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Auguries Cui bono?


November 30, 2012

Wall Street: Mutant capitalism.

Gold was down (at press time) $24.10 (-1.4%) for the week to $1,727.30, and silver was up $0.10 (+0.3%) to $34.31. GoldCore reports November 29 that gold fell $22.10 yesterday in a manner that raised not a few eyebrows. “The CME Group, which operates the US COMEX gold futures market, said Wednesday’s plunge in gold was not the consequence of a ‘fat finger’ or a human error.

“One thing that we can say for certain was that there was massive, concentrated selling as the New York stock markets opened with some 35,000 lots sold which is equivalent to 3.5 million ounces and saw the price fall from $1,735 per ounce to $1,711 per ounce between 0825 and 0830 EST. One sell order alone was believed to be 24 tonnes or 770,000 troy ounces. Incredibly, there was 35% daily volume in just 60 seconds. The selling, like all peculiar, counterintuitive, sharp selloffs in recent months, was COMEX driven with COMEX contracts slammed leading to further stop-loss selling.”

Harvey Organ comments, “So I guess we should ask them who supplied the non-backed paper equivalent to 1% of annual production of gold within one second of the opening of the COMEX. The seller had no profit motive on this sell order.”

Ask away, by all means, but somehow one doubts an answer will be forthcoming. We may, however, reach our own conclusion based on the question posed by Cicero, Cui bono? That COMEX deigned to comment on this affair is an interesting development suggesting that the smell emanating from its operations has become to foul to ignore.

“Talk about ammunition for those who suggest the gold price is being suppressed or manipulated by central banks and allied bullion banks,” Lawrence Williams declared at Mineweb November 28. “There seems to be little other logical explanation for this kind of activity. It could even turn long-term suppression-deniers into GATA adherents.”

This leads to a further question. Why are GATA’s claims met with such hostility? Perhaps because we hold bankers in such high esteem. This seems unlikely. These are, after all, the people who brought the world to the brink of ruin in 2008 and then trousered trillions in taxpayers’ money as a reward for their trouble.

According to Adam Smith, “The rich…. are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society.” In the modern vernacular, capitalism equals win-win. But the bankers of our day have created a mutant capitalism, a zero-sum game. They prosper, and the great mass of humanity is impoverished thereby. There’s a sucker born every minute, as another moral philosopher said, and the bankers have of late shown a particular interest in those suckers born 18 years ago.

CNBC reported November 27, “The proportion of US student loan balances that are in delinquency—that is, unpaid for 90 days or more—surpassed that of credit-card balances in the third quarter for the first time, according to the Federal Reserve Bank of New York.

“Of the $956 billion in student-loan debt outstanding as of September, 11% was delinquent…higher than the 10.5% of credit-card debt… By comparison, delinquency rates on mortgages, home-equity lines of credit and auto loans stood at 5.9%, 4.9% and 4.3%, respectively.”

On November 28, Mike Shedlock gave the gist of another CNBC student-loan story: “The average college student who graduated in 2011 had $26,600 in student loans; two-thirds of last year’s college graduates had student-loan debt; 37.8% of recent graduates are working in jobs that do not require a college degree.”

Yves Smith comments at Naked Capitalism November 28, “This is the new subprime: escalating borrowing taking place as loan quality is lousy and getting worse. And in keeping with parallel to subprime, one of the big reasons is, to use a cliché from that product, anyone who can fog a mirror can get a loan. The most popular type of loan, Stafford loans, allow undergraduates to borrow up to $57,500, no questions asked. Perversely, this practice, in isolation, looks rational. Look, if you could put borrowers in virtual debt slavery, would you care much about lending standards?”

Who benefits? Two facts: US student loans are enforced by the US government, and they cannot be discharged in bankruptcy. But surely our politicians will not allow this outrage to continue. On the contrary, they are all committed to even more mirror-foggers becoming debt slaves at the onset of adulthood.

What is to account for this conspiracy against the public interest? Pay heed to the obiter dicta, the words in passing, and you will notice that it is usually the case when a politician in charge of a financial portfolio decides to retire, it is reported he is expected to cast off the penury of public service for well-remunerated employment in the “financial-services sector.” In the words of Seneca, Manus manum lavat: one hand washes the other.

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