<font color="red" size="4"><b>I SUSPECT GOLD AND DERIVATIVES BAD DEBTS MAY SOON BE CANCELLED</b></font>
We have to ask whether the money masters have allowed the gold carry trade and derivatives markets to go out of control, with the full intention of coming forward at the critical breaking point of the markets with a justification for canceling the gold and derivatives bad debts of the banking system.
=====
On the day of the September 11th disaster, in fact, as the planes were tearing into the twin towers of the One World Trade Centre, I was working on the hereon following review and summary of an important essay by market analyst Adam Hamilton, 'The JPM Derivatives Monster'.
I have been reluctant to post my review and summary because when I read the original and what I have written about it, I have a sinking feeling in my stomach that it is too late to normalise the market.
<font color="red" size="3"><b>I SUSPECT THAT THE INSIDERS KNEW THAT THIS WOULD BE THE CASE ALL ALONG. AND I DO NOT REALLY WANT TO ACCEPT THAT.</b></font>
My gut feeling tells me that the banking fraternity and major world treasury departments have known since 1995 at least that the dollar's days are numbered, and they have been propping it up through the gold carry trade and other means related to derivatives trading. For a coming moment in time when it will not matter anymore. For a coming moment in time when the gold loan and derivatives slates of the banking system will be wiped clean. Just like that. In the national interest.
Not the debts of the people wiped clean; nor even the debts of the nations. No, just the derivatives debts wiped clean and all gold debts to the central banks cancelled. Something like that. In the national interests of the U.S., Britain and Germany mainly.
In justification, it will be claimed that the derivatives markets have come unstuck because of the disaster that struck at the heart of the world's financial system. This will involve a major deception. The review and summary of Adam Hamilton's essay, which I was working on when the disaster struck, shows clearly that the derivatives trade was ready to come unstuck of itself, and that very soon.
The gold tonnes that are being sold at rock bottom prices and lent out by central banks to underpin the derivatives market belong to the people. They are part of the national reserves. There is a very good chance that the gold that has been lent out, or most of it, will not be returned. So the central banks will be left sitting with dollar reserves mainly - a dollar that is grossly overvalued and must, must and will, be reduced to the equivalent of a third world currency, just as the ruble was in the 1990s, sometime soon rather than later. Or the dollar will go through a phony, pre-planned death and resurrection experience, into a totally new global currency for the New World Order that George Bush and company are gunning for.
--
Now here is the review and summary I wrote on September 11 of <font color="red" size="4">'THE JPM DERIVATIVES MONSTER' BY ADAM HAMILTON</font>
Two of the largest commercial banks in the U.S., indeed the world, J.P. Morgan and Chase Manhattan merged some months back to form a superbank, J.P.Morgan Chase and Co., or JPM for short. It is beginning to look as though JPM may have been formed to play the derivatives markets more forcibly, and especially the gold and the interest rate derivatives markets, and that it is now riding for a spectacular fall.
For an easy to follow understanding of the nature of derivatives, an account of the big derivatives wipe-outs of the 1990s and the extent to which the folk at JPM are up to the eyeballs in digitised derivatives, I strongly recommend the newly posted essay by market analyst Adam Hamilton at <a href="http://www.zealllc.com/" target="web">www.zealllc.com</a> (or at <a href="http://www.gold-eagle.com/" target="web">www.gold-eagle.com</a> editorials and the Kiki Table at <a href="http://www.lemetropolecafe.com/" target="web">www.lemetrepolecafe.com</a>).
In 'The JPM Derivatives Monster' Adam Hamilton reveals that the illegal gold price suppression, which has been exposed by the Gold Anti-Trust Action Committee GATA, is not just about upholding a grossly over-valued dollar; it also appears to be part of a game play by which massive derivatives interest rate speculations are deemed to be made 'risk free'.
Hamilton sources an essay by the litigate Reginald Howe in the HOWE vs BIS anti-trust action. In the essay, about which more later, Howe shows that U.S. Treasury Secretary Lawrence Summers, by his own writings, was well aware of John Maynard Keynes' 'Gibson's Paradox'.
According to 'Gibson's Paradox', there is a "rock-solid inverse relationship between gold and real interest rates in a free market". And Lawrence Summers, during his time at the Treasury Department, from 1995 to 1999, will in all likelihood have encouraged a strong belief in 'Gibson's Paradox' at J.P. Morgan, Chase Manhattan, Goldman Sachs, et al.
So strong has been the belief in 'Gibson's Paradox', a handful of commercial and investment banks are now owing the equivalent of over several years of gold production - that is, gold which they have borrowed from the central banks of the world mainly to keep the price of gold suppressed. The suggestion is that they have continued borrowing, selling and recycling the gold loans to underpin interest rate and currency derivatives speculations of unimaginable magnitude.
<b>JPM's SUPER-COLOSSAL DERIVATIVES POSITION</b>
It is very hard to believe that the total notional derivatives positions of U.S. commercial banks and trusts is $43.9 trillion dollars. That figure does not include investment banks like Goldman Sachs, which do not have to supply figures to the OCC Office of the Comptroller of the Currency, a bureau of the US Treasury. The total U.S. derivatives position could be over $80 trillion, and according to some estimates, the total world derivatives position is now well over $150 trillion.
Whichever of these figures you choose for comparison purposes, you will agree, I am sure, that JPM's control of $26.3 trillion worth of derivatives in notional terms has to be read as super-colossal!
To underscore the comparisons, just one trillion dollars is about equal to $3,700 per every man, woman and child in the U.S. The sum total of all recorded, money measured economic activity in the U.S. is a little over $10 trillion, and in the world around $40 trillion. The market value of the 500 best and biggest companies in the United States, the S&P 500, is now around $10 trillion, and the total U.S. debt is now well over $18 trillion.
Adam Hamilton explains in very easy to read terms in his essay 'The JPM Derivatives Monster', how we are to understand the 'notional value' of a derivatives contract. The notional value or 'notional amount' is not the amount of money that changes hands in a derivatives transaction. It is "a quasi-fictional number that illustrates how much capital a given derivative effectively controls," and it is used to calculate the actual payments that must be made.
<b>WHAT IS AT STAKE?</b>
How much has JPM put on the line, so to speak, to cover a derivatives position by which it effectively controls 'capital' of $26.3 trillion? I should think just about every asset it possesses, including the silver cutlery in the directors' dining room. For $26.3 trillion ($26,376 billion to be more precise) represents $621 for every single dollar of JPM's $42 billion equity balance, and $43 for every dollar of its mainly loan assets.
Leverage of that order is mind-boggling even for already boggled minds.
You may recall how the derivatives debacle of one rogue trader, Nick Leeson, brought down the 223 year-old Barings Bank in 1995. The capital of Barings was not $42 billion, but 28 times less at under $1.5 billion; and the notional value of Nick Leeson's failed derivatives bets, that the Japanese Nikkei index would rise by a few percentage points, was not $26,376 billion but a comparatively paltry .09 percent of that, at about $21 billion!
The Nick Leeson derivatives misadventure was just one amongst several derivatives debacles in the 1990s. The most spectacular was at Long Term Capital Management in 1998. It took a $3.6 billion bail-out, engineered by the U.S. Fed to prevent the LTCM collapse from 'dedigitalising' the entire global financial system (which is a perhaps more with-it way of saying, 'shaking Wall Street to its foundations').
[Later note: The foregoing is as I wrote it on September 11, not knowing that Wall Street was being shaken to its foundations as I wrote - BW, 9.19]
Note, amongst those helping to build the sophisticated derivatives trading models at LTCM were two Nobel-prize winning economists who, as Adam Hamilton puts it, "understood more about markets and volatility than pretty much everyone else on the planet." Yet, as liquidity around the world began to dry up following on Russia's default on its debts in August 1998, the LTCM capital base of $3 billion eroded away by $100 million to $500 million A DAY! In no time at all, the entire capital base was wiped out to honour failed derivatives bets of $1,250 billion - a 'notional amount' equal to not even 5 percent of JPM's derivatives position.
"In financial circles10 to 1 leverage is considered very aggressive," writes Hamilton, "100 to 1 is considered to be in the kamikaze realm, but we don't ever recall hearing about large-scale leveraged operations exceeding 100 to 1 outside of the horrible example of the doomed super hedge fund Long Term Capital Management." Not before JPM, that is.
<b>JPM ARE THE UTTERLY DOMINANT DERIVATIVES PLAYERS</b>
J.P. Morgan and Chase Manhattan were both already heavily engaged in derivatives trading before they amalgamated. Now the merged JPM is the utterly dominant player amongst the 359 U.S. commercial banks and trusts, with 64 percent of the interest rate derivatives market, 49 percent of the foreign exchange market, 68 percent of the equity derivatives market, and 62 percent of the gold derivatives market - while holding just 12.6 percent of the combined bank assets.
Hamilton writes: "JPM's management, for whatever reasons, has effectively built up a derivates powerhouse that has almost cornered the entire US commercial bank and trust derivatives market".
Why?
I suggested in my introductory paragraphs that the answer may relate to 'Gibson's Paradox', by which there is an inverse relationship between the price of gold and real interest rates.
On his way to elaborating on this, Hamilton points out that only a trivial two tenths of one percent of JPM's total derivatives portfolio is deployed in the gold market. The $56.8 billion in gold derivatives nevertheless represents more than the capital value of the entire gold mining industry, at about $50 billion, and about two and a half years of gold production, at today's gold price of from $270 to $275 an ounce - i.e. a total of almost 6,500 tonnes of gold.
Hamilton asks, "Why is a sophisticated superbank like JPM even interested in the small and devastated gold market, let alone motivated enough to maintain derivatives exposure equal to more than 6,400 tonnes of gold?" And with regard to interest rates, Hamilton notes that "JPM has an implied leverage ratio of notional interest rate derivatives exposure to stockholders' equity of 422 to 1". That is $17,700 billion.
This is where 'Gibson's Paradox' comes into the reckoning.
In an article 'GoldGate's Real Motive?', posted at the Le Metropole Cafe's James Joyce Table on May 30, ace researcher and analyst Michael Bolser offered the stunning tentative conclusion that a suppressed or shackled-down gold price might be a necessary prerequisite to JPM assuming enormous amounts of interest rate derivatives. Then, on 13 August, Reginald Howe took up the theme in a fascinating commentary entitled 'Gibson's Paradox Revisited: Professor Summers Analyses Gold Prices', at <a href="http://www.goldensextant.com/" target="web">www.GoldenSextant.com</a>.
No doubt 'Gibson's Paradox', as originally formulated by that great economist John Maynard Keynes, will be presented in the GATA supported Howe vs BIS lawsuit which was filed on December 7 and which will be heard before a federal judge in Boston, Massachusetts on October 9, when defendants will present their arguments in support of their Motions to Dismiss.
For Hamilton, "Gibson's Paradox helped to reconcile the puzzle and answer nagging questions about JPM's gargantuan interest rate derivatives position and how it could relate to the active management of the price of gold." Hamilton set down his conclusion in an essay 'Real Rates and Gold', posted at <a href="http://www.zealllc.com/" target="web">www.zealllc.com</a>.
<b>SO THERE YOU HAVE IT, IN BRIEF</b>
Would Keynes turn in his grave, I wonder, if he realised how belief in his 'Gibson's Paradox' has turned a supposedly safe conservative blue-chip elite Wall Street bank into a hyper-leveraged mega hedge fund with over 600 times implied leverage on stockholders' equity?
JPM currently has something like 2,700 large institutional shareholders who hold almost 61 percent of its common stock. Hamilton asks: "Do the managers of these mutual funds and pension funds understand that JPM management has built the biggest most highly-leveraged derivatives pyramid in the history of the world per US government OCC reports? Do fund managers understand the inherent risks in leveraging capital hundreds of times over?"
Having once suffered the gambling virus, I can vouchsafe that one's understanding of risks diminishes in inverse proportion to how well one is doing when winning and how certain one is that one has finally found the right formula for breaking the house. I also had a daddy to cover my losses.
<font color="red" size="3"><b>It seems that the gambling virus has hit hard at JPM. The inevitable downfall, when it comes, will be spectacular, to say the least. Who is going to cover those losses?</b></font>
[later - September 19: Or are the losses simply going to be cancelled out, as part of the price to pay for the terrible tragedy of September 11?]
<a href="http://www.gold-eagle.com/editorials_01/wegerif092501.html" target="web">Gold Eagle Link</a>
Boudewijn Wegerif
September 25, 2001
<a href="mailto:bw@jak.se">bw@jak.se</a>
<i>Fair use principals apply!</i>
We have to ask whether the money masters have allowed the gold carry trade and derivatives markets to go out of control, with the full intention of coming forward at the critical breaking point of the markets with a justification for canceling the gold and derivatives bad debts of the banking system.
=====
On the day of the September 11th disaster, in fact, as the planes were tearing into the twin towers of the One World Trade Centre, I was working on the hereon following review and summary of an important essay by market analyst Adam Hamilton, 'The JPM Derivatives Monster'.
I have been reluctant to post my review and summary because when I read the original and what I have written about it, I have a sinking feeling in my stomach that it is too late to normalise the market.
<font color="red" size="3"><b>I SUSPECT THAT THE INSIDERS KNEW THAT THIS WOULD BE THE CASE ALL ALONG. AND I DO NOT REALLY WANT TO ACCEPT THAT.</b></font>
My gut feeling tells me that the banking fraternity and major world treasury departments have known since 1995 at least that the dollar's days are numbered, and they have been propping it up through the gold carry trade and other means related to derivatives trading. For a coming moment in time when it will not matter anymore. For a coming moment in time when the gold loan and derivatives slates of the banking system will be wiped clean. Just like that. In the national interest.
Not the debts of the people wiped clean; nor even the debts of the nations. No, just the derivatives debts wiped clean and all gold debts to the central banks cancelled. Something like that. In the national interests of the U.S., Britain and Germany mainly.
In justification, it will be claimed that the derivatives markets have come unstuck because of the disaster that struck at the heart of the world's financial system. This will involve a major deception. The review and summary of Adam Hamilton's essay, which I was working on when the disaster struck, shows clearly that the derivatives trade was ready to come unstuck of itself, and that very soon.
The gold tonnes that are being sold at rock bottom prices and lent out by central banks to underpin the derivatives market belong to the people. They are part of the national reserves. There is a very good chance that the gold that has been lent out, or most of it, will not be returned. So the central banks will be left sitting with dollar reserves mainly - a dollar that is grossly overvalued and must, must and will, be reduced to the equivalent of a third world currency, just as the ruble was in the 1990s, sometime soon rather than later. Or the dollar will go through a phony, pre-planned death and resurrection experience, into a totally new global currency for the New World Order that George Bush and company are gunning for.
--
Now here is the review and summary I wrote on September 11 of <font color="red" size="4">'THE JPM DERIVATIVES MONSTER' BY ADAM HAMILTON</font>
Two of the largest commercial banks in the U.S., indeed the world, J.P. Morgan and Chase Manhattan merged some months back to form a superbank, J.P.Morgan Chase and Co., or JPM for short. It is beginning to look as though JPM may have been formed to play the derivatives markets more forcibly, and especially the gold and the interest rate derivatives markets, and that it is now riding for a spectacular fall.
For an easy to follow understanding of the nature of derivatives, an account of the big derivatives wipe-outs of the 1990s and the extent to which the folk at JPM are up to the eyeballs in digitised derivatives, I strongly recommend the newly posted essay by market analyst Adam Hamilton at <a href="http://www.zealllc.com/" target="web">www.zealllc.com</a> (or at <a href="http://www.gold-eagle.com/" target="web">www.gold-eagle.com</a> editorials and the Kiki Table at <a href="http://www.lemetropolecafe.com/" target="web">www.lemetrepolecafe.com</a>).
In 'The JPM Derivatives Monster' Adam Hamilton reveals that the illegal gold price suppression, which has been exposed by the Gold Anti-Trust Action Committee GATA, is not just about upholding a grossly over-valued dollar; it also appears to be part of a game play by which massive derivatives interest rate speculations are deemed to be made 'risk free'.
Hamilton sources an essay by the litigate Reginald Howe in the HOWE vs BIS anti-trust action. In the essay, about which more later, Howe shows that U.S. Treasury Secretary Lawrence Summers, by his own writings, was well aware of John Maynard Keynes' 'Gibson's Paradox'.
According to 'Gibson's Paradox', there is a "rock-solid inverse relationship between gold and real interest rates in a free market". And Lawrence Summers, during his time at the Treasury Department, from 1995 to 1999, will in all likelihood have encouraged a strong belief in 'Gibson's Paradox' at J.P. Morgan, Chase Manhattan, Goldman Sachs, et al.
So strong has been the belief in 'Gibson's Paradox', a handful of commercial and investment banks are now owing the equivalent of over several years of gold production - that is, gold which they have borrowed from the central banks of the world mainly to keep the price of gold suppressed. The suggestion is that they have continued borrowing, selling and recycling the gold loans to underpin interest rate and currency derivatives speculations of unimaginable magnitude.
<b>JPM's SUPER-COLOSSAL DERIVATIVES POSITION</b>
It is very hard to believe that the total notional derivatives positions of U.S. commercial banks and trusts is $43.9 trillion dollars. That figure does not include investment banks like Goldman Sachs, which do not have to supply figures to the OCC Office of the Comptroller of the Currency, a bureau of the US Treasury. The total U.S. derivatives position could be over $80 trillion, and according to some estimates, the total world derivatives position is now well over $150 trillion.
Whichever of these figures you choose for comparison purposes, you will agree, I am sure, that JPM's control of $26.3 trillion worth of derivatives in notional terms has to be read as super-colossal!
To underscore the comparisons, just one trillion dollars is about equal to $3,700 per every man, woman and child in the U.S. The sum total of all recorded, money measured economic activity in the U.S. is a little over $10 trillion, and in the world around $40 trillion. The market value of the 500 best and biggest companies in the United States, the S&P 500, is now around $10 trillion, and the total U.S. debt is now well over $18 trillion.
Adam Hamilton explains in very easy to read terms in his essay 'The JPM Derivatives Monster', how we are to understand the 'notional value' of a derivatives contract. The notional value or 'notional amount' is not the amount of money that changes hands in a derivatives transaction. It is "a quasi-fictional number that illustrates how much capital a given derivative effectively controls," and it is used to calculate the actual payments that must be made.
<b>WHAT IS AT STAKE?</b>
How much has JPM put on the line, so to speak, to cover a derivatives position by which it effectively controls 'capital' of $26.3 trillion? I should think just about every asset it possesses, including the silver cutlery in the directors' dining room. For $26.3 trillion ($26,376 billion to be more precise) represents $621 for every single dollar of JPM's $42 billion equity balance, and $43 for every dollar of its mainly loan assets.
Leverage of that order is mind-boggling even for already boggled minds.
You may recall how the derivatives debacle of one rogue trader, Nick Leeson, brought down the 223 year-old Barings Bank in 1995. The capital of Barings was not $42 billion, but 28 times less at under $1.5 billion; and the notional value of Nick Leeson's failed derivatives bets, that the Japanese Nikkei index would rise by a few percentage points, was not $26,376 billion but a comparatively paltry .09 percent of that, at about $21 billion!
The Nick Leeson derivatives misadventure was just one amongst several derivatives debacles in the 1990s. The most spectacular was at Long Term Capital Management in 1998. It took a $3.6 billion bail-out, engineered by the U.S. Fed to prevent the LTCM collapse from 'dedigitalising' the entire global financial system (which is a perhaps more with-it way of saying, 'shaking Wall Street to its foundations').
[Later note: The foregoing is as I wrote it on September 11, not knowing that Wall Street was being shaken to its foundations as I wrote - BW, 9.19]
Note, amongst those helping to build the sophisticated derivatives trading models at LTCM were two Nobel-prize winning economists who, as Adam Hamilton puts it, "understood more about markets and volatility than pretty much everyone else on the planet." Yet, as liquidity around the world began to dry up following on Russia's default on its debts in August 1998, the LTCM capital base of $3 billion eroded away by $100 million to $500 million A DAY! In no time at all, the entire capital base was wiped out to honour failed derivatives bets of $1,250 billion - a 'notional amount' equal to not even 5 percent of JPM's derivatives position.
"In financial circles10 to 1 leverage is considered very aggressive," writes Hamilton, "100 to 1 is considered to be in the kamikaze realm, but we don't ever recall hearing about large-scale leveraged operations exceeding 100 to 1 outside of the horrible example of the doomed super hedge fund Long Term Capital Management." Not before JPM, that is.
<b>JPM ARE THE UTTERLY DOMINANT DERIVATIVES PLAYERS</b>
J.P. Morgan and Chase Manhattan were both already heavily engaged in derivatives trading before they amalgamated. Now the merged JPM is the utterly dominant player amongst the 359 U.S. commercial banks and trusts, with 64 percent of the interest rate derivatives market, 49 percent of the foreign exchange market, 68 percent of the equity derivatives market, and 62 percent of the gold derivatives market - while holding just 12.6 percent of the combined bank assets.
Hamilton writes: "JPM's management, for whatever reasons, has effectively built up a derivates powerhouse that has almost cornered the entire US commercial bank and trust derivatives market".
Why?
I suggested in my introductory paragraphs that the answer may relate to 'Gibson's Paradox', by which there is an inverse relationship between the price of gold and real interest rates.
On his way to elaborating on this, Hamilton points out that only a trivial two tenths of one percent of JPM's total derivatives portfolio is deployed in the gold market. The $56.8 billion in gold derivatives nevertheless represents more than the capital value of the entire gold mining industry, at about $50 billion, and about two and a half years of gold production, at today's gold price of from $270 to $275 an ounce - i.e. a total of almost 6,500 tonnes of gold.
Hamilton asks, "Why is a sophisticated superbank like JPM even interested in the small and devastated gold market, let alone motivated enough to maintain derivatives exposure equal to more than 6,400 tonnes of gold?" And with regard to interest rates, Hamilton notes that "JPM has an implied leverage ratio of notional interest rate derivatives exposure to stockholders' equity of 422 to 1". That is $17,700 billion.
This is where 'Gibson's Paradox' comes into the reckoning.
In an article 'GoldGate's Real Motive?', posted at the Le Metropole Cafe's James Joyce Table on May 30, ace researcher and analyst Michael Bolser offered the stunning tentative conclusion that a suppressed or shackled-down gold price might be a necessary prerequisite to JPM assuming enormous amounts of interest rate derivatives. Then, on 13 August, Reginald Howe took up the theme in a fascinating commentary entitled 'Gibson's Paradox Revisited: Professor Summers Analyses Gold Prices', at <a href="http://www.goldensextant.com/" target="web">www.GoldenSextant.com</a>.
No doubt 'Gibson's Paradox', as originally formulated by that great economist John Maynard Keynes, will be presented in the GATA supported Howe vs BIS lawsuit which was filed on December 7 and which will be heard before a federal judge in Boston, Massachusetts on October 9, when defendants will present their arguments in support of their Motions to Dismiss.
For Hamilton, "Gibson's Paradox helped to reconcile the puzzle and answer nagging questions about JPM's gargantuan interest rate derivatives position and how it could relate to the active management of the price of gold." Hamilton set down his conclusion in an essay 'Real Rates and Gold', posted at <a href="http://www.zealllc.com/" target="web">www.zealllc.com</a>.
<b>SO THERE YOU HAVE IT, IN BRIEF</b>
Would Keynes turn in his grave, I wonder, if he realised how belief in his 'Gibson's Paradox' has turned a supposedly safe conservative blue-chip elite Wall Street bank into a hyper-leveraged mega hedge fund with over 600 times implied leverage on stockholders' equity?
JPM currently has something like 2,700 large institutional shareholders who hold almost 61 percent of its common stock. Hamilton asks: "Do the managers of these mutual funds and pension funds understand that JPM management has built the biggest most highly-leveraged derivatives pyramid in the history of the world per US government OCC reports? Do fund managers understand the inherent risks in leveraging capital hundreds of times over?"
Having once suffered the gambling virus, I can vouchsafe that one's understanding of risks diminishes in inverse proportion to how well one is doing when winning and how certain one is that one has finally found the right formula for breaking the house. I also had a daddy to cover my losses.
<font color="red" size="3"><b>It seems that the gambling virus has hit hard at JPM. The inevitable downfall, when it comes, will be spectacular, to say the least. Who is going to cover those losses?</b></font>
[later - September 19: Or are the losses simply going to be cancelled out, as part of the price to pay for the terrible tragedy of September 11?]
<a href="http://www.gold-eagle.com/editorials_01/wegerif092501.html" target="web">Gold Eagle Link</a>
Boudewijn Wegerif
September 25, 2001
<a href="mailto:bw@jak.se">bw@jak.se</a>
<i>Fair use principals apply!</i>
