On gold, hedge funds, and upcoming crisis... slight OT

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

July 14, 1999 EIR Talks Host: Tony Papert

Guests: Richard Freeman, Jeff Steinberg, Maximiliano Londoqo


"EIR Talks" airs on Sundays on shortwave radio station WWCR at 5:00 p.m. Eastern, on frequency 12.160 MHz. It also airs on many public access television stations in the United States; see local listings.


[Begin video clip:]

Alan Greenspan: Had the failure of LTCM triggered the seizing up of markets, substantial damage could have been inflicted on many market participants, including some not directly involved with the firm, and could have potentially impaired the economies of many nations, including our own.

With credit spreads already elevated and the market prices and risky assets under considerable downward pressure, Federal Reserve officials moved more quickly to provide their good offices to help resolve the affairs of LTCM, than would have been the case in more normal times. In effect, the threshold of action was lowered by the knowledge that markets have recently become fragile.

Moreover, our sense was that the consequence of a fire sale triggered by cross-default clauses, should LTCM fail on some of its obligations, risked a severe drying-up of market liquidity. The plight of LTCM might scarcely have caused a ripple in financial markets, or among financial regulators 18 months ago. But in current circumstances, it was judged to warrant attention.

[End video clip]

Tony Papert: You've just heard Federal Reserve Bank Chairman Alan Greenspan explaining in his own peculiar, funny way, last October, how, if the Fed had not bailed out a speculative hedge fund called Long Term Capital Management, that our entire financial system would have seized up, and come to a halt.

Now, the current issue of EIR, with the cover dated July 16th, proves that the very same thing happened, only on a larger scale, in mid-June of this year, 1999, and that that crisis is far from over.

You're listening to "EIR Talks." It's Wednesday, July 14th, 1999. My name is Tony Papert, and with me is EIR economics writer Richard Freeman, and EIR counterintelligence director Jeff Steinberg.

Richard, what did happen mid-June of 1999?

Richard Freeman: Well, what happened, Tony, was that the Group of Seven governments and central bankers, which is the United States and England, Germany, Japan, and so forth, have been up to their ears, from June 11th through June 30th, in the biggest bail-out of bankrupt bankers yet, spending about $25 billion.

Now, all of this bail-out of banks and hedge funds--in particular, a hedge fund called Tiger Management [Fund]--amplifies but on a grander scale the bail-out of the Long Term Capital Management on September 23rd of last year, in which the Federal Reserve arranged a $3.8 billion capital infusion, which you spoke about, and Alan Greenspan spoke about.

Despite this Tiger bail-out, Federal Reserve Board chairman Greenspan lied on June 29th and June 30th, when he raised the federal funds rate, the rate for interbank money, to 5%. This drew much attention and tons of press coverage. But behind the curtain, the really smart crowd of wealthy people, they--these financier-oligarchs--were not trying to save the system. They were trying to buy themselves a little time so they could bury the system.

They have a strategy. Seeing that we are--the financial system of $300 trillion in financial claims can not be held together, that they would buy a little time, and then move in, in a post-collapse world, to buy up assets at bargain-basement prices, at very, very cheap prices.

In this strategy, there's a second part of what they did in this period of time, which was they launched another short operation, or selling operation, against gold, which began when the Bank of England announced May 6th that it was going to sell a portion of its gold--more than half of their gold--and the gold price fell to its lowest level in 20 years.

If you put these two events together--the bail-out of the Tiger Management Fund and the gold operation--what we know is that the financial system is finished. The insiders, as opposed to what you read in the Wall Street Journal, know that. Lyndon LaRouche knows that. And therefore, both LaRouche and those insiders are planning for a post-collapse world, in which one shock or another has put the system at a point where it can't be sustained.

And what we need to do, is lift the mystery from what happened during that period.

Tony Papert: Could you tell us a bit more about what happened during that period?

Richard Freeman: Absolutely. Let's start with the Tiger Management Fund, which is a hedge fund, which is just a fund--a pool--of wealthy money. People usually have to put $5 million or $10 million in to get into one of these hedge funds as a starting point. And this one is based Curagao, Netherlands Antilles, which is also where George Soros's Quantum Fund is based. And it's headed by a fellow by the name of Julian Robertson.

Now, what they did, is they had gotten into trouble last year doing the same thing. Let me just say: They had a capital under management of about $16 billion. We know that by June 11th, they had lost $3 billion. And that's when the Fed started a series of secret actions.

Just to say what happened. On June 11th, the wires were filled with stories that the Tiger Management was about to go under, or something very close. And there were further reports that the Federal Reserve was "ministering" to them. That weekend, on the 12th and 13th, there was a meeting in Frankfurt, Germany, of the Group of Seven, the same group I mentioned, finance ministers and others, to discuss what to do.

And we saw that action on June 15th, when the Bank of Japan intervened, buying $10 billion worth of dollars to prop up the dollar and push down the value of the yen. And we now know, piecing this together and doing some investigative work under Mr. LaRouche's direction, that in fact, the Bank of Japan spent $22 billion in the month of June, largely acquiring dollars and pushing down the value of the yen.

Why would they do it? Come back to Tiger Management. What Tiger Management had done, is something called the yen carry trade. And that's the following. The Bank of Japan had lowered interest rates to a very, very low level.

Jeff Steinberg: Almost zero by late February, right?

Richard Freeman: Exactly, Jeff. Almost zero. They're about at 0.1%.

So what happens is that a bank in Japan can borrow at 0.1%, which is practically getting the money for free. The hedge funds then went to these banks in Japan and said "Lend us that money." So they maybe got an interest rate of .25% or a quarter of a percent interest rate.

They then took that money in large volume, and invested it--converted it into dollars--and then invested it in high-yielding instruments: maybe the stock market in the United States, maybe U.S. Treasury securities, something paying 5 to 8%. So they made money that way.

But then they had a second element by which they were going to make money. They figured that when it came time to pay back their loans, which were taken out in yen, that the yen would cheapen, and therefore they could pay less for their loans.

Jeff Steinberg: Because of the economic recession in Japan and the problem with the massive non-performing debt of the Japanese banks--all those kinds of things.

Richard Freeman: Precisely. Because the Japanese, which we know, still have $600 billion to $1 trillion of non-performing loans in their banking and insurance system, are also suffering an economic downturn, and they lowered their interest rate in a desperate way to both bail out their banking system, and to try and just keep the economy from going further down. That's why they had lowered the interest rate in the first place.

So, just to give an example. Let us say that I borrowed yen--$100 worth of yen, which would be 1,300 yen when I first borrowed the yen. Okay, so I borrowed 1,300 yen, convert it into $100. I invested the $100. I'm betting--or the Tiger Fund of Julian Robertson was betting--that when it came to pay back, that the yen would have fallen, which means the dollar buys more. So $100 might have bought 1,400 yen.

So, I paid back the 1,300 yen I owe, and I have 100 yen profit. So I've made money by betting the yen would go down. What happened was, the yen went up. And instead, to use this example, let's say I have $100. It's now only worth 1,000 yen. So I have to now be able to purchase more yen to pay back my 1300 yen loan, which means I have to spend more money.

Jeff Steinberg: I think it was the ninth or tenth of June, that one of the Japanese government agencies announced that suddenly, in the last quarter, the Japanese economy had soared ahead by 1.8%, which is something that a lot of people are very skeptical about.

But nevertheless, that was the trigger event, in the sense that it prompted the yen shooting up?

Richard Freeman: Yeah, it was 8.1%. But that was one occurrence. There may have been others going on. It's hard to know. But that certainly was one.

In any event, the yen was strengthening rather than weakening, which meant that every day that the Tiger Fund waited to pay back its loan, it was building up additional losses. And by June 11th, they knew that they had huge losses, and they knew that people were drawing money out from their management fund, which went from $16 billion under management, to $13 billion under management.

Now, let me add the complicating factor, which makes this a world crisis. And remember, we're talking about Tiger Management right now. But there might have been 10, 15, 20 hedge funds in the same predicament; it's just that Tiger Management is the second-largest in the world.

For every dollar that Tiger Management had under management, they borrowed $20 to $50. So if they had $13 billion by that Friday, that means they had somewhere between $260 and $650 billion that they borrowed from banks, that were in play as investments around the world.

So they now had to cover their situation of getting back to getting yen. But if the yen kept rising, it made it expensive. So now we come back to the point I raised earlier. On June 15th, the Bank of Japan intervenes, after coordinating with the Federal Reserve of Alan Greenspan and the Bank of England of Eddie George, and intervenes to push the yen down to save hedge funds from losing on their position!

This is completely remarkable. And what was done, is that this was done repeatedly over a period of weeks, and with the biggest bail-out operation we know. Don't forget: Long Term Capital Management, which was made public, was $3.8 billion of private money. This was at least $22 to $25 billion spent by the Bank of Japan. We don't know how much was spent by the Federal Reserve or the Bank of England. We could be looking at a $30 to $50 billion bail-out. And this one was not made public.

Jeff Steinberg: The European Central Bank admitted they spent $3 billion to buy euro and dump yen.

Richard Freeman: There was a whole set of operations going on at this time. So, when, as Mr. LaRouche says in the upcoming issue of the Executive Intelligence Review that Tony Papert referenced, this was one of the biggest bail-outs if not the biggest bail-out we know of. And yet this was kept totally silent at this particular moment.

Tony Papert: Now, you referenced before that the big financial operators behind the hedge funds and in the City of London, and Mr. LaRouche's friends, are both looking at the situation from the point of view not of saving the system, but knowing that it can't be saved. And they're looking at it from a post-crash perspective. What does that mean concretely?

Richard Freeman: What that means--and again, there's $165 trillion worth of derivatives worldwide, which are these bets, as part of a pool of at least $300 trillion--more than half of the pool of $300 trillion of financial claims and obligations sitting on the banking system, making the banking and financial system as a whole bankrupt many times over. The system is also highly leveraged.

And this explosion, following when we had last year the August 17th declaration that the Russians could not pay on their treasury debt, and then the September 23rd failure of the Long Term Capital Management, which led the Fed to cut rates during that time and begin running the printing presses--this one has told everyone, "Look, we've just had another one, another one, another crisis."

So, what happened--and I just want to read one quote, because this is from a fellow, Eddie George, who is the head of the Bank of England. On June 10th, that is, one day before this massive bail-out operation, Eddie George finally got up his courage to talk about the failure of last August through September. And he said, "When we were last here"--he's addressing a banquet by the Lord Mayor in England that he was holding for merchants and bankers--"When we were here last year for this splendid occasion, I suggested we were living in a dangerous international financial and economic environment," says Eddie George.

"These words were strong words for a central banker. But perhaps not strong enough. There was a great deal of talk about financial meltdown and impending world recession, which was not simply journalistic hyperbole."

He's saying this--saying that the world financial system, admitting it was on the point of failure the latter part of last year, but he's now covering up, at this very moment--as did Alan Greenspan's action when he raised the interest rate a quarter of a percent--what's actually happening now, which is at least 5 to 10 times bigger.

Then, coordinated with this, Tony, the other part of the operation was the sale of gold. And it's very interesting that this same Eddie George, who was warning about this crisis--his Bank of England announced in May, on May 7th, that they were going to sell 415 metric tons of their gold holdings, which total holdings are 715 metric tons.

On the morning of that day, gold was trading at $289 an ounce. It proceeded to fall $35 an ounce over the next month and a half.

Finally, on July 6th, the Bank of England sold 25 metric tons, which is the first installment of the 415 metric tons of gold that they're selling.

Now, why would the Bank of England sell gold? What they're trying to do is to force a drop in the price of the metal, which as the chart shows people has happened, bankrupting those people who have gold right now, or forcing them to sell, so that the very wealthy families, who know that this financial system is long-finished and can not be rescued, can purchase it up cheap, and be able to hold on to these assets going into a post-collapse world, which means that if they buy gold at $250, or they may continue to drive it down with speculation to $240, or to $230, they will buy it up, hold that gold, force it out of public hands where governments have sovereign control over it, put it into their own private wealthy hands; and then, at the point at which the system can no longer be saved, declare that they have a gold standard, shoot the price up to $400 to $700 an ounce. But at this time, use that, with their control of oil, food, precious energy supplies, to have a grip on everything on which human life depends upon, and economic life depends upon.

Jeff Steinberg: So, they rigged the market to do this.

Richard Freeman: Absolutely rigged the market. When the central bank begins announcing that it's going to be selling gold, and the other central bank which began selling gold on July 4th, 1997, was the Reserve Bank of Australia. And you may see a pattern: England, Australia, and Canada, the central banks were all selling gold. Well, they're the heart of the British Commonwealth, which LaRouche has said is the most powerful financial and economic instrument on Earth. That has the majority of holding of precious raw materials, oil control, like British Petroleum, Royal Dutch Shell, and so forth.

So they, operating through the Bank of England, rig a market to go downwards, and force this market to begin the price-falling, so that they can gather these assets up themselves--for a post-collapse world. That's what they're thinking of.

Jeff Steinberg: They're abandoning the paper ship now, knowing it's sinking, and putting themselves in the position to really control the crucial levers of world economic activity for after the blowout.

Richard Freeman: Exactly. I mean, what they've decided is in their post-collapse world, human life is going to be greatly reduced. They have said, as Prince Philip, as you well know, Jeff, has said, "Look, we don't need six billion people on the face of the earth, we'd be happier with a billion, a billion and a half." They will reduce people down to a semi-literate status of roaming, illiterate nomads, and under that system, have their control over the supply of the precious raw materials, the precious metals, iron, copper, zinc, food. And they will, like, release and not release it as they choose, wiping out human life, and having a control over a feudalistic arrangement, which is what they really mean by their "globalistic system."

Jeff Steinberg: It's striking to me--I mentioned in recent shows, that I've been out into the Midwest and the Plains States a few times, and what you're describing vis-`-vis gold, is exactly what the big food cartels have done with respect to beef and grain in the United States. Farmers are being put in the position where they're paid way under cost of production, while the cartels control the pricing structures and the delivery systems and processing, and everything else.

Richard Freeman: Absolutely. If you take Cargill, which announced last year that they were buying Continental Grain division, they will now have, between those two, 45% of world grain production and exports. That's an incredible amount. And these are controlled by a very wealthy family--most people have never heard of the MacMillan, family and the Cargill family, which actually run Cargill, which one of them is a member of the Knights of St. John of Jerusalem.

These are the sorts of families that do it. Or take the buy-up by British Petroleum, which bought first Amoco last year, last October, and then in March announced it was buying Arco. It's now the second-largest oil company in the world. It is the largest producer of domestic oil in the United States, if the Arco deal goes through. They will have their control over the spigot of oil.

The one thing I wanted to just add, if I could, is that in this environment, Lyndon LaRouche released a statement around July 8th or July 9th. And he said, "Look, we have to deploy sovereign governments. Sovereign governments now become even more essential. If this is their strategy"--and it is, and we've documented this in EIR--then what sovereign governments have to do--and I just want to read one paragraph on this, 'cause I think it's very powerful and pertinent.

He said, quote, "Under conditions of financial breakdown, all these public assets, such as publicly held gold, which are now being channelled into the hand of private financiers, will be confiscated. Whoever is now looting and stealing these public assets, had better beware. Those assets will be seized and put back in the public's hands. No 19th-century private gold schemes will be allowed. We need a New Bretton Woods System in order to rebuild the world, nothing less." End of quote.

And I think that that accurately describes the idea of a fixed exchange rate system, geared around the Land-Bridge, and this tremendous possibility for economic development, and as one post-collapse perspective for survival, and the other post-collapse perspective for survival, which we've just discussed.

Tony Papert: And what it means to the listener, is, if you are participating in this "great stock market boom" through mutual funds or in other ways, or, God forbid, through derivatives, what you're doing, is helping artificially keep the price up, while the Big Guys get maximum returns for getting out of the whole market.

Richard Freeman: Yes, absolutely.

Tony Papert: --by selling to you!

Richard Freeman: Yeah. Because they need someone to offload onto, and you're there. And the thing is that they know, while you're having these fantasies that "My money is going to multiply," and "I just read in this magazine, and my stock broker just told me this," and "I just made $12,000 in two months,"--while you're playing in those fantasies, these wealthy people are simply laughing up their sleeve at you, because they've taken you time and time again.

And what they're thinking is, they know the system is gone. They absolutely, cold-bloodedly, intend to leave you with every piece of paper they can unload, because they're moving into these hard-commodity assets: gold, food supplies as Jeff was saying, oil, and so forth. And in this type of setting, they know that they are going to take you to the cleaners.

And people should just reflect. Think back: Last year, EIR and Lyndon LaRouche said, in August through October--LaRouche had warned in the spring of last year, that this crisis would come, that the financial crisis he actually warned in January of 1997, it hit in Asia. When it hits in Asia--and people say in the early part of 1998, "Well, this is going to clear up." LaRouche says "No, it's not going to clear up, it's going to get worse."

And then you have this very defining moment, when the whole financial system went, between August and October of last year.

We said it uniquely. We reported it here on this show. And yet, this oligarchy said, "Well, it's a little bit of a problem," until we now hear Alan Greenspan say, "Well, it was a lot more than a 'little problem'."

So they sort of tell you after the crisis has happened. So now, we have this crisis with the June 11th failure of the Tiger Management, which is a major, major, monumental event, which every insider knows happens. They may not have all the facts assembled the way we have in EIR, but they know bunches of the facts--enough to know how serious this was.

They then say, "We'll tell you about what happened last August or September." So, the people who are really trying to hold on to their money, should realize that there's a time lag between when the oligarchy tells you something has happened, and when it's already happened. You will find out about the crash once you're sitting there on the floor, crying over the paper that's simply gone.

Jeff Steinberg: Unless you read EIR.

Richard Freeman: Unless you read EIR, unless you get rid of this psychosis, as LaRouche has said--and it is a psychosis--of believing that somehow this fantasy bubble is going to come out. It's probably one of the greatest strategic doctrine mistakes in America's--one of the greatest things misorienting America in national policy-making that you can possibly look at.

Tony Papert: Absolutely.

Jeff Steinberg: You know, it's striking to me that back last fall, with LTCM, there was a certain amount of transparency, in the sense that the fact of the Fed meeting came out. It was no secret the market was going berserk--the near-bankruptcy of LTCM was grabbing front-page headlines every day.

This time, I remember that for about a 24-hour period, there was coverage in the London press and the New York Times and in the New York Post, that Tiger Management was about to go kaflooey, and that there was another secret meeting at the Fed. As this process unfolded in Frankfurt over the weekend of June 11th-12th that you described, the story disappeared completely from the media. And there has been a complete media black-out of this story, which is even far worse than what happened last fall.

And it seems to me pretty obvious that they don't want people realizing just how close to the edge the whole system is, because people who do have their life savings now lured and sucked into this financial bubble, rather than in secured bank accounts and, you know, Treasury paper and things like that are protected, could very well say, "Time for me to get out, too," and then you've got a real--

So, the media's playing a very not surprisingly pernicious game here in this crisis, completely covering it up.

Richard Freeman: Yeah. One quick point is that absolutely, to the extent that the Bank of Japan spent $22 billion in this operation, and that there's no report on that level of thing, tells you that this was a major, major operation, and people simply have to rethink what they're going to do about the policy direction of the United States.


So, does this answer some of the nagging questions???


The Dog

-- Dog (Desert Dog@-sand.com), August 09, 1999


Hi Dog,

This transcript was also posted on Jennifer Yourdon's Why is Wall Street Ignoring Y2K thread, and another thread (by a fake Y2K Pro) titled Andy 2000 is right (or something similar).

What I would really be interested in is if anyone has sources other than the Lyndon Larouche party (not credible, IMHO)for some of the details in the transcipt? Or, for that matter if anyone has sources to discredit any of the details?

-- RUOK (RUOK@yesiam.com), August 09, 1999.


I would agree wholeheartedly with ya...using LaRouche as a source is shakey at best. I tried a Google search earlier on Tiger Resources and only turned up one article worth reading, and it was old. Dated 10 September 1998, from Business Week Online. Briefly talks about how they lost $2 billion in about a week's time (Aug 28 - Sep 8 of 1998). I sure would like to find something current on this from a RELIABLE source!! Anyone?? Here's the link to the Business Week story:


-- Don (dwegner@cheyenneweb.com), August 09, 1999.

Yes, I wonder about LARouche, although, let's face it, there is at least a germ of truth here. The IMF under US control has been backing the hedge funds according to the FRontline show, Crash. Also, monopolies are the story today--the comment about the farmers sounds very authentic.

-- Mara Wayne (MaraWAyne@aol.com), August 09, 1999.


Germs of truth are not enough. For example, there are germs of truth in almost all con jobs. The authors of this "EIR" appear willing to take any set of events and concoct whatever "causal" relationships are required to fit LaRouche's requirements.


-- Jerry B (skeptic76@erols.com), August 09, 1999.

Moderation questions? read the FAQ