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Matt Taibbi: Everything Is Rigged

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I think we are all beginning to draw the same conclusion as Matt Taibbi.

rollingstoneConspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world’s largest banks may be fixing the prices of, well, just about everything.

You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that’s trillion, with a “t”) worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it “dwarfs by orders of magnitude any financial scam in the history of markets.”

That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world’s largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world’s largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.

Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It’s about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.

It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.

The Scam Wall Street Learned From the Mafia

Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks.

“It’s a double conspiracy,” says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. “It’s the height of criminality.”

Even the courts came down on the side of the market riggers, saying it was your fault if you were a victim. Thats like telling someone who got mugged “well you shouldn’t have had money in your pocket in the first place”.

The bad news didn’t stop with swaps and interest rates. In March, it also came out that two regulators – the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions – were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver prices. “Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks – many other benchmarks – are legit areas of inquiry,” CFTC Commissioner Bart Chilton said.

But the biggest shock came out of a federal courtroom at the end of March – though if you follow these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants’ incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place.

“A farce,” was one antitrust lawyer’s response to the eyebrow-raising dismissal.

“Incredible,” says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in antitrust cases.

All of these stories collectively pointed to the same thing: These banks, which already possess enormous power just by virtue of their financial holdings – in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation’s GDP – are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing. Moreover, it’s increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system.

If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it. Forget the Illuminati – this is the real thing, and it’s no secret. You can stare right at it, anytime you want.

We have given the bankers the opportunity to set markets based on their own data.

The banks found a loophole, a basic flaw in the machine. Across the financial system, there are places where prices or official indices are set based upon unverified data sent in by private banks and financial companies. In other words, we gave the players with incentives to game the system institutional roles in the economic infrastructure.

Libor, which measures the prices banks charge one another to borrow money, is a perfect example, not only of this basic flaw in the price-setting system but of the weakness in the regulatory framework supposedly policing it. Couple a voluntary reporting scheme with too-big-to-fail status and a revolving-door legal system, and what you get is unstoppable corruption.

Every morning, 18 of the world’s biggest banks submit data to an office in London about how much they believe they would have to pay to borrow from other banks. The 18 banks together are called the “Libor panel,” and when all of these data from all 18 panelist banks are collected, the numbers are averaged out. What emerges, every morning at 11:30 London time, are the daily Libor figures.

Banks submit numbers about borrowing in 10 different currencies across 15 different time periods, e.g., loans as short as one day and as long as one year. This mountain of bank-submitted data is used every day to create benchmark rates that affect the prices of everything from credit cards to mortgages to currencies to commercial loans (both short- and long-term) to swaps.

The Libor rigging was staggering and the fines when dished out were minor.

Hundreds of similar exchanges were uncovered when regulators like Britain’s Financial Services Authority and the U.S. Justice Department started burrowing into the befouled entrails of Libor. The documentary evidence of anti-competitive manipulation they found was so overwhelming that, to read it, one almost becomes embarrassed for the banks. “It’s just amazing how Libor fixing can make you that much money,” chirped one yen trader. “Pure manipulation going on,” wrote another.

………….

Michael Hausfeld of Hausfeld LLP, one of the lead lawyers for the plaintiffs in this Libor suit, declined to comment specifically on the dismissal. But he did talk about the significance of the Libor case and other manipulation cases now in the pipeline.

“It’s now evident that there is a ubiquitous culture among the banks to collude and cheat their customers as many times as they can in as many forms as they can conceive,” he said. “And that’s not just surmising. This is just based upon what they’ve been caught at.”

Greenberger says the lack of serious consequences for the Libor scandal has only made other kinds of manipulation more inevitable. “There’s no therapy like sending those who are used to wearing Gucci shoes to jail,” he says. “But when the attorney general says, ‘I don’t want to indict people,’ it’s the Wild West. There’s no law.”

After Libor rigging, a new market manipulation is coming to light, interest rate swaps.

The problem is, a number of markets feature the same infrastructural weakness that failed in the Libor mess. In the case of interest-rate swaps and the ISDAfix benchmark, the system is very similar to Libor, although the investigation into these markets reportedly focuses on some different types of improprieties.

Though interest-rate swaps are not widely understood outside the finance world, the root concept actually isn’t that hard. If you can imagine taking out a variable-rate mortgage and then paying a bank to make your loan payments fixed, you’ve got the basic idea of an interest-rate swap.

In practice, it might be a country like Greece or a regional government like Jefferson County, Alabama, that borrows money at a variable rate of interest, then later goes to a bank to “swap” that loan to a more predictable fixed rate. In its simplest form, the customer in a swap deal is usually paying a premium for the safety and security of fixed interest rates, while the firm selling the swap is usually betting that it knows more about future movements in interest rates than its customers.

Prices for interest-rate swaps are often based on ISDAfix, which, like Libor, is yet another of these privately calculated benchmarks. ISDAfix’s U.S. dollar rates are published every day, at 11:30 a.m. and 3:30 p.m., after a gang of the same usual-suspect megabanks (Bank of America, RBS, Deutsche, JPMorgan Chase, Barclays, etc.) submits information about bids and offers for swaps.

……….

The idea that prices in a $379 trillion market could be dependent on a desk of about 20 guys in New Jersey should tell you a lot about the absurdity of our financial infrastructure. The whole thing, in fact, has a darkly comic element to it. “It’s almost hilarious in the irony,” says David Frenk, director of research for Better Markets, a financial-reform advocacy group, “that they called it ISDAfix.”

So what about other market manipulation?

After scandals involving libor and, perhaps, ISDAfix, the question that should have everyone freaked out is this: What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we’re forced to trust.

“In all the over-the-counter markets, you don’t really have pricing except by a bunch of guys getting together,” Masters notes glumly.

That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.

All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world, and God knows what they’ll find. The European Federation of Financial Services Users wrote in an official EU survey last summer that all of these systems are ripe targets for manipulation. “In general,” it wrote, “those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion.”

Translation: When prices are set by companies that can profit by manipulating them, we’re fucked.

“You name it,” says Frenk. “Any of these benchmarks is a possibility for corruption.”

The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it. It’s not just stealing by reaching a hand into your pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever’s in your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it’s only just coming into view.

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Peter Schiff: US Inflation Figures Are Deliberately Misleading

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Peter Schiff explains how misleading the US inflation figures are, as it’s in the Governments interests to downplay the true figures.

Some of the main points covered:

  • Keynesian economists reference the Government CPI figures to justify QE but the true figures show high inflation.
  • Money printing is Inflation and results in rising prices.
  • Government methodology is designed to hide the effects of inflation.
  • Before the election a Fox poll showed people are most concerned with inflation (i.e. people don’t believe CPI figures)
  • Government CPI figures from 1970-1980 while compared to a basket of goods was accurate but was way lower from 2002 to 2012.
  • Government figures are wrong. An example of this is the CPI reports a rise of 37% in magazines and newspapers from 1999 to 2012 but when you look at the cover prices over that period, the average increase is 131%.
  • Government figures show healthcare costs only rose 4% from 2008 to 2012. That alone tells you the CPI is misleading. A Kaiser survey showed that premiums increased by over 24% in that period (5.5 times faster than the Government’s figures)
  • Healthcare costs only have a 1% weighting in the CPI figures despite the fact for medium families income it is almost 33% of their expenditure.
  • It’s the Governments vested interest to fool the world into believing there is no inflation. After all if they admitted true inflation then they couldn’t continue stimulating the economy and would be forced to deal with the deficit.
  • The clowns in Washington say the current inflation figures are too high and want to change the way its reported.
  • The true rate of inflation would be similar to the 1970s somewhere between 7-10%.
  • Foreigners are absorbing the excess dollars and buying US Treasuries causing a bond bubble (exporting inflation). Eventually they are going to want spend their dollars and goods will be going out and money coming in causing huge inflation.

KWN: London Trader Explains Latest Moves In Gold and Silver Market – Including Recent Takedown

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We are used to the gold market being controlled by vested interests but their ability to manipulate is now being seriously strained as Central Banks are lining up to buy the lows. In the case of the latest pullback from the $1800 level, the London Trader has pointed out that “We were within a hair of a major price explosion, and disorder in the gold market.” Checkout some of the comments from a series of 3 interviews given on King World News.

Physical demand is huge.

“In the past we have seen waterfall type declines when small speculators are heavily leveraged.  But the market has changed.  When the physical market was not as strong as it is now, these corrections would go $200 to $300 in gold.  As an example, we went from a previous peak of about $1,900 down to around $1,500, or roughly $400 in that case.”

“We are not going to see that this time.  It’s not going to happen that way this time.  Back then, the central bank buyers and these sovereign buyers were quite happy to sit and wait for a lower price.  Now they are not.  These buyers want out of their dollars and euros and they want physical gold and silver.

In the past, central banks have had the luxury of sitting back and waiting for the price to come to them.  Right now you have different central banks and different sovereigns competing with each other to buy gold, and in some cases silver as well.

There are simply too many buyers right now, and the competition to buy physical is extremely fierce right now….

“We are continuing to see the bids get raised in these markets.  This has become a competition for the central banks and sovereign buyers to get rid of their dollars and euros as fast as they can, and swap it for something of real value.

How will the physical orders be filled?

Meanwhile, the bullion banks run the COMEX and they are not stupid.  They are going to ring the register on this managed money.  The commercials have been doing extremely heavy short covering into the weak-handed longs which have been selling, but they are also covering into fresh shorts from speculators and managed money.

 The question now is, where is the inventory going to come from to fill all of these physical orders?  The physical market is already tight as a drum.  I would be surprised if there is much more downside in this environment.  Yes there is this game of the commercials covering into weak-handed longs, and fresh shorts, but there is reality here, and reality is the physical market, and these buyers have moved their orders higher, and will continue to do so.

In the past India was the largest buyer of physical gold and when they didnt like the price they would sit back and wait for the price to pull back. Now plenty of buyers are lining up including China and Central Banks.

India would just say, ‘We’re the biggest gold buyers in the world, so we will just step back and wait for our price.  We will wait for our price because we already have plenty of gold here.’  But now you’ve got too many competing entities all trying to acquire physical gold. 

Suddenly China has overtaken India.  So India doesn’t have the luxury of sitting back.  India is back in the market now.  India is back buying in the mid-$1,700s.  India was back yesterday.  India is back today.  They need to buy gold and they are stepping ahead of other entities and becoming a large buyer.

The Indians are not stupid.  They know the commercials harvest the weak hands on the COMEX.  Once they see open interest get to a certain level, they fully expect a reaction in the price.  But your readers have to understand that there isn’t going to be a ‘correction’ this time, there will only be a ‘pull back.’  There is a big difference between a pull back and a correction.

The reasons for this is there are just layers of central bank and sovereign physical buy orders in here right now.  Some of it has already been filled.  There has been tonnage filled at higher levels than we are currently trading.  As soon as we went through $1,760, we started to see central bank buying.

Bullion Banks had to stop the latest price rise

“Why do you think the bullion banks threw everything they had at the gold market at the $1,800 level?”  The answer, “We were within a hair of a major price explosion, and disorder in the gold market.”

“As gold was heading up to the $1,800 level recently, we were very close to a situation where we were going to see a commercial capitulation.  Some of the weaker commercials were already starting to bail out of their shorts.” 

“You have to understand that some of these bullion banks are more than happy to turn on these less powerful commercial shorts.  They view them as weaker hands.  Yes they are all commercials, but some of them are a lot weaker than the bullion banks. 

But there does come a point where the bullion banks say, ‘We’ve got to protect those stops.’  We had already gotten to the point where some stops were being tripped from those weaker commercial shorts….

“It got to the point where the vast majority of stops were located near the $1,810 level.  If gold would have pierced $1,810, that would have tripped the vast majority of all of those weaker, underwater commercial short positions out of the market.  This would have created enough of a short squeeze that we would have seen new highs in gold very rapidly.

 This would have been a literal failure by these commercials (commercial signal failure).  The gold market got to within $10 of their stops.  Why do you think the bullion banks threw everything they had at the gold market at the $1,800 level?  We were within a hair of a major price explosion, and disorder in the gold market.

 They (bullion banks) wanted to protect those stops, even though they weren’t their own stops.  They needed to do this in order to stop those weaker commercials from capitulating.  Now everyone is getting bearish, and when the physical market is closed, we are seeing some shenanigans such as after hours price drops in access market.

 So we are seeing more weak hands entering the short side of the gold market, and the commercials have been covering not only into the small speculators liquidating, but also into these fresh shorts.  The commercials are doing this in a very, very calculated way.

 hat readers need to take away from this, is we were dangerously close to a commercial signal failure and a major price spike in gold.  Even though the commercials have alleviated that concern for the time being, the possibility still exists that we could see a major price spike when the $1,810 area is pierced on the upside in gold.”

LBMA is a massive Ponzi scheme.

On July 20th, the ‘London Trader’ told King World News, “The LBMA’s price fixing scheme is coming to an end.”  Gold quickly rose $200 after that interview.  Today the source now tells KWN the LBMA has, “… incredibly large quantities of paper silver and gold being traded each day, but the real problem here is there is virtually nothing to back this up.”  The source also said, “This is all part of the LBMA Ponzi scheme.”

 

“The physical silver market is extraordinarily tight.  It’s insanely tight right now.  In other words, there isn’t any for sale.  We are seeing large premiums in places like Shanghai.  If a buyer wants size in physical silver, you are going to have to wait a long time.”

“When the commercials see a large order enter the market, they just turn the market around.  They don’t have that quantity of silver in inventory.  Every day the London Bullion Market Association (LBMA) clears 5,000 tons of silver, and between 600 and 700 tons of gold through paper trading.  When you think about it, that is a ridiculous amount.

This is all part of the LBMA Ponzi scheme.  You have these incredibly large quantities of paper silver and gold being traded each day, but the real problem here is there is virtually nothing to back this up….

So if I turn up to the LBMA and I say, ‘Out of your 5,000 tons of silver that you clear every day, I just want 300 tons.’  It shouldn’t be a problem.  It shouldn’t even cause a ripple.  But when you think about it, and that physical silver is leveraged 100 to 1, that’s more than the annual mine production of silver for the entire year when you do the math, including the leverage implications.

Of course they can’t deliver the 300 tons.  They don’t have it.  So when you actually go and send a Brinks truck to go and pick this silver up at the back door of Scotia Mocatta, you aren’t going to get it.  An order like that takes at least two months to get filled.

Too many large physical orders waiting to be filled.

 The problem right now is that there is such a large overhang of orders in both of these markets, and specifically silver.  Every day there are people turning up at the fix to buy physical, regardless of price.  As the markets are taken down, it exponentially increases the amount of physical silver that needs to be filled.

I would also add that the local traders are heavily short now.  So we are seeing a large short position building in silver on this price decline.  And don’t forget, the COT reports are groomed.  I don’t trust them. 

So when they see a large physical order enter the market, that’s the point where the commercials start covering.  Remember, the gold and silver markets on the COMEX are all about chasing out leveraged longs.  That’s all that market is about right now.

But we will see a day when silver can no longer be capped through paper trading and various games being played at the LBMA and COMEX, and in the end, it will be the physical market which will be the deciding factor.  At that point you will see the real price of silver for the first time, and it will leave people in disbelief.”

 

Sources:

  1. London Trader – Competition To Buy Physical Gold Is Fierce,
  2. London Trader – Bullion Banks Had To Halt Gold’s Advance
  3. London Trader – The LBMA Is A Massive Ponzi Scheme

US: That Explains The Jobless Claims

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Laughable 😉 a whole state missed

Another Example Of Rigging The Stock Market

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High frequency trading on steroids. Nanex spotted the trading activity when 4% of the traffic volume were for orders by a computer algorithm where none of them ended in a single trade. Quite clearly the intention was to move the market in a certain direction. It’s just another example that the whole financial system is rotten to the core.

A single mysterious computer program that placed orders — and then subsequently canceled them — made up 4 percent of all quote traffic in the U.S. stock market last week, according to the top tracker of high-frequency trading activity. The motive of the algorithm is still unclear.

The program placed orders in 25-millisecond bursts involving about 500 stocks, according to Nanex, a market data firm. The algorithm never executed a single trade, and it abruptly ended at about 10:30 a.m. ET Friday.

“Just goes to show you how just one person can have such an outsized impact on the market,” said Eric Hunsader, head of Nanex and the No. 1 detector of trading anomalies watching Wall Street today. “Exchanges are just not monitoring it.”

Hunsader’s sonar picked up that this was a single high-frequency trader after seeing the program’s pattern (200 fake quotes, then 400, then 1,000) repeated over and over. Also, it was being routed from the same place, the Nasdaq

 “My guess is that the algo was testing the market, as high-frequency frequently does,” says Jon Najarian, co-founder of TradeMonster.com. “As soon as they add bandwidth, the HFT crowd sees how quickly they can top out to create latency.” (Read More: Unclear What Caused Kraft Spike: Nanex Founder.)

Translation: The ultimate goal of many of these programs is to gum up the system so it slows down the quote feed to others and allows the computer traders (with their co-located servers at the exchanges) to gain a money-making arbitrage opportunity.

The scariest part of this single program was that its millions of quotes accounted for 10 percent of the bandwidth that is allowed for trading on any given day, according to Nanex. (The size of the bandwidth pipe is determined by a group made up of the exchanges called the Consolidated Quote System.)

Source: CNBC

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