02 July 2012

Credibility Trap: Silver and Financial Markets Are Manipulated, But So What?

"The world is now five years on from the outbreak of the financial crisis, yet the global economy is still unbalanced and seemingly becoming more so as interacting weaknesses continue to amplify each other. The goals of balanced growth, balanced economic policies and a safe financial system still elude us.

In advanced economies at the centre of the financial crisis, high debt loads continue to drag down recovery; monetary and fiscal policies still lack a comprehensive solution to short-term needs and long-term dangers; and despite the international progress on regulation, the condition of the financial sector still poses a threat to stability.

From time to time, encouraging signs raise hopes – but they are quickly dashed, delivering another blow to the confidence of consumers and investors."

Bank for International Settlements, Breaking the Vicious Cycle, 82nd Annual Report, 24 June 2012

Someone sent this video show below to me in response to the things I have written earlier today.

I find the whole clip absolutely remarkable when viewed from an objective, or at least a non-American and non-financial industry, point of view. The exceptionalism and denial in this discussion as it unfolds is surprising to watch, and the groups chastises Europe while dismissing the corruption in the Anglo-American banking system that significantly contributed to the crisis.

Normally we do not hear such relatively open talk until the late stages of an unfolding financial collapse when hiding the reality of what is happening becomes pointless.

What really "knocks one's socks off" is the general admission and conclusion beginning around minute 9 of this video that the banks are manipulating the financial and commodity markets, with silver specifically mentioned. And the panel accepts it as 'oh well, that's the banking system.' That's just the way things are and if you don't like it, well then tough luck for you.

I am sure these are all very nice people, but they are so deeply involved with the financial system that they have lost their perspective. And that is a general problem with some of the professions like economics and financial reporting. Perhaps this is why we seem to be getting the best information on this from non-financial sources, with a few notable exceptions.

This is a fine example of the credibility trap. The truth is so damaging to oneself as a member of a particular status quo that it can rarely be admitted, and if admitted, cannot be taken seriously. After all, the game is rigged, and everyone knows. Well at least everyone who counts, but for anyone who says it before its time they are ridiculed, shunned, and dismissed.

As I have said, at least CNBC is willing occasionally to entertain such discussions, as opposed to the extended infomercials and streaming agitprop carried in the guise of reporting on some of the other corporate news channels.

After a long discussion of how the private sector must suffer further, a somewhat eccentric but interesting review of the European postwar economies, and some additional economic babytalk, the group segways to JPM's upcoming earnings report and the London Banking scandal.

I particularly enjoyed Chris Whalen's description of JPM's CIO as a 'rogue hedge fund in London.' He knows better. And the dismissal of the LIBOR scandal as business as usual, which Mervyn King recently described as 'a culture of deceit,' is truly interesting. Does such self-serving hypocrisy have any limits, to not even bother to feign surprise?

I do not wish to pick on Chris, but he is a smart and generally well-educated fellow, a graduate of Villanova, but he is still a creature of the system, a former employee of the NY Fed and Bear Stearns, and captive to a cultural mind set, perhaps without even realizing it, that is apparent to an outsider.

Whalen: None of its [JPM's CIO losses] are acceptable, but see the whole point is Jamie got entangled in the media. (He got caught lying and gambling with customer money - Jesse) If this had just been a reported loss with a lot of other numbers we wouldn't be talking about it. It's a trivial number in the grand scheme of things.

Sorkin: What may be less trivial is this situation, this scandal involving LIBOR.

Whalen: Ah well, welcome to the banking industry. Come on, uh, you know... (wink wink, nod nod)

Sorkin: You hear about these things...

Whalen: Foreign exchange, Libor...

Sorkin: You used to think these were conspiracy theories. Right? You hear this about people manipulating LIBOR, you hear about people manipulating the silver market, and you'd say...

Michelle: And they are!

Sorkin: And they are!

And that, ladies and gentlemen, is the credibility trap in action, during the late stage decline and failure of a thoroughly rotten economic status quo.