Re: [A-List] JP Morgan's *$23tn* derivative bust?

["Anne Williamson" <annewilliamson@xxxxxxx>]

Hello Rob,

Yes, to protect JPMC's position (a), gold can not be allowed to rise
to its true value, therefore it's market price must be artificially
suppressed.
The items you mention in (b) first paragraph - noncompetitive US producers,
unattractive US investment opportunities, and low US profit levels
are consequences - not requirements - of (a).

And they are lamented consequences.  It's another matter that no one
understands the results.

No one wants to disadvantage US producers, but - hey! - the name of
the game is "finance capitalism," not "farmers," not "small electronics,"
not "mining," and definitely not "textiles," etc.

After all, we're an advanced economy based on services, not production.
We are exporting our financial sector, we have no choice -- the very
nature of fiat money requires it.  The US dollar is essentially a pyramid
scheme.  Pyramid schemes remain viable only so long as the base
continues to expand, and we are using a combination of dollars and
soldiers to keep that base expanding; US foreign policy in a nutshell,
and, yes, you are very welcome :-).

No one wants profit levels down.  The problem is both commentators
and participants do not understand exactly why profit levels are down;
the sorry truth is money pumping produced the boom, not increased
productivity.  As far as productivity goes, that was all hype - the levels
of productivity claimed were created through the manipulation of statistics,
esp. CPI, the Consumer Price Index ("hedonic measures" which are to
economics what eubonics are to linguistics).  The proof of this is the
periodic
"corrections" to productivity the govt now issues regarding results during
the
boom.  I'm betting the gain ultimately proves to be about 1/4 (okay, maybe
1/2)
of a percent over historic year-on-year levels.

The false signals the money pumping boom created led to malinvestment, and
only now can the poor choices be seen by the average and hubris-soaked
participants.  But still, they don't really understand it - just read
Krugman
in the NYT to see how blind these people are, Krug's an absolute loon BTW,
an "embarrassment" actually, as one economist blurted out.

Regarding investment opportunities, the propagandists are out full force
24/7 on bubblevision trying to convince the public that US investment
opportunities are fabuloso. So, believe me, no one is trying to create that
idea or reality, just the opposite - they are all madly swimming from
reality.
Reality is the US is bankrupt, and the nation's future is now nearly totally
dependent on its ability as the holder of the reserve currency to loot the
world.  You are all essentially paying us a tax, and you can't escape so
long
as the dollar rules.  And the dollar will rule as long as you keep accepting
them from us, and thereby give them the only value they've got.  (I'm going
to post a good piece Gary North wrote just last week on this phenomenon;
you probably won't like his larger message, but he makes a number of very
interesting points quite well that you will find helpful.)

Deregulation doesn't allow the gambling; gambling is the nature of it.  When
people say they are "investing" in the market, it only shows they themselves
don't understand what they are doing.  They are speculating.  Period.
Always
have been, always will be.  You do not invest in shares, you speculate in
shares.  That's just a statement of fact.

Deregulation isn't the problem.  Regulation is the problem, because it is
regulations that
allow for the collusion of government - which enjoys coercive powers - and
favored
players seeking monopoly who finance the political class. (Remember, govt
produces
nothing and can give only what it first takes away.  Govt needs financing.)

The regs are contrived to favor the chosen ones, whoever they might
be.  For instance, if the Dems are in power, then trial lawyers, union
bosses
playing with their members' dues money, and other assorted scoundrels are
favored.
If the Republicans are in power, then energy producers, insurance companies
playing
with their shareholders money, and other assorted soundrels are favored.
Both
groups are favored by the regulations put in place under their patron
regimes, which
differ one from the other, by the regulations they impose, and mostly by
client groups.

An historic example of this is the Interstate Commerce Comm.

Do you know who was really behind the ICC?

The railroads!  Yet what was the rational for the establishment of the ICC?
To prevent
the carriers from price gauging -- yet once the ICC was formed, the big
carriers colluded
on rates and the ICC protected the scheme!!!  Competitors were promptly
bankrupted.
Another one is the FDA, which was formed to protect the public from their
local
butchers.  See, the big meat packing firms got themselves in a dither over
the quality
and durability of fresh meat, and encouraged the govt to regulate the
industry.  Otherwise,
the big boys said, local butchers might very well poison their customers
with tainted
meat.  Well, certainly, the possibility of local producers literally killing
their customers
(neighbors) required federal action.  The result?  Just what the big boys
wanted.  Locals
lost market share and were driven out of business due to the higher costs
regulation
introduced - they couldn't compete with the big boys and their govt pals.
So much for "the
progressives."  Regulations are another form of taxation, targeted taxation.

So, yes, JPMC is in collusion with govt.  Govt wants to hold down the price
of gold, JPMC says, "Yeah, we'll play."  The idea is that govt will bail
them out,
they are "too big to fail."  Or so the theory goes.  But the reality of
finance capitalism
as practiced today - in the wake of Rubin and Summers, and many ignoble
predecessors -
is to socialize risk and privatize reward.  Again, collusion.  Moral hazard,
you bet.
Is it all going to come a cropper?  Of course.  The only question is,
"When?"

Hope this helps.

Anne

PS  An interesting sidebar to this discussion is the position of Scty
O'Neil.  He's very
much out-of-favor and will probably be given the boot.  Wall Street was very
unhappy
with him from Day One.  Yes, he's awkward, and has a habit of saying
impolitic things,
but that's not the real problem.  He's the former CEO of Alcoa, he comes
from the
productive sector of the economy.  Yea gads, said Wall Street, who's gonna
protect us
financiers?  They've had it out for the man from the get-go.  And who had
two private,
closed-door meetings with Congress post 9-11.  Why none other than Robert
"Peso Bob"
Rubin!  Last I looked Peso Bob was head of Citibank Holding, was not US
Treasury Scty.
Do you think all those overweight congressmen and senators were desperate?
The
economy was about to go off a cliff before 9-11, and you bet they were all
begging Bobby
to restart his mojo.  It was shortly after those meetings that the market
began to
recover, to where today it's back by 40%.  Bobby's an odious man, no doubt,
but one sharp
trader!  Or, should I say, rigger?  Verily, I say unto you, he's fedgov's
dream boy.


----- Original Message -----
From: Rob Schaap <bantam@xxxxxxxxxxxxxxxx>
To: <a-list@xxxxxxxxxxxxxxxxxxx>
Sent: Wednesday, December 26, 2001 7:44 AM
Subject: Re: [A-List] JP Morgan's *$23tn* derivative bust?


> G'day Anne,
>
> So are we to conclude that (a) to protect JPMC's position (and hence that
of
> the world economy, if I may make so bold) it shall be necessary to persist
in
> keeping gold at 'artificially' low levels and the greenback thua at
> 'artificially' high levels; and (b) to protect the world economy it shall
be
> necessary to keep US producers uncompetitive, US investment opportunities
> down, and US profit levels down?
>
> Would this mean that (a) deregulated speculation has allowed the JPMC
> executives to gamble (anticipating policy settings they're big enough to
> affect rather than the 'fundamentals' an efficient market should be
reflecting
> - er, which they're also big enough to affect) for private windfalls at
public
> and global risk?  (b) that there is a massive structural moral hazard
problem
> at the heart of Big Finance (ie can JPMC be allowed to fail?)?  And (c)
That
> the world economy looks to be well buggered, whatever whoever does?
>
> Is the essential problem, as you see it, that gold was not 'free market'
> enough or that financial speculation have been too 'free'?
>
> Waddyareckon?
>
> Cheers,
> Rob.
>
> > Well, yes, the price of gold is the critical element in the overall
> > game -- as the gold market is the "alarm bell" that rings when
> > irresponsible money pumping becomes imprudent; today the
> > game is criminally imprudent.  Keynes's "Gibson's Paradox"
> > addresses the historic relationship between the price of gold
> > and interest rates (they are inverse of one another).  Larry Summers,
> > who wrote about this paradox with a co-author when he was still
> > just a humble man of Harvard (!) in the late 80s.  Summers concluded
> > the only way to beat it was for the govt to "fix" (rig) the price of
> > gold,
> > which is just what has happened.  Of course, the dollar as the reserve
> > currency is greatly affected by this game, thus Rubin's "strong
> > dollar,"
> > which is crushing US manufacturers and producers (esp. agriculture,
> > a California farmer can not sell an avacado as cheaply as one imported
> > into his own local markets!), and enabling the swift and relatively
> > easy
> > looting of foreign nations (Argentina, sacrified to the gold game due
> > to
> > their
> > peso/dollar peg is a real time demonstration of what the rigging can
> > do.)
> > But Morgan has taken it a step further, exploiting the
> > artificially-obtained
> > low gold price as the "underlying asset" which has allowed them to
> > place
> > interest rate derivative bets of $23 trillion - simply unbelievable. A
> > rising price of gold and/or volatility due to the action of the bond
> > vigilantes
> > in the market would ruin them.  So they are threatened by a free gold
> > market and/or current market action involving the constant threat to
> > those employing "shorts," i.e. a "short squeeze."  If gold is allowed
> > to find its natural level in the market, however, all hell truly
> > breaks
> > free for Morgan.  -A.
>
>