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Excerpt from the Weekly Review for
subscribers of January 7 –
Finally, Commissioner Bart Chilton of the CFTC gave an interview this
week with Jim Puplava that should interest you. http://www.financialsense.com/financial-sense...ipulate-markets
A number of subscribers asked me if I would comment on what Commissioner
Chilton had to say. In commenting, I can’t help but try to be as
objective as possible. For the record, I commend Chilton for the role he has
taken on the important issues, like position limits, concentration and in
addressing allegations of manipulation in silver. He is the only commissioner
to have done so. I believe there would be no ongoing silver investigation were
it not for him. I think he is one of the good guys and I started writing to
him about these issues in 2007 http://www.investmentrarities.com/ted_butl...y/11-13-07.html
I agree with most of what Commissioner Chilton had to say, particularly
about concentration and position limits and manipulation. I’m glad the
interview was mostly about potential manipulation in the silver market.
I’m going to skip over all the things I agree with Chilton on and
confine my remarks to where I disagree with him. Agreement can be boring.
Even though the disagreements are few, I believe they go to the heart of the
matter.
Chilton pointed out that it is difficult to prove manipulation in a court
of law. He indicated that there are three elements necessary to prove
manipulation – the intent to manipulate, the ability to manipulate and
the success in the manipulation. I accept his legal definition. Where I
respectfully disagree with him is in the degree of difficulty in establishing
all three elements in the silver manipulation. Let’s go through the
three elements.
Let’s forget for a moment that silver has been under investigation
by the CFTC’s Enforcement Division for almost three and a half years
and that countless civil lawsuits have been filed against JPMorgan for
allegations of silver manipulation in 2008. Let’s just focus on the
last year, when silver experienced two separate 35% price declines in a
matter of days. Such a decline in a world commodity for no observable
supply/demand reason is unprecedented and I would say impossible in a free
market. Yet it happened twice in silver within months.
As I have written recently, as a result of the second silver price
takedown in September, a tight-knit group of commercials traders bought the
equivalent of 165 million ounces in net COMEX futures contracts on the price
decline. This is equal to 22% of the world’s annual 740 million oz silver mine production. These same traders came close
to buying the same amount in the big May silver price decline as well. This
is an extraordinary amount of silver futures, much larger than any
manipulative long position attributed to the Hunt Bros. in 1980. It is not
possible to buy such a large amount of silver by accident. It had to be
intentional. There is the element of intent that Commissioner Chilton speaks
of.
The next element necessary to prove manipulation is the ability to
manipulate by a concentrated position or otherwise (collusion among different
traders). It would seem that the ability to manipulate is also self-evident,
as it has been done on more than one occasion in silver. This also ties into
Commissioner Chilton’s third element, namely, success being brought
about by intent and the ability to manipulate. It couldn’t have been
more successful for the COMEX commercial crooks than the results they
achieved (at great cost to innocent investors and traders).
I think the problem that Commissioner Chilton and the agency are having
is that they have convinced themselves they need proof by wire-taps and
emails and other incriminating documentation (like actual confessions) before
they can prove manipulation in silver. But the COMEX commercial crooks are
not likely to accommodate them. The Commission has something better than that
already in hand, namely, the very data that I rely on in analyzing the
market. The Commission should stop wishing and waiting for evidence to drop
out of the sky and just study the COT and Bank Participation statistics that
they produce on a regular basis.
Because it appears so easy for the Commission to prove a silver
manipulation on the basis of the three elements outlined by Commissioner
Chilton, my guess is that there is something else holding the agency back
from ending this scam. They just don’t want to end it. Perhaps there is
a political motive or the knowledge that JPMorgan and the CME may be too big
to sue. It’s hard to see how the three elements can’t be proved
by the public data.
This is all very troubling. Every federal agency and department has a
specific public mission. For example, the Federal Aviation
Administration’s mission is to ensure aviation safety. Having come off
the safest decade in aviation history, it would appear the FAA is achieving
its primary mission. The Department of Defense would appear to be meeting its
primary mission of defending the country from foreign military attack.
I’m sure the Food & Drug Administration would quickly deal with an
outbreak of tampered drugs harmful to public safety.
Try as I might, I don’t see the CFTC as coming close to meeting its
primary mission of protecting the public and our markets from fraud, abuse
and manipulation. Manipulation is the most serious market crime possible.
There have been enough credible allegations of manipulation in silver, based
upon data from the Commission itself, that the agency appears involved in a
never ending silver investigation. But the investigation is never resolved.
The critical point is that if there is a silver manipulation (as I and many
believe), then it is an active crime in progress. It would be as if
commercial passenger jets were dropping out of the sky every other day and
the FAA refused to comment. Or if the US was invaded militarily and the
Department of Defense went on vacation. Or if citizens were dying from
tainted aspirin and the FDA couldn’t be bothered. That would be
completely unacceptable and require immediate remedy of the strongest kind.
Because preventing manipulation is the CFTC’s number one mission,
credible allegations of an active manipulation, particularly one in which the
Commission has initiated a formal investigation, must be resolved
immediately. The Commission must either terminate such a manipulation or
explain why there is no manipulation forthwith. This business of explaining
why it’s so difficult to prove manipulation is unacceptable, especially
when all the elements of manipulation are present in the public record.
When the stock market experienced its infamous flash crash in May 2010,
all the regulators, including the CFTC, rushed to make sure it would never
happen again. That’s good. What’s not good is that silver has
experienced a continuous and more severe series of flash crashes all along
and the same CFTC hasn’t lifted a finger to intervene. The laws against
manipulation apply to all markets, not just to those randomly selected and
deemed by the agency to be important. The rule of law applies to all. That
includes silver investors who have been savaged by the COMEX commercial
crooks.
The CFTC has many important matters to deal with in Dodd-Frank and in
helping to sort out the MF Global mess. But nothing comes closer in
importance than resolving allegations of an active manipulation in silver, as
this is truly a crime in progress. I call on the Commission to immediately
end the silver manipulation or explain why there is no manipulation. So
should you.
Ted Butler
January 7, 2012
ggensler@cftc.gov Chairman Gensler
bchilton@cftc.gov Commissioner Chilton
jsommers@cftc.gov Commissioner Sommers
somalia@cftc.gov Commissioner O’Malia
mwetjen@cftc.gov Commissioner Wetjen
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