-Caveat Lector- from: a friend ----- Kris: Mighty interesting, I think... *** Senator Phil Gramm Senate Banking Committee 534 Dirksen Senate Office Building Washington, D.C. 20510 Attention: Madelyn Simmons From: Bill Murphy Chairman, Gold Anti Trust Action Committee Dear Senator Gramm, We thank Madelyn Simmons for taking the time to contact us, listening to what we have to say and for requesting our contentions in writing. It is with that spirit and understanding that I am writing this letter to you in behalf of the Gold Anti Trust Action Committee. I have a financial website, www.lemetropolecafe.com and write commentary about the gold market for the "Caf_". I am a veteran trader in the markets and it became apparent to me after the Long Term Capital Management bailout that the gold market was being manipulated and the manipulation was being carried out by various bullion dealers. The Gold Anti-Trust Action Committee, a non-profit Delaware corporation, was formed in January of this year to investigate this matter and we have retained one of the top anti-trust law firms in the U.S., Berger & Montague out of Philadelphia, to assist us in our quest to learn the truth about what is really going on behind the scenes in the gold market. Because of the way in which the Bank of England sale was announced, we also suspect that the current administration ( perhaps the Federal Reserve or U.S. Treasury ) may be active in the gold market through a trading account at Goldman Sachs and, therefore, may have some role in the orchestration of a lower gold price. If our assessment is correct, this account is the responsibility of Mr. Peter Fisher of the New York Federal Reserve. The relationship between the Federal Reserve, the U.S. Treasury, Goldman Sachs and the Bank of England is strong and illuminating. Throughout this letter I will bring to your attention various news articles, press wire reports, statements by public officials and personal commentary that ties our suspicions and allegations together. I hope that you will see what we have here is quite the "duck" story -- in that it looks like a duck, quacks like a duck, etc. GATA asks, that if you find this letter to be credible, your Committee investigate whether what looks like a duck indeed is a duck. Our findings are brought to you in the spirit of proud U.S. citizens that cherish democratic principles. For if our suspicions prove to be correct, those democratic principles are being cruelly trampled. The few people and institutions in the know in this scheme are gaining incredible riches at the expense of many. The manipulation of the gold price is destroying mining companies and their employees and shareholders as well as whole countries dependent on gold production. We suspect that what we have here is a scandal that is more profound in nature than "Watergate" because so many people are suffering unnecessarily, while, in a bigger picture sense, the manipulation could affect the stability of the banking system. We believe that to suppress the price of gold, the "collusion crowd" has borrowed so much gold from central banks and sold it into the market that it could not be paid back as promised should the price of gold rise quickly and unexpectedly. Last year the gold supply coming out of the mines was 2,529 tonnes. Later in this letter I will refer to a sophisticated study that indicates the gold borrowings were 8,000 tonnes two years ago and are even larger today. There was speculation last year that the investment banks that bailed out Long-Term Capital Management somehow assumed a 300-tonne gold position of the firm because the position was too large to be covered at the market. How would this same cabal help thousands of tonnes of gold shorts get out of the market in a pinch? Such a problem could result in a market calamity and cause great stress for banking institutions. That is why we believe these matters should be investigated by the Senate Banking Committee. Since last Fall I have been documenting what led my associates and me to believe that there has been a coordinated effort to hold down the price of gold But it was the Bank of England's announcement of its plans to sell gold that sent off alarm bells around the world. No other central bank has announced a gold sale prior to its completion in over 20 years, and the Bank of England's announcement just happened to be made as the gold price was storming past a key gold loan borrowing point and interest in the gold market was finally rising again. Gold share volume in various bourses was at its greatest levels in six years. It also appeared that a long- awaited gold rally was finally underway and the "collusion crowd" might finally be losing their grip on the market. Yet, the night before the BOE announcement ( May 6, 1999 ) , I feared duplicity, and this is what I wrote in my Midas du Metropole commentary entitled, "XAU surges 46%": "We know "the squad" are all lining up to try and stifle a decent gold move to the upside, one more time. Deutsche Bank, Chase, Swiss Bank and Goldman Sachs were all there selling gold during today's session and, when they had to, even throwing the kitchen sink at the bull's attack. Deutsche Bank has been especially aggressive and noticeable in their selling the past few days. We got word late this afternoon that their bullion desk is calling their clients saying that the gold market is stopping at $290. I don't think Midas followers will be surprised when we tell you that big sellers late in the day today and taking on all bids were "Squad" honchos Goldman Sachs and Deutsche Bank. "The Battle for Navarone" is an important stand for them, for if $290 is taken out to the upside, their long standing bearish position could begin to look a bit shaky." The next morning I awoke to the Bank of England announcement. Since then the price of gold has collapsed over $36 or almost 15% per cent, and the sale has ignited a furor all over the world, fostering talk of conspiracies, etc. Before, I get into the ramifications of the sale, I thought the following utterances by some of England's most notable officials might raise an eyebrow or two: Wire service commentary July 14, 1999 ( my comments in parentheses ): "Asked in parliament if it was right to sell off part of Britain's reserves, Prime Minister, Tony Blair, replied, " The gold price has been falling for two years, so in fact if it carried on falling and we didn't sell we would lose money". He then declined to say if he would meet with the South African Gold Industry delegation, but said the sale was justified saying, " We did this on technical advice from the Bank of England". (??? - Haruko Fakuda, CEO of the World Gold Council was told that the decision was a political one and made by the British Treasury, not the bank. ) Prime Minister Blair then went on to say, " It is only the Conservative Party's utter obsession with the euro in some bizarre way. Given that Argentina and Switzerland are also selling gold, what it has to do with the euro I do not know. It is only that which is making them raise this issue. It was done, as I say, on technical advice. It was carried through perfectly sensibly and we actually got the best deal for the country". End How wrong can you get? The best deal the Bank of England could have made would have been $30 to $40 more per ounce by carrying out the sale as all the other major countries have done for 20 years . But the story now gets confounding. On Sunday July 11, The Chancellor of the Exchequer, Gordon Brown, said in the London Times, "The proposal to sell the reserves was put to ministers by officials, and, say TREASURY INSIDERS, agreed to it with LITTLE DISCUSSION". According to the London Times article, the chancellor is said to have been surprised and mortified by the reaction from Thabo Mbeki, the South African president, who said last week that the decision would have a "potentially disastrous effect" on South Africa. Then, National Union of Mineworkers President, James Motlatsi, told Reuters, "They said ( the sales programme ) was part of government policy, that the decision had been taken a long time ago and that they had waited to implement that decision." Ok, so what gives here. Blair said it was a Bank of England decision. The Bank of England says it was a Treasury decision. The Treasury says it was only a Treasury decision of sorts and agreed to with little discussion. Good grief. A decision that may have disastrous effects on South Africa, a democracy the West is committed to encourage, was made with little discussion and no one will take responsibility for it. Yet, it is such an important decision that Tony Blair will not reconsider it, even though it appears he does not know who made the decision in the first place. Meanwhile, the mortified ( but confused ) chancellor of the exchequer, Gordon Brown, ( just prior to the trip to England by the African delegation ) was all over the wire services talking about the righteousness of his gold decision while continuing to extol the virtues of the proposed IMF gold sale. The headline on the Reuters dispatch read: U.K.'s Brown Sees Wide Support for IMF Gold Sales. However a Bloomberg audio report reveals that when The Bank of England's Eddie George was asked whether the Bank of England's gold sale was 1) his decision 2) whether he was involved in it 3) whether he was consulted, his response was that he was consulted ( which is a euphemism for being told ). When asked who made the asset allocation decisions on the "bank reserves", he answered, "the government" --that is, the politicians. So, what do we have here? The English now say their decision to sell gold was planned for some time and made the announcement, coincidentally, as the price the price of gold was about to take off. They became the first central bank in over 20 years to make an announcement of this sort in advance. They knew this announcement would devastate the market from a psychological perspective and send gold prices crashing- and, of course, it did - the gold price went straight down more than $36 per ounce. This assured English citizens the worst price possible and cost the country hundreds of millions of pounds.. Now, no one in the English government will own up to making this mysterious decision which is devastating poor African countries, among others. Meanwhile, as my May 6 commentary indicated, somehow the bullion dealers knew what was coming and told their clients as much. Now consider Federal Reserve chairman Alan Greenspan's comment on the Bank of England's gold sale, made before a House Banking Committee hearing on the international financial system on May 20 in this Bloomberg newswire: "It's fairly evident that central banks are acutely aware if they announce they're going to sell gold the price will go down and they're getting a lower price,'' Greenspan said. " No self-respecting trader would ever think of doing that sort of thing. The reason they do it is they think it's important they do not take advantage of the market." While he hasn't discussed the issue with his overseas counterparts, Greenspan said: "It would be inappropriate for a public institution to take advantage of private market participants and effectively sell into the market, " so they announce their gold sales. " I can assure you it's not because they're dumb," he said. The Fed chairman, however, said the U. S. should hold on to its gold stock. " This was debated in the U.S. in 1976. The conclusion was we should hold our gold. Gold still represents the ultimate form of payment in the world. Germany in 1944 could buy materials during the war only with gold. Fiat money in extremis is accepted by nobody. Gold is always accepted," he said. End Something does not seem right here. Alan Greenspan has commented publicly on many occasions that he is in constant contact with the central bankers all over the world, but though the Bank of England decision had been made for some time, he would have the world believe that he had not discussed it with anyone prior to its announcement. Greenspan's comment about the Bank of England's not wanting to "take advantage" of the private sector strains all credibility as no other central bank has conducted a gold sale in this manner in a very long time. Is he implying that all the central banks over the past 20 years that announced their gold sales only after completing them were unethical? Perhaps he is! From the Wall Street Journal on July 16, 1999: "In a global survey by former Fed Vice Chairman Alan Blinder, central banks rank "duty to be open and truthful with the public" as the least important reason for trying to build credibility" To put it mildly, The Bank of England's gold sale has unleashed controversy and "collusion" suspicions from many quarters: (Reuters) - July 6- London: Major gold miners seek Blair statement on UK sales "Executives from some of the world's leading gold miners demanded on Tuesday that British Prime Minister Tony Blair answer rumours that UK gold sales were timed to help out speculative short sellers in the market. The letter arrived as Britain sold 25 tonnes of gold, the start of a programme intended to cut reserves from 715 tonnes to 300 tonnes during the next few years. Chairman and chief executives at Canada's Placer Dome , U.S. Miners Newmont Gold and Homestake Mining , South Africans Anglogold and Gold Fields and Ghana's Ashanti Goldfields , sought Blair's response to rumours that reserve sales were to bale out firms running short positions in gold. The letter, a copy of which was faxed to Reuters, quoted parliamentary remarks made by British opposition MPs on June 16 suggesting Britain's announcement of reserve sales had been to "save the bacon of those firms running short positions". "We believe it would be helpful for you to make a public denial of these rumours or investigate them publicly, " said the letter, signed on behalf of all the companies by Placer Dome President and CEO John Willson." End There are very valid reasons for these suspicions. The rumor in London was that it was discovered that Goldman Sachs had a 1,000 tonne short gold position on its books in behalf of itself and various clients. That information came to the attention of Lord Lange and others in the British Parliament. In addition, the following is an excerpt of pertinent discussion in the House of Commons on June 16: 16 Jun 1999 : Column 307 House of Commons Wednesday 16 June 1999 The House met at half-past Nine o'clock PRAYERS [Madam Speaker in the Chair] Gold Sales Motion made, and Question proposed 9.33 am: "Sir Peter Tapsell (Louth and Horncastle): I am glad to have the opportunity to initiate a debate on the proposed sale by the Bank of England of more than half of this country's gold reserves. That decision was announced by the Treasury on 7 May and has been widely and critically discussed in the financial press, but the Government has been strangely reluctant to defend it or explain it in any detail to the House. I should start by making it clear that I have no personal financial interest in the value of gold. I have never purchased any gold bullion, gold sovereigns or shares in any gold mining company for myself, and I have no connection with any mining company or any part of the jewellery trade. However, I have always taken a keen academic interest in the economic role of gold, which has been of importance in every society in recorded history. In the 1980s, in my capacity as a stockbroker, I was required for some years to manage a gold bullion fund, valued at many hundreds of millions of dollars, for the previous Sultan of Brunei, Sir Omar Saifuddin. I was therefore able to add practical knowledge of the gold bullion market to my academic and political studies of it. I regard the decision to sell 415 of the 715 tonnes of our gold reserves as a reckless act, which goes against Britain's national interest. The sale of that crucial element of the United Kingdom's reserve assets will weaken our scope to operate independently, reduce our influence in international financial institutions and diminish the United Kingdom as a world financial power. I shall briefly set out eight of my main reasons for opposing the decision. Later in my speech, I shall expand on some of those and add a few more. First, a move such as the one announced on 7 May was always likely to destabilise the gold price, as Britain is a leading G7 country whose example is likely to influence other countries and because it was not expected to sell gold. Market sentiment has become overwhelmingly negative and the price has collapsed from $287 per fine ounce immediately before the announcement to $259 at the fix yesterday--a fall of 10 per cent. That has reduced the value of our gold reserves in a little over a month by about $650 million from $6.5 billion to $5.85 billion at current prices. The Chancellor's announcement has so far cost this country's taxpayers over �400 million, which is more than the cost to us of the Kosovo war����.. The immediate effect has been the loss of �400 million of our taxpayers' reserves, and so far the only beneficiaries of this event have been the foreign finance houses, which have been shorting the gold market. As I said to my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) in all friendliness, I am not a subscriber to the conspiracy theory in any aspect of life, so I shall not go into detail about the conspiracy theories that are widely circulating in the City about that shorting of the gold market, but it is often said that some of those famous foreign finance houses have shorted gold to a huge amount--vastly greater than the tonnage of sales contemplated by the Bank of England--and that it was therefore vital for them for the gold price to fall substantially so that they could close their positions and take huge profits. I do not know whether that is true, although I think that there is no doubt that several finance houses have been shorting gold in a very large amount, so I suspect that the financial press will pursue that point with vigour in the days and weeks to come"���End And with vigour they have! This is just one of the many, many commentaries castigating the Bank of England sale. By Christopher Fildes, who wrote this for the Spectator in London: "Put a green baize cloth over the Treasury's parrot, come down to the House and explain" "The Chancellor has yet to say a word to Parliament about his clearance sale of the nation's gold. Instead, a parrot in his office has been taught to say 'restructuring' and to go on saying 'prudent'. Now the first of his auctions has, predictably, misfired. The market followed my advice and chanced its hand with some cheap bids, and, after the auction, the price of gold carried on sliding. The only winners are the big international punters who have sold gold short and can now (as I was saying a month ago) close their positions at Britains expense. It is time for Gordon Brown to drape his parrot in a green baize cloth and give the House of Commons some sort of explanation. He might usefully model himself on Nigel Lawson who, a dozen years ago, was conducting a sale of his own. On offer was the state's remaining shareholding in British Petroleum, priced at �7_ billion, which made it the world's largest share sale. While this was in progress the markets in New York and London collapsed, giving the sale's underwriters a bad bout of heartburn which they mistook for heart-failure. In the end, the Chancellor could tell the House that he had received his three objectives: 'First and most important, to allow taxpayers to secure the full proceeds of the sale to which they are entitled; secondly, to ensure that there are orderly after-markets; thirdly, to make sure that the sale does not add to present difficulties in World markets. ' Could today's Chancellor make any of these claims? In the BP debate, Chancellor Lawson rounded on his critics: "The Labour party is simply the friend of Goldman Sachs.' Now there's a thing". End. GATA harbors no personal ill will towards Goldman Sachs, but the firm's name has surfaced not only in London but also everywhere GATA turns in our own investigation about the manipulation of the gold market. So consider this about Goldman Sachs: *Former Treasury Secretary Robert Rubin, is a former Goldman Sachs CEO. *Former N.Y. Fed Governor, Ed Corrigan is a senior partner at Goldman Sachs *London based senior partner, Gavyn Davies, is Goldman Sach's international economist and has close ties to Tony Blair. Davies wife, Susan Nye, is chancellor of the exchequer's office manager. *Dr Sushil Wadhwani, former Director of Equity Strategy at Goldman Sachs International (1991-95), sits on the Bank of England's Monetary Policy Committee. The committee's duties include determining the Bank's objectives and strategy, ensuring the effective discharge of the Bank's functions and ensuring the most efficient use of the Bank's resources. *Jon Corzine former Goldman Sachs, CEO, has close ties to John Meriwether, chairman of Long Term Capital Management. * Former Fed vice chairman, David Mullins , was a partner in Long Term Capital Management, which, of course, was bailed out in part by Goldman Sachs. It is not only GATA and certain members of the English Parliament that find Goldman Sachs everywhere they turn in the gold market. This is a July 8th column in the South African Business Report by influential South African Columnist, David Gleason: Inside track/gleason "It is almost impossible in this dark week for the gold mining industry to discuss anything other than the apparently grim future for this most lustrous of metals. Gold has been on a hiding to nowhere ever since it reached those dramatic (and ill-judged) heights in 1980. And, ever since central banks were persuaded that they should sweat their gold assets, the bullion banks - led significantly in recent years by Goldman Sachs - have been enjoying a wonderful feast. Gold's imbroglio started more than a decade ago when gold producers figured that the clever thing to do was to sell all or part of their future production, so entrenching price levels a few months out. Since there wasn't a gold futures market at the time, one had to be created. So here was the opportunity (opening?) for smart merchant/investment banks. The bigger and stronger among them persuaded a few central banks to "lend" them some of their gold reserve (at a lease rate which has averaged a tad over 1%) which they could sell into the market, invest the proceeds at 5%, while providing gold producers with the ability to lock in prices. If, in this process, the investment banks could also drive down the price of gold - so that when the time came to return to central banks the gold they'd borrowed, they could buy it back cheaper in the market - well, so much the better. A side-effect, however, was that once central banks made it clear they would not only entertain the idea of lending their gold but would also sell some of it, was to give investors the jitters. They began to desert bullion and gold shares. That made gold producers increasingly anxious. And that encouraged a new concern of the part of central bankers. This is a circle not of virtue but of anxiety which can easily turn to panic. Given our commitment to free and open markets, you can't condemn a man for wanting to make a profit. It is the manner in which profits are made and taken which attract attention. Powerful US investors now believe the so-called "bullion banks" have "conspired" to drive down the price of gold and it is now in their interests - because they are said to have taken on such huge short positions - to keep it down. This is probably the reason some of the banks - specifically Goldman Sachs - are able to offer five-year lines of credit to inconsequential North American producers. The only conclusion to be drawn from lending of this kind is that Goldman Sachs must be satisfied the risk element in the loans is virtually zero. How does any bank arrive at that position? Because it knows or is very confident that it is able to influence profoundly what might otherwise be an uncertain feature. It is at times such as these that it is most difficult - and most required - to keep a cool head and remain confident in the knowledge that all cycles turn (even the unprecedented Wall Street bull run will end - one day). In bullion's case, what is needed is a financial crack of some kind - like the imminent collapse of Long Term Capital Management in the States last year. It was rescued by a consortium of leading US banks when it held short positions, it is said, of about 300t of gold. That was when the metal was expected to rally sharply. When it didn't, the non-event attracted attention. Now it is being said that LTCM escaped because of an "off-market" transaction - in other words a rigged trade to ensure gold wouldn't suddenly reverse course and accelerate. The 14 financial institutions which got together to bale out LTCM have since been asked by the US General Accounting Office for detailed information on how this was effected. And the same institutions may soon be challenged by angry bullion investors who want to know how the Counterparty Risk Management Group, led by Goldman Sachs (which has already complained about me) and J P Morgan to manage financial sector risks, can be deemed anything other than a cartel whose actions violate the Sherman and Clayton anti-trust acts�" End. As a result of the swirling rumors in London about the extraordinarily large Goldman Sachs short gold position, it is has been suggested by some that it may possibly be in part a position for our own Federal Reserve or Treasury. The Gold Anti Trust Action Committee thinks it is important for the American people to know if the Federal Reserve is trading gold or gold derivatives, lending gold, writing gold calls, or seeking to influence the gold market in any way. We are calling for greater transparency in the gold market just as James Saxton, Vice Chairman of the Joint Economic Committee, calls for greater market transparency in this April 19, 1999 press release: For Immediate Attention April 19, 1999 REFORM OF EXCHANGE STABILIZATION FUND READIED -- Openness and Accountability Would Be Mandated -- WASHINGTON, D.C. � Legislation reforming the Treasury's Exchange Stabilization Fund (ESF), the ESF Transparency and Accountability Act, is being readied for introduction, Vice Chairman Jim Saxton of the Joint Economic Committee (JEC) announced today. The ESF was established in 1934 at a time when the dollar was pegged to gold, but has survived into the current era of flexible exchange rates despite its lack of clear objectives and its secretive operations. "This legislation will end the legacy of secrecy and obscurity at the ESF," Saxton said. "We need this kind of secrecy in our nuclear weapons programs, not in our international economic policy. The ESF is an important part of U.S. international economic policy, but most Americans have never heard of it. The American people have the right to know how billions of their tax dollars are being used. "Excessive secrecy is part of an even larger problem: the lack of accountability to Congress or the American people. Although it is part of the U.S. government, the ESF and its operations (except for administrative costs) are not subject to Congressional appropriations or approval. The executive branch has virtually exclusive control of the ESF, its policies and its operations. My legislation would change this unhealthy lack of balance in economic policy. "The new ESF reform legislation will mandate transparency by requiring the public release of monthly statements from the ESF disclosing its finances, operations, policies, and any related monthly changes. Exceptions will be provided for information that is market-sensitive or related to national security�End. GATA's call for transparency is intertwined with Congressman Saxton's. Peter Fisher is the number two official at the N.Y. Fed and is thought to be responsible for trading the Treasury's Exchange Stabilization Fund. We think it is important that he be called to testify before Congress as to whether he is trading the gold market in any fashion. Our research shows that he has the authority to do so. According to Federal Law in the banking handbook - article # 354 - Transactions involving gold coins, bullion, and certificates. "Every Federal Reserve bank shall have power to deal in gold coin and bullion at home or abroad, to make loans thereon, exchange Federal reserve notes for gold, gold coin, or gold certificates, and to contract for loans of gold coin or bullion, giving therefor, when necessary, acceptable security, including the hypothecation of United States bonds or other securities which Federal reserve banks are authorized to hold". It is also my understanding that Peter Fisher is also in charge of foreign custody accounts at the N.Y. Fed. It is public knowledge that many central banks house some of their gold at the N.Y. Fed. If the Fed is intervening in the gold market, why should not the public be allowed to know about this? The public is usually informed when there is intervention in the yen. The "duck" story continues to gain credibility when one ties what we have presented with the following Wall Street Journal article about Mr. Peter Fisher, the N.Y. Fed's connection to the bullion dealers, the activity of the bullion dealers, and the LTCM bailout. The incestuous nature of these entities is very apparent. Long-Term Capital Bailout Spotlights a Fed 'Radical' The Wall Street Journal November 2, 1998 By: Jacob M. Schlesinger "On Sunday Sept. 20, Peter Fisher left his parent's 50th anniversary party to get the government's first look at the books of Long-Term Capital Management LP. Mr. Fisher the No. 2 man at the Federal Reserve Bank of New York, was stunned by what he saw. The ailing Long Term Capital, the huge, secretive and unregulated investment partnership founded by John Meriwether, was "a lot bigger than anybody thought, he says, and far more intricately interwoven with major markets and major players. The fear of "this layer cake becoming unglued" and putting the world's financial system at risk, as Mr. Fisher puts it, led him and his boss, New York Fed President William McDonough, to round up the biggest names on Wall Street to inject $3.625 billion into Long-Term Capital a few days later. The move thrust 42-year old Mr. Fisher out of the shadows where Fed staffers usually reside and into the public spotlight. It also set off a barrage of criticism for Mr. Fisher, his boss and the Fed. W. Lee Hoskins, former head of the Cleveland Federal Reserve Bank, sums up critics' reasoning: " A perverse kind of incentive could be put in place, that investors can continue to make these bets on the hopes that the government will limit the downside risk." He adds: "As a general rule, one should err on the side of letting the market solve the problem." Before the Fed was created by Congress in 1913, there was no government entity charged with maintaining financial stability. When the collapse of the Knickerbocker Trust Co. threatened to unleash a panic in 1907, the task fell to J.P. Morgan, the legendary banker, to rally Wall Street to keep markets functioning. In a sense, Messrs. Fisher and McDonough are Mr. Morgan's successors. Mr. McDonough, 64, a former commercial banker, gets the bigger office and the big title. Mr. Fisher's primary job is to run the Fed's trading operation. When Fed Chairman Alan Greenspan decides to cut interest rates, Mr. Fisher and his staff actually do it by buying and selling government securities to maintain the desired rate in the market. When Treasury Secretary Robert Rubin decides to help prop up the value of the Japanese Yen, Mr. Fisher sells the dollars and buys the yen. In that capacity, Mr. Fisher is the Fed's eyes and ears on the inner working of stock, bond, and currency markets and is given a wide degree of latitude about when certain events pose broader risks����. In mid September, the New York Fed's traders were witnessing unsettling developments. After Russia's debt default and currency devaluation, investors were shunning risky assets, even in the U.S. trading volume was thin, and prices were volatile. "These shocks were, in their own way, not unlike what the stock market suffered in October 1987," Mr. Fisher says. Amid the turmoil, Mr. Fisher heard frequent rumors about numerous firms in trouble, but one name was coming up with increasing frequency; Long-Term Capital Management in Greenwich, Conn. Thus it was that on Sept. 20, he left his parent's party in Cambridge and headed for Greenwich. After looking at Long-Term Capital's books, he realized some of the recent bond market turmoil flowed directly from the hedge fund dumping its investments to raise cash. It underscored how much worse the markets would be if the firm collapsed. I had an epiphany,' he says. "I realized they would be in the eye of the hurricane." Based on that assessment, Messrs. Fisher and McDonough spent the next three days putting the rescue plan in place. On the night of Sept. 22, while Mr. McDonough was returning from London, where he had delivered a previously planned speech, Mr. Fisher summoned some of the biggest names on Wall Street to the nearby imposing stone headquarters of the New York Federal Reserve Bank. He offered warm sodas and no food to his guests, who stayed past 10 p.m. He spoke for just a few minutes at the outset of the two-hour meeting, but what he said was potent. He didn't ask any firm outright to do anything. He didn't even hint at the possibility of using public money. He just observed that a collapse of the investment partnership could be chaotic for markets and that there was a " public interest in a collective industry option" to keep Long Term Capital afloat, according to participants in the session. The decision to give that nudge - the crucial one- appears to have been made largely by Mr. Fisher and Mr. McDonough. Mr. McDonough consulted with Mr. Robert Rubin and Mr. Greenspan by phone. But Mr. Greenspan told Congress that the decision was based on "the judgement of the officials at the Federal Reserve Bank of New York." The Fed's board of governors was informed, but not consulted. Critics complain that by pulling together the Wall Street consortium, Messr's Fisher and McDonough gave Long-Term Capital's Mr. Meriwether good re ason to rebuff a buyout bid from billionaire Warren Buffet. That bid would have wiped out Mr. Merriwether and his partners, including a former Fed vice chairman, David Mullins. The Fed's move left them with their jobs and a 10% stake in the partnership. Messer's Fisher and McDonough say that it would have been inappropriate for Fed officials to help Messrs. Buffet and Meriwether negotiate terms of a buyout, and that the rescue came together only after the Buffet bid evaporated. "If you save a baby from getting hit by a truck, and the baby gets slightly bruised, you're going to get some criticisms for the bruises," Mr. McDonough says. "The baby we were concerned about was the credit markets, not Long-Term Capital. And we think the risks were worth it. Making a Deal After Peter Fisher heard reports of distress at Long Term Capital, he sprang into action. ? Sept. 20: Fisher leads a delegation of Fed and Treasury department officials to meeting at Long-Term Capital headquarters ? Sept. 22, 7:30 a. m.: Fisher gathers officials from Goldman Sachs, Merrill Lynch and J. P. Morgan at New York Fed headquarters to discuss bailout ? Sept. 22, 8:30 a. m.: At New York Fed, Fisher warns Wall Street's biggest firms of market turmoil if bailout fails ? Sept 23: Agreement reached at New York Fed around 6 p.m." End. The question that GATA would like the Senate Banking Committee to investigate is whether the New York Fed is "bruising" another baby ( the gold market ) in order to facilitate other financial markets and, in that process, destroying millions of innocent parties? A 12-year-old Wall Street Journal article involving former Fed Governor Robert Heller is of particular interest here. Have good intentions about intervening in markets gone astray? Have Fed Support Stock Market, Too By Robert Heller 10/27/89 The Wall Street Journal "The stock market correction of Oct. 13, 1989, was a grim reminder of the Oct. 19, 1987 market collapse. Since, like earthquakes, stock market disturbances will always be with us, it is prudent to take all possible precautions against another such market collapse. In general, markets function well and adjust smoothly to changing economic and financial circumstances. But there are times when they seize up, and panicky sellers cannot find buyers. That's just what happened in the October 1987 crash. As the market tumbled, disorderly market conditions prevailed. The margins between buying bids and selling bids widened; trading in many stocks was suspended; orders took unduly long to be executed; and many specialists stopped trading altogether. These failures in turn contributed to the fall in the market averages; Uncertainty extracted an extra risk premium and margin-calls triggered additional selling pressures. The situation was like that of a skier who is thrown slightly off balance by an unexpected bump on the slope. His skis spread farther and farther apart-- just as buy-sell spreads widen during a financial panic--and soon he is out of control. Unable to stop his accelerating descent, he crashes. After the 1987 crash, and as a result of the recommendations of many studies, "circuit breakers" were devised to allow market participants to regroup and restore orderly market conditions. It's doubtful, though, whether circuit breakers do any real good. In the additional time they provide even more order imbalances might pile up, as would-be sellers finally get their broker on the phone. Instead, an appropriate institution should be charged with the job of preventing chaos in the market: the Federal Reserve. The availability of timely assistance--of a backstop--can help markets retain their resilience. The Fed already buys and sells foreign exchange to prevent disorderly conditions in foreign-exchange markets. The Fed has assumed a similar responsibility in the market for government securities. The stock market is the only market without a market-maker of unchallenged liquidity of last resort. This does not mean that the Federal Reserve does not already play an important indirect role in the stock market. In 1987, it pumped billions into the markets through open market operations and the discount window. It lent money to banks and encouraged them to make funds available to brokerage houses. They, in turn, lent money to their customers--who were supposed to recognize the opportunity to make a profit in the turmoil and buy shares. The Fed also has the power to set margin requirements. But wouldn't it be more efficient and effective to supply such support to the stock market directly? Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying averages in the futures markets, thus stabilizing the market as a whole. The stock market is certainly not too big for the Fed to handle. The foreign-exchange and government securities markets are vastly larger. Daily trading volume in the New York foreign exchange market is $130 billion. The daily volume for Treasury Securities is about $110 billion. The combined value of daily trading on the New York Exchange, the American Stock Exchange and the NASDAQ over-the-counter market ranges between $7 and $10 billion. The $13 billion the Fed injected into the money markets after the 1987 crash is more than enough to buy all the stocks traded on a typical day. More carefully targeted intervention might actually reduce the need for government action. And taking more direct action has the advantage of avoiding sharp increases in the money supply, such as happened in October 1987. The Fed's stock market role ought not to be very ambitious. It should seek only to maintain the functioning of markets--not to prop up the Dow Jones or New York Stock Exchange averages at a particular level. The Fed should guard against systemic risk, but not against the risks inherent in individual stocks. It would be inappropriate for the government or the central bank to buy or sell IBM or General Motors shares. Instead, the Fed could buy the broad market composites in the futures markets. The increased demand would normalize trading and stabilize prices. Stabilizing the derivative markets would tend to stabilize the primary market. The Fed would eliminate the cause of the potential panic rather than attempting to treat the symptom--the liquidity of the banks. Disorderly market conditions could be observed quite frequently in foreign exchange markets in the 1960's and 1970's. But since the member countries of the International Monetary Fund agreed in the "Guidelines to Floating" in 1974, such difficulties have been avoided. I cannot recall any disorder in currency markets since the 1974 guidelines were adopted. Thus, the mere existence of a market-stabilizing agency helps to avoid panic in emergencies. The old saying advises: " If it ain't broke, don't fix it." But this could be a case where we all might go broke if it isn't fixed." End. GATA believes it is reasonable to ask whether something is awry in the gold market. We are not making any wild accusations about the Federal Reserve. We are just searching for some answers to valid questions. Another compelling question concerns Fed Chairman Alan Greenspan's twice made comments on July 24, 1998 before a House Banking Committee and on July 30, 1998 before a Senate Agricultural Committee that, "central banks stand ready to lease gold in increasing quantities should the price rise". GATA and many in the gold industry would like to know what Greenspan meant by that comment. Was he signaling the bullion dealers that the U.S. Government and other governments would not let the price of gold rise so that they could short-sell gold with impunity? The collapse of the price of gold is truly causing incredible hardships around the world, yet the Clinton administration has gone out of its way to support this idea. Meanwhile the opposition in Congress to the IMF gold sale has created the most unusual of political alliances. Consider who is opposed to the IMF gold sale: 1 ) Jim Saxton, Chairman of the Joint Economic Committee, 2) Jesse Helms, Senate Foreign Relations Committee Chairman 3) Tom Daschel, Senate Minority Leader 4) Dick Armey, House Majority Leader 5) Tom Delay, House Majority Whip, 6) and Democratic Senators such as Richard Bryan (D), Tim Johnson (D), Harry Reid (D), who have all have warned former Treasury Secretary Robert Rubin in a letter that they will oppose the proposal 7) The Black Caucus, to a person said they would not support the IMF gold sale proposal. While many of the leading figures in both political parties are against the IMF gold sale, who is for it? Just the Clinton administration and its big-money supporters that are short gold. Even Jesse Jackson Jr. has told the Clinton administration that low gold prices and IMF gold sale fears are hurting the nations it is supposed to help and costing jobs in those same countries. But, for some reason, in spite of these outcries the present administration refuses to call off the IMF gold sales. This implies they have some hidden agenda. The reaction to the outrage of Africans and their request for support from the Labour Party in Britain is even stranger. Something is very amiss here. Consider this recent story from the London Telegraph: City Comment: Golden opportunity missed to show African solidarity Source: The Daily Telegraph London "LET them eat aid. New Labour's sympathy for the gold miners of South Africa is strictly limited. You would have thought that when the leader of their union turned up in London, he would be feted all the way from Islington to Millbank, which would be relabeled James Motlatsi House in his honour. Not a bit of it. Sentiment counts for nothing when it conflicts with the Government's suddenly invented policy of selling off the gold reserves. In two months, this prospect has lowered the price of gold by one-tenth, and 100,000 miners stand to lose their jobs. Mr. Motlatsi is here with Bobby Godsell from the Chamber of Mines, to plead their industry's cause. In the House of Commons this week, the Prime Minister could not find a single sympathetic word for them. We had sold, so he said, on the technical advice of the Bank of England, and got the best deal for the country - this country, that is. Gold sales were just the Tories' latest obsession, and their party had supported apartheid, so who were they to talk? His flinty response was misleadingly worded. It is a gold ingot to a china orange that this clearance sale was not proposed by the Bank. The official reserves are not the Bank's but the state's, and making policy for them is the responsibility, with the Bank as its agent in the market. It has been left to make the best of a bad job. New Labour's next good cause is to make the International Monetary Fund sell gold and use the proceeds to relieve poor countries of their debts. It does not seem to cross ministers' high minds that some of these countries have gold in the ground and make their living, or hope to, by digging it out. There would be no point in telling Zambia to dig for Special Drawing Rights or Mali to open an internet cafe. Zambia and Mali (and, of course, South Africa) will be represented here next week, when their governments will try to make the industry's point for it. They are not asking for aid. Africa's best hope must be to work its way out of poverty - if only the conceit and condescension of New Labour will let it." End. It is understandable that many people recoil when they hear the word "manipulation", "collusion" or even "conspiracy". Yet, many of the potential players in the gold market manipulation have been charged before, so why should it not follow that they may be involved in the manipulation the price of gold? After all, anyone who has borrowed gold the past several years at 1 per cent interest and has sold it has had the opportunity to re-invest the funds and earn substantial returns and then return the principal at much lower prices and reap windfall gains there too. Let us examine some recent commentary about the behavior of current bullion dealers and associated parties: 1 ) Counterparty Risk Mangagement Group member Credit Suisse: "(Bloomberg) - Tokyo - July 13 - Credit Suisse Group, Europe's sixth-biggest bank, was humbled today when Japan indicated it may revoke the banking license of a financial subsidiary - the most severe punishment of a financial firm since World War II." 2 ) The Commodity Futures Trading Commission fined LTCM bailout partner Merrill Lynch millions of dollars for helping Sumitomo manipulate the copper market 3 ) Goldman Sachs is being investigated for conspiring to fix underwriting fees. "(Bridge News) Washington--April 30--The U.S. Department of Justice served investment Bank Goldman Sachs & Co. with a civil investigative demand Thursday requesting information concerning an "alleged conspiracy among securities underwriters to fix underwriting fees," according to a Securities and Exchange Commission filing from Goldman Sachs released today. The request from the Justice Department marks an escalation of charges that were filed in a private class-action suit in November, a source familiar with the investigation told Bridge News�" End. I realize this a great deal to grasp at one time, so I thought I would use the following recent article from London's BUSINESSAGE magazine to summarize much of what GATA has presented to you: All That Glisters BUSINESSAGE July 1999 "The recent dramatic fall in the gold price could have been triggered by the Bank of England irresponsibly signaling a massive unloading of bullion onto the market, amid suspicions that a global cartel has been attempting to manipulate values, writes David Guyett. When the Treasury announced in early May that it was going to auction over half the nations 715 tonne gold reserves, it caused eyebrows to be raised in many parts of the world. It also triggered a steep decline in the market price of gold from just below $290 an ounce to $281.50. In the blink of an eye over $90 million was wiped off the value of the gold the Treasury has earmarked for sale. Ordinarily, central bank gold sales are conducted in the utmost secrecy and are then routinely announced after the event. This ensures a stable market price for the bank to sell into. Effectively talking down the gold price by announcing "future" sales is considered curious, especially for a nation possessing a long history of managing its gold reserves with skill and subtlety. More recently, Gordon Brown's public comments in favour of the proposed sale of 10 million ounces of IMF gold have merely added to the confusion. Unsurprisingly, the prospect of an additional large official disinvestment saw an even more dramatic plunge in the market price to under $260. The Chancellor's 1comments, said to be aimed at raising funds to alleviate the horrendous debt burden of impoverished third world nations, wiped a further $300 million off the value of British gold reserves. While many market analysts ponder just what the Chancellor hopes to achieve by apparently cutting off his nose to spite his face, an independent American gold pressure group believe they know the answer. Formed earlier this year, the Gold-Anti Trust Action Committee, known simply as GATA, claim the gold market is in the grip of a powerful cartel of leading Wall Street and European banks. These are said to have colluded to manipulate the price of gold to their commercial advantage. According to Bill Murphy, a commentator on the gold market and GATA Chairman, up to twenty leading banks may be party to a cartel arrangement. Murphy says that many of these banks have leased gold from central and other gold banks at "strike" prices as low as $290. The lending banks, according to the insiders, charge little more than 1% per annum as a leasing fee. This amounts to "a virtual interest free loan," Murphy says. By selling the leased gold, the banks receive a hefty cash "pool." That is then invested in US Treasury securities or placed in other overseas markets. With Treasury yields climbing above 6%, the net 5% "windfall" returns earned by the borrowing banks generate huge profits. Later covering their short positions at lower strike prices will generate additional income. GATA believes that short sales of this type collectively total as much as 8,000-10,000 tonnes. Others believe it could be higher and amounts of 14,000 tonnes are mentioned. Meanwhile, one Wall Street bank is rumoured to be "short" of 1,000 metric tonnes, worth about $9 billion. This is believed to be Goldman Sachs, America's largest investment bank. Goldman's refused to comment but insiders at the bank deny the position is as large as claimed. The risk of this short sale strategy is if the gold price shoots up beyond the $290 level. With annual gold mining production of 2500 tonnes per year, it could prove impossible for those "short" banks to buy sufficient quantities of metal to repay back their loans. Locked into a trap of their own-making, this could stampede the banks and cause the gold price to skyrocket, turning easy profit into crippling losses. Were just one of these banks to fail under the burden of such losses it could trigger a systemic collapse of the international economy. This, Murphy believes, is the underlying reason why the Treasury took the unusual step of announcing a gold auction in advance, and why Gordon Brown is so strongly committed to an IMF sale. At the time the Treasury issued its announcement, the gold price was preparing to penetrate the $290 level. Forcing down the price enables the banks involved to extricate themselves from their now suspect trading positions. Murphy admits he cannot prove his case. However, he says the circumstantial evidence is overwhelming in support of his view. Not least he points to testimony given by Federal Reserve Chairman, Alan Greenspan, who told the House Banking Committee last summer that "central banks stand ready to lease gold in increasing quantities should the price rise". What else could the Fed be up to?" Murphy asks, other than the wholesale manipulation of the gold price. Whether Murphy's group is ever able to prove that the market is a rigged roulette wheel remains to be seen. Meanwhile GATA's efforts constitute the only truly independent attempt this century to penetrate the mysteries of one of the most secretive of all financial markets". End Congressman Saxton and GATA are not the only voices crying out for transparency, truthfulness and accountability: ( June 7 ) - Reuters - Basle, Switzerland - BIS- Time to act, not talk on lessons of LTCM crisis: "Nine months after the near bankruptcy of U.S. hedge fund LTCM shook the world, bank regulators still do not have the tools to judge accurately the risks that financial market speculators are running, the BIS said on Monday......The inference of the rescue, the BIS commented, is that U.S. bank regulators and LTCM's principal creditors considered that a non-bank financial institution was "too complex to fail"....... This might be thought a worrisome message sent out to much bigger banks and dealing firms with their own proprietary trading operations," the BIS said.......So intricate are the trading strategies used by sophisticated investors such as LTCM that existing statistics cannot readily measure how much market and credit risk they are exposed to". End. Senator Gramm, I hope the commentary we have presented to you will suggest to you that this matter be investigated. It can be a very simple matter and be done in a most confidential manner. If all the bullion dealers and the parties involved in the Long Term Capital Management bailout are asked to reveal their gold books ( along with the other major bullion dealers ), you can easily determine if our suspicions are correct and if excessive gold loans pose an unacceptable threat to financial stability. My former associate, Frank Veneroso of Veneroso Associates, can assist your committee as he has compiled the most comprehensive study on the gold loans in the world. In his 1998 Gold Book Annual he determined that the gold loans were about 8,000 tonnes in total ( 7,000 to 7,500 tonnes of official swaps and deposits and 500 to 1,000 tonnes of private deposits ). Since then he has received more information about the positions of 9 bullion dealers. Three were about as expected. Six were higher to substantially higher than expected. Here is Frank Veneroso's biography: FRANK A. J. VENEROSO Mr. Veneroso is currently the head of Veneroso Associates. Formerly he was a partner of Omega Advisors, where he was responsible for investment policy formulation. Prior to this, acting through his own firm, Mr. Veneroso has been an economic consultant and investment strategy advisor to governments, international agencies, financial institutions, and corporations around the world. He acted as an economic policy advisor to international agencies and governments in the areas of money and banking, financial instability and crisis, privatization, and the development and globalization of emerging securities markets. His clients have included the World Bank, the International Finance Corporation, and the Organization of American States. He has been an advisor to the governments of Bahrain, Brazil, Chile, Ecuador, Korea, Mexico, Portugal, Thailand, Venezuela, and the United Arab Emeritus. Mr. Veneroso graduated cum laude from Harvard University and has authored several articles on subjects in international finance. Senator Gramm, the GATA Committee would like you to know that we do not get paid for our efforts. We just believe there is a big wrong out there and as previously stated, a scandal of Watergate proportions is being perpetuated while unnecessary harm is inflicted on many people. We only ask for truth and fair play. Is not that what our democracy is all about? Best Regards, Bill Murphy Chairman, Gold Anti Trust Action Committee ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. 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