-- Posted 27 April, 2007 | | Discuss This Article - Comments:

Rube Goldberg Strikes Again

I just read the recent Rubino/Turk article on SLV, the silver-backed ETF.

So it seems that the SLV Investor(1) owns the iShares(2), which are issued by the Trust (Bank of New York)(3), which hires a Custodian (JPM Chase Bank)(4), which can have any number of Sub-Custodians, Agents or Depositories(5), where the silver(6) might be held. Compare this schematic with the true silver owner(1), who owns and controls his own silver(2).

JP Morgan Chase, as I'm sure we all know, was implicated in the Enron accounting fraud, the Blanchard/Barrick lawsuit, and many other high-finance scams too numerous to recount. I guess that makes them a perfect choice for this assignment.

You might have innocently thought that all this 100+ million ounces of silver is sitting quietly in one place in a New York vault. Maybe it is.

But, if there should ever be an audit, JPMC has TEN DAYS to round up enough silver to satisfy the auditors. Even then they don't actually have to have it on hand for inspection by the auditors, or anything as tedious as that. This is the 21^st Century! All they have to do is to say it is located at one of those Sub Custodians and it would be too much trouble and expense to move it.

This is just custom-made to allow real silver to do double and triple duty. If the auditor wants to get snotty and insist on seeing all the silver assembled in one place, JPMC has to be assured of payment by "somebody" for the trouble and expense of doing so.

Never happen.

On the other hand, the auditor could just accept a document swearing that a certain amount of silver located in a certain place is part of the SLV hoard. It might even be "true", on that particular day.

And to top it off, the Custodian (JPMC) is absolved in advance for erroneous accounting entries and has the explicit right to make and reverse provisional entries and to back-date any necessary corrections. So no matter how much their records may differ from reality, it can all be fixed later on with no penalty. With this kind of accounting, the question of who owns what silver on any particular day becomes extremely hypothetical.

Gosh, this kind of thing makes the CRIMEX start to look good.

Now add to this the recent publicity by Patrick Byrne of the very widespread epidemic of naked short selling of stocks. So widespread and epidemic, in fact, that the stockbroker industry has tacitly admitted that they have no hope of ever cleaning out all those counterfeit shares known as FTDs (failures to deliver the promised stock). So, just live with it. Since SLV is nothing more than another share, I’m sure it is entirely possible to naked-short the exchange traded fund as part of a program to hold down the price of silver.

ANOTHER “WALL OF SEPARATION”

The net result of all this is that precious metals are to remain stored away in vaults and under centralized control as usual, while those interested in owning precious metals are systematically separated from those metals by elaborate financial structures subject to behind-the-scenes manipulation. The whole scheme is being sold to the retail investor on the basis of Convenience, and they are taking the bait. Come to think of it, Convenience has been used as bait to sell a long list of Centrist initiatives. Even slavery could be pitched as Convenient, since you’d have no responsibility for anything ever again, and all your food, clothing and housing would be provided to you for free.

The irony is that the SLV buyer is really only interested in convenience and FRN price appreciation. But by allowing control of the metals to remain in centralized hands, they are creating the conditions for more price manipulation, which will NOT be to the upside. At the same time, they increase their exposure to accounting swindles, bankruptcy, market closings, confiscation, rule changes, special taxes and what-have-you when the Emergency arrives.

I'm not telling you anything new, but the price suppression in precious metals is aimed at people who just want to see their stuff go up - people who, essentially, just want more FRNs. If it doesn't go up, they get antsy. If it goes down, they dump it. Unfortunately, this speculator/trader mind-set is extremely easy to manipulate and control.

On the other hand, the wise investor understands the value of his assets whether they "go up" this month or not. These are the people who add to their holdings on price weakness and wait for the fundamentals to make themselves felt - people who accumulate real wealth, and look beyond the ephemeral FRN price tag on that wealth to something more like true value.

CONCENTRATED OWNERSHIP THREATENS LIBERTY

I conclude that gold and silver can only be fairly valued to the extent that physical control is decentralized. That creates the conditions for a true free market in precious metals. This is the logic of our Constitution in requiring the US Mint to provide free coinage of circulating silver and gold money.

The distribution of precious metals into retail hands seems to be happening in spite of the CRIMEX, SLV and similar pseudo-metallic schemes, but they are certainly slowing it down. Unfortunately for America, too many of those hands reside on the other side of the world. Americans have the freedom to own precious metals and thereby undo monetary centralization; they just don't yet have the understanding or the will to do so. As in so many other things, the power to break our chains lies unused in our own hands.

Or as Bob Dylan once put it:

Freedom? "Just around the corner" from you.
But with Truth so far off, what good will it do?

It is reported that in the Persian Empire, in the days before Alexander the Great, all gold and silver resided in it’s rightful place in the King's treasuries, not even guarded, while the serfs had to invent their own worthless scrip to use for exchanging their daily necessities.