JP Morgan is in Trouble – But Why?

If you’ve been following our blog, you’ve read our post about JP Morgan’s gubmint trouble already.  If not, here’s the scoop courtesy of Luke Gromen at FFTT, LLC,  Six traders at JP Morgan and now, the bank itself, are under investigation for rigging precious metals futures markets.  Prosecutors have even gone so far as to invoke the RICO statutes, usually reserved for mobsters.  They are accused of precious metals price manipulation for “nearly a decade”. 

After reading Luke’s comments, however, I have to wonder why.  Luke says, “The US government just effectively told US banks it wants them to stop manipulating gold prices.”  This is a bombshell.

For over twenty years I’ve been following GATA (Gold Anti-Trust Action Committee).  These folks have worked tirelessly, against ridiculous odds, to end gold price manipulation.  In 2003, Blanchard & Co. filed charges against JP Morgan and others, in Federal court, for this very thing – and lost.

This means the government’s estimate of JP Morgan’s price manipulation is a huge understatement.  They’ve been manipulating precious metals prices for lot longer than “nearly a decade”. 

So why now?  Why do something about this now?  Why would the government, known bedfellow of big banks everywhere, hop out from under the sheets and begin yelling, “Foul!?”

My first inclination is to say, “Money & Power.”  A man much wiser than me, who holds a seat in government, once told me, “Nobody gets really upset about anything except money, power or sex.”  I’m not sure this doesn’t apply, but we need to unravel this a bit more.  Just like they did on that overly-dramatic gameshow who’s name I’m happy to forget, I called my lifeline.

That man is Franklin Sanders. 

With an economic understanding deeper than the Mariana Trench, I knew I’d be in good hands.  Here’s what he had to say…

“There’s a difference between wholesale and retail manipulation – wholesale and retail crooks.  The wholesale crooks work for the government.  The retail crooks work for themselves.

“GATA has proven that JP Morgan and other bullion banks have worked with the US Treasury’s Exchange Stabilization Fund (ESF) to suppress the gold price at least since 1934, when the ESF was founded.  The US Government has a vital interest in suppressing gold’s price to support the US dollar. 

“But wholesale is not retail.  It appears, from numerous scandals, that traders at JP Morgan’s – and other banks’ – metals trading departments have been rigging markets with tricks like ‘spoofing’.  Proof of this lies in the many guilty pleas and prosecutions of these traders.  They’ve been doing this for their personal gain.

“So why would the government, on one hand, engage in market manipulation and, on the other hand, prosecute for manipulation?  Maybe one government hand knows not what the other government hand is doing.  Maybe the government wants to maintain a façade of enforcing honest markets.  Or maybe these rogue traders are like rogue heroin dealers muscling in on the Mafia’s territory;  they have to be wiped out.

“This prosecution openly acknowledges that big institutions, whole trading departments, giant banks, actively manipulate markets to their own benefit.  This is also true with high-frequency trading and bank-run “dark capital” pools for trading stocks internally, as well as price fixing scandals in silver, oil, foreign exchange, LIBOR, and who can remember how many others. 

“Or Luke may be right.  But here’s why I think he’s not – gold and the US dollar are competing currencies.  The more gold rises, the worse the dollar looks.  The US government has understood this since the 1934 Gold Reserve Act.  This act specifically authorizes – mandates — the Secretary of the Treasury through the Exchange Stabilization Fund (ESF) to manipulate gold prices and currency exchange rates.  So no one can argue that the US governemtn does not manipulate the gold price and exchange rates, because this law remains active on the books. 

“Because the Federal Reserve must inflate or die, the dollar’s value must depreciate.  The dilemma for the Fed and US government is – how to keep the victims of a depreciating dollar in their trap? 

“A rising gold price warns the victims they must flee the trap, get out of dollars and into gold.  The strategic need to suppress the dollar’s exchange rate against gold is so great, it’s hard to conceive how the US government would voluntarily renounce it.

“No.  I think this is a combination of things.  The government needs to maintain a façade of legitimacy and they need to maintain their position on the top of the pile.  But they cannot stop manipulating the gold price.“

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