How loans and mortgages by banks are fraud

Revolution Not

UN: Drug money saved banks

I like the casual tone of this article.  It’s like the 800 lb gorilla in the room that people can’t ignore any longer.  We already know about CIA South American coke operations dating back to Iran-Contra and ongoing even now, US troops guarding opium fields in afghanistan, and CIA drug dealing activities in Vietnam.  Drugs have long been a major source of funding for black-budget NWO operations, and its risky to store and move billions in cash.

You think the banks care that they’re laundering money that your daughter stole from you to buy a bag of coke that was shipped in by the CIA, or that the money will be used to kill innocent people to further the NWO agenda?

Rajeev Syal – The Observer
Sunday 13 December 2009

Drugs and crime chief says $352bn in criminal proceeds was effectively laundered by financial institutions

Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations‘ drugs and crime tsar has told the Observer.

Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were “the only liquid investment capital” available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

This will raise questions about crime’s influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. “In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor,” he said.

Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.

“Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities… There were signs that some banks were rescued that way.” Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.

“That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was,” he said.

The IMF estimated that large US and European banks lost more than $1tn on toxic assets and from bad loans from January 2007 to September 2009 and more than 200 mortgage lenders went bankrupt. Many major institutions either failed, were acquired under duress, or were subject to government takeover.

Gangs are now believed to make most of their profits from the drugs trade and are estimated to be worth £352bn, the UN says. They have traditionally kept proceeds in cash or moved it offshore to hide it from the authorities. It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US.

British bankers would want to see any evidence that Costa has to back his claims. A British Bankers’ Association spokesman said: “We have not been party to any regulatory dialogue that would support a theory of this kind. There was clearly a lack of liquidity in the system and to a large degree this was filled by the intervention of central banks.”

How much imaginary gold has been sold?

GATA
Adrian Douglas
Friday, October 16, 2009

On October 10 I published an article that postulated that the gold market is a Ponzi scheme because it sells gold that doesn’t exist by implementation of the principles of fractional reserve banking. (See http://www.gata.org/node/7887.) Since writing that article further information has come to light that supports this claim and allows an estimate of how much gold has been sold that doesn’t exist if the owners of the gold ask for it.

In other words, there are several owners for each ounce of physical gold.

By complete coincidence Paul Mylchreest of The Thunder Road Report has just written an in-depth study into the daily trading volumes of gold on the London over-the-counter market, which can be found here:

http://www.gata.org/files/ThunderRoadReport-10-15-2009.pdf

The London OTC market is where most physical gold is traded. This market is a wholesale market where trades are conducted only between the bullion trading houses on behalf of their clients. About 95 percent of the trading is by way of gold that is held in unallocated bullion accounts.

The unique characteristic of gold is that about 50 percent (80,000 tonnes) of the above-ground stocks are held as a store of wealth (investment). The other 50 percent exists as jewelry. When gold is bought as a store of wealth it can perform that function for you wherever it is in the world. Given this unique characteristic many large investors in bullion prefer to leave their gold with the bullion dealer from whom they bought it so that it can be stored in their vault and easily resold. This is identical to the situation with stocks, where most stock certificates are held by brokerage houses, not by individuals.

That people are buying and selling gold without ever taking delivery means that there is the opportunity for bullion houses to sell gold that doesn’t exist.

Now the bullion houses probably don’t view this as illegal or dishonest because they will operate a fractional reserve type of system, just as the banks do with fiat currency, and will make sure they have enough gold on hand for what would be the maximum estimated volume of gold that could be called for delivery. After all, trading is done with unallocated gold, so how much more unallocated can it get if it doesn’t exist at all?

This is what caused bank runs in the days of the gold standard. People would deposit gold in a bank and receive bank notes (dollar bills) in exchange. At any time the depositor could return and hand over his bank notes and receive from the bank the same quantity of gold he deposited. The banks realized that under normal circumstances a maximum of about 10 percent of the gold deposited could be requested. So the banks saw an opportunity. They could issue up to 10 times as many bank notes in loans as there was gold in the bank and they could earn interest on the bank notes. The system worked until there was difficulty meeting withdrawals. Then word spread quickly that the bank was insolvent, and as holders of the banknotes rushed to the bank to redeem them for gold, the bank would admit it had insufficient gold and would declare bankruptcy.

The origin of the word “bankruptcy” is from the Latin words “bancus” and “ruptus,” which means literally that the bank is broken. Banks have gone bust frequently enough to have earned themselves the ownership of the word to describe the phenomenon. Isn’t that ironic when banks are meant to be a safe store for money?

This basic scam is at the center of modern gold market manipulation. Instead of real gold, paper substitutes for gold are sold through derivatives, futures, pooled accounts, exchange-traded funds, gold certificates, etc. I estimate that each actual physical ounce of gold has multiple ownership claims to it.

For the scam to be sustained there must always be plentiful physical gold for those who want it. The market is, in effect, a giant inverted pyramid with a huge paper gold market being supported by a small amount of physical gold at the tip of the inverted pyramid. The scam can continue until there are indications of a shortage of physical gold. If all the claimants of each ounce of real gold demand their gold, then there is the potential for a squeeze such as has never been seen before.

To lend support to the idea that all the gold in the world has been sold several times over I cite the case of Morgan Stanley, which was sued in 2005 for selling non-existent precious metals. Morgan Stanley even had the audacity to charge storage fees. The firm settled the class-action lawsuit out of court but no criminal charges were ever filed. If Morgan Stanley was doing this, you can bet that it is the tip of the iceberg.

Paul Mylchreest has done fabulously detailed research into data on the daily trading of gold on the London OTC market. He concludes that 2,134 tonnes of gold are traded each and every day. That is a shocking number because this is 346 times larger than all the gold that is mined in the world each day.

But this on its own is not sufficient evidence to indicate that the market is fraudulent. For example, if I have a 1-ounce gold coin and I have a hundred friends I could sell the coin to a friend and then he could immediately sell it back to me or sell it to one of my other friends, who could sell it back to me. If I were to transact with all my friends in the same day in this way, I could have turned over a volume of 100 ounces in trading transactions but no fraud would have occurred because the last friend I traded with owns the 1-ounce coin, even though it went through a hundred sets of hands before it got to him. There are no multiple ownership claims to the coin because the trades were sequential, not simultaneous.

But if I were to sell 1 ounce of gold to all my friends and promise I would keep the gold for them, the trading for the day would be 100 ounces but now fraud has been committed because I have a liability of 100 ounces while I have possession of only 1 ounce. If they never ask for the gold and I can pay them cash when they want to sell their gold, then there is a good chance my friends would be none the wiser … until the day when at least two friends insist on receiving the 1-ounce coins they each supposedly own.

The daily gold trading in London is simply humongous. We talk of the gold market being a tiny market. It is anything but. It has a daily turnover of $70 billion. To put this in perspective, the world consumes 86 million barrels of oil each day. The total cost of the global daily oil consumption is a mere $6 billion!

But as discussed above, the daily volume traded does not in and of itself prove that a fraudulent fractional reserve operation is being conducted. Mylchreest did some more work using statistics from the GFMS metals consultancy to determine the maximum quantity of gold stock the OTC market could be holding with which it can back the huge daily trade volume. The gold that is traded has to be in the form of London Good Delivery (LGD) bars, which are 400-ounce bars. Mylchreest estimates that there can be only about 15,000 tonnes of such bars in the world. Let us assume that the London OTC market holds them all. We will show that by comparison with the trading of other unallocated gold products that 15,000 tonnes is nowhere near enough gold stock for the gold not to have more than one ownership claim to each ounce.

The purpose of buying investment gold is for it to store wealth. This necessarily implies that it is held for a long time. If gold is bought and traded quickly it would destroy wealth, not store it, because there would be a large loss due to transactional fees. The figures we have so far suggest that the entire stock of gold of the London gold market could be turned over every seven days (15,000 / 2,134 = 7). That would hardly be characteristic of a market that is supposed to be selling a “buy and hold” product. For the purposes of illustration, in a town of 15,000 houses would you expect 2,134 houses to be sold each day? Or that each house on average would have 52 owners during the year?

Let’s compare how much of the inventory of the precious metal exchange-traded funds are traded each day to get a good idea about how frequently investors trade something they have bought as a store of wealth. The most liquid and highly traded ETF is GLD. It has 325 million shares outstanding and the fund trades on average 11.9 million shares each day. This means it trades one share each day for each 30 shares outstanding. Central Fund of Canada trades one share for each 140 shares outstanding, while the Gold Trust Unit trades one share for each 300 shares outstanding.

The GLD ETF is a way of buying, holding, or selling unallocated gold. One would expect the investors’ behavior in this ETF would be similar to those trading the unallocated accounts on the OTC. If the investor trading mentality on the London OTC is similar, then 2,134 tonnes should be 1/30th of the gold stock held by the OTC. This equates to 64,000 tonnes of gold. But Mylchreest estimates that the OTC can hold no more than 15,000 tonnes because that is the entire global stock of LGD bars. If we use the CEF example, the stock would have to be 298,000 tonnes, or by the GTU example it would have to be 640,000 tonnes.

Probably the GLD comparison is the most relevant, as that exchange-traded fund claims to hold 1,100 tonnes gold, which is comparable to the maximum 15,000 tonnes that could be held by the OTC participants. However, the OTC is restricted to wholesale traders and has a minimum trade limit of 1,000 ounces. In GLD the minimum trade is a tenth of an ounce and trading is open to everyone. Considering these limitations it is likely that OTC participants would turn over a lot less than 1/30th of the inventory in a day. But even taking the GLD estimate, the OTC participants should be holding 64,000 tonnes when according to what can be deduced from GFMS statistics they can be holding only 15,000 tonnes.

This means that each ounce has at least four owners. I think this is probably very conservative because the GLD vehicle is set up to be easily traded and in units as small as a tenth of an ounce. I would guess that it is more likely to be as high as 10 or even 20 owners to every ounce, particularly when the banking world has used a 5-10 percent reserve ratio with fiat money for a long time and bankers are creatures of habit.

This would imply that the liability for unallocated gold that has been sold is probably closer to 150,000 tonnes (taking the more conservative 10 percent figure), but the liability is backed by a totally inadequate maximum of only 15,000 tonnes of physical gold. So it’s likely that between 45,000 and 135,000 tonnes of unallocated gold has been sold that does not exist.

This is between 50 and 170 percent of the entire existing investment gold stock that has taken 6,000 years to mine and accumulate.

We are hearing of more and more cases of gold investors wanting to take physical delivery or have allocated gold.

In my recent article I said:

“A couple of months ago Greenlight Capital, the large hedge fund, switched $500 million of investment in GLD to physical gold bullion. … Apparently Germany has requested that its sovereign gold held by the New York Federal Reserve Bank be returned to Germany. Hong Kong has requested the same of the Bank of England, which stores its sovereign gold. Robert Fisk, a respected journalist for the UK’s Independent newspaper, reported this week that the Arab oil-producing states, Japan, Russia, and China have been holding secret talks to replace the dollar as the international reserve currency and as an accounting unit for trade. He reports that the basket of currencies they propose instead of the dollar would include gold. If gold is going to regain its monetary role, then you can understand why those in the know want actual physical bullion. There are some very real and significant signs that a run on the Bank of the Gold Cartel for physical gold is commencing.”

Talking of runs on the bank, Rob Kirby of Kirby Analytics in Toronto, a GATA consultant, did some brilliant sleuthing work. His sources have told him that there was panic in the London gold market around September 30 as participants in the market wanted to take delivery of their purchased gold and refused generous cash settlements that were offered instead. Central banks had to come to the rescue to provide the gold via leasing. Apparently even the central banks could not provide bars that met LGD standards, which indicates that an acute shortage of physical gold is developing and that perhaps already many OTC clients have drained a large proportion of the 15,000 tonnes of gold stock from the London OTC market.

This supports what I have been discussing above.

Paul Walker, CEO of GFMS, recently said that gold was going up because of some “large lumpy transactions in a market with a degree of illiquidity.”

If the OTC was selling only gold that the participants own, there could never be a lack of liquidity. The panic that occurred at the end of September confirms that there is a chronic lack of liquidity. This necessarily implies that there is multiple ownership of the same ounce of gold and it is, therefore, fraudulent. Leasing of gold from central banks provides only temporary liquidity, because the central banks want their gold returned at some later date, and it looks as if the bullion bankers may have dipped into that well one too many times already.

The gold market is in a precarious position. Just as in the days of the gold standard it requires only one customer not having his deposit returned to bring down the bank, because a domino effect results in all depositors asking for their deposits to be returned. If my estimates are correct, that somewhere between 64,000 and 150,000 tonnes of gold have been sold against a reserve of only 15,000 tonnes.

But how much of even this 15,000 tonnes remains?

The panic at the end of September suggests that liquidity is very tight, in which case only a small percentage of investors asking for their gold to be delivered or placed in an allocated account will blow up the gold market and expose the scam — a scam that has been repeated time and time again throughout history. Why should this time be any different?

If you think you own gold, you should take a few precautions.

If you have unallocated gold in some sort of pool account that does not have a satisfactory audit or you own shares in an ETF that does not have a reliable audit, take action. Take delivery of gold or move your investment to reliable and audited allocated storage.

If you do nothing about it and when the music stops you are left with just a piece of paper that says you own gold but no one is able to give it to you, then perhaps you will be able to take comfort in your having dismissed the German government, the Hong Kong government, Greenlight Capital, and many others as a bunch of nuts who don’t know as much as you do about counterparty risk in the gold market. But the “nuts” who are realizing that there are multiple claims to each ounce of gold will at least have their gold if they ask for it first.

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Adrian Douglas is a member of GATA’s Board of Directors and publisher of the Market Force Analysis letter (www.MarketForceAnalysis.com), which identifies market turning points. Subscribers receive bi-weekly bulletins on the markets to which they subscribe.

Whistleblower exposes insider trading program at JP Morgan

From Wikileaks

Description of JP Morgans stock program from page 21 of the leaked document.

Legal insider trading in three easy steps, brought to you by JP Morgan and the SEC

KEVIN WILSON, MARIA CHRISTINA PADRO, JULIAN ASSANGE & staff
March 16, 2009

A confidential memo obtained by Wikileaks shows that not only has the U.S. Securities and Exchange Commission created an insider trading loophole big enough to drive a truck through, but that Wall Street is taking full advantage of it, establishing ‘how-to’ programs and even client service divisions to help well-heeled clients circumvent insider trading regulations.

Most of us think of insider trading as illegal. It allows those with inside knowledge to tilt the playing field, with the small investors invariably losing to the privileged few. Unfortunately for the small investor, the big boys get to play by different rules, and it has all been made legal, thanks to the SEC.

In 2000 the SEC promulgated Rule 10b5-1. The new Rule was designed to address the confusion caused by a series of court decisions that had left investors uncertain about what constitutes insider trading. Rule 10b5-1 was designed to “clarify” what constitutes illegal insider trading.

But top Wall Street houses were not to be deterred from advantaging their big clients at the expense of their small ones. Wall Street firms like JP Morgan found loopholes in Rule 10b5-1 that allowed them to continue trading on inside information “legally.” Indeed, JP Morgan has gone so far as to set up an entire ‘selling program’ within its Securities division to help their clients profit from the loophole.

Documents obtained earlier this month by Wikileaks from JP Morgan Private Bank, which subtitles itself as “World class solutions for wealthy individuals and families”, show the firm has a dedicated ’10b5-1 Selling program,’ along with a ‘dedicated 10b5-1 team’ to help its clients take advantage of the loophole.

Here’s how it works:

1. An insider client transfers all or a portion of their company stock into a JP Morgan Securities Inc. brokerage account.

2. The insider then develops, in conjunction with the 10b5-1 team, a ‘phased, pre-planned sales program to be executed at either market or specified prices’.

3. Depending on the information available to the insider (but not the public), the insider can decide whether to execute the sale or not.

By gaming the system this way, JP Morgan teaches insiders how to use their knowledge to create a rigged market, one in which it is the “house” that always wins, and the small investor that always loses.

Alan D. Jagolinzer, an assistant professor at Stanford University Graduate School of Business, completed a study of roughly 117,000 trades in 10b5-1 plans by 3,426 executives at 1,241 companies. He found that trades inside the plans beat the market by 6% over six months. By contrast, executives at the same firms who traded without the benefit of plans beat the market by only 1.9%.http://businessweek.com/magazine/content/06_51/b4014045.htm

One can only guess at how many wealthy executives profited under JP Morgan’s “insider trading program,” leaving small investors holding the bag.

See the full confidential JP Morgan Private Bank insider trading memo:

• JP Morgan Private Bank insider trading how-to

JP Morgan Private Bank was successfully contacted by Wikileaks, but declined to comment on the report.

Additional contacts

JP Morgan Private Bank

• http://www.jpmorgan.com/pages/jpmorgan/private_banking

Prof. Alan D. Jagolinzer

• http://www.stanford.edu/~alanj1/

Tax Justice Network

• http://taxjustice.net