and other institutions holding the savings of millions of Americans. In the long run, the "bailout" created more problems than it solved; but according to Coxe, it was a necessary sacrifice to keep the mortgage market functional for the near term. How near? The Presidential election is now only weeks away. Markets have an uncanny way of looking good before elections.
Rob Kirby, writing in LeMetropoleCafe on September 9, observed that there are laws and stiff penalties against market collusion. The U.S. antitrust laws impose fines of up to $10 million and jail terms of up to 3 years for unfair practices that inhibit competition or monopolize markets in restraint of trade. "I admire [Coxe's] candor," said Kirby, "but my take on this is that all the perpetrators should face a firing squad, or worse, for treason."8
That probably won't happen, however, because the "perpetrators" can claim governmental immunity. The Plunge Protection Team, officially called the President's Working Group on Financial Markets, was formed by President Reagan in response to a stock market crash in 1987 for the express purpose of "maintaining investor confidence" by manipulating markets with public funds. The PPT includes the President, the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the Securities and Exchange Commission (SEC), and the Chairman of the Commodity Futures Trading Commission (CFTC). Calling the shots is no doubt Secretary Paulson, who now has a $700 billion fund to use for the purpose, after Congress passed his massive bank rescue plan on October 3.
"Socialism for the Rich"
Nouriel Roubini, Professor of Economics at New York University, wrote on his popular blog Global EconoMonitor:
"Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill . . . ."10
Investment guru Jim Rogers told "Squawk Box Europe":
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