As Trust Evaporates… Editor: In the context of financial markets, trust and confidence are interchangeable, and it is when confidence is lost that paper money will be rejected in favor of hard assets (in particular gold), and this is when we will find ourselves in a Misesian crack-up boom.

Rolling Stone’s Matt Taibbi has once again put the world’s major hard news organizations to shame by describing, in comprehensible terms, the pervasive corruption at the heart of the financial system. Below are his concluding paragraphs from a much larger article that everyone with money at risk in a bank, brokerage account or business should read in its entirety.

Everything Is Rigged: The Biggest Price-Fixing Scandal Ever

After scandals involving libor and, perhaps, ISDAfix, the question that should have everyone freaked out is this: What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we’re forced to trust.

“In all the over-the-counter markets, you don’t really have pricing except by a bunch of guys getting together,” Masters notes glumly.

That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.

All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world, and God knows what they’ll find. The European Federation of Financial Services Users wrote in an official EU survey last summer that all of these systems are ripe targets for manipulation. “In general,” it wrote, “those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion.”

Translation: When prices are set by companies that can profit by manipulating them, we’re fucked.

“You name it,” says Frenk. “Any of these benchmarks is a possibility for corruption.”

The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it. It’s not just stealing by reaching a hand into your pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever’s in your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it’s only just coming into view.

Some thoughts

Knowing what we now know about the big banks, the idea that precious metals are notmanipulated is absurd — which explains, if an explanation is needed — why the paper and physical markets are diverging. Paper gold is at the mercy of the manipulators, while physical gold is immune to them – and is in fact a threat to them. An ETF like GLD is emphatically not the same thing as a gold eagle in hand.

With the political and judicial systems now wholly-owned subsidiaries of the big banks, buying physical gold and silver might be an individual’s last effective weapon against an emerging meta-government run by and for the people profiled in Taibbi’s article.

In a broader sense this tracks with the concept, popularized by Automatic Earth’s Nicole Foss among others, of a shrinking trust horizon. As we discover that the people running the big systems from distant financial and political centers are “harvesting” us in ever-more-creative and hard-to-detect ways, the number of people and organizations we’re willing to trust shrinks and recedes towards our homes. We can’t trust dollars or euros or yen so we convert them to precious metals held outside the financial system. We can’t trust the big banks so we open accounts with local credit unions. We can’t trust Big Food to tell the truth about what they’re feeding us so we turn to local farmers markets and backyard gardens. In some ways this is good and right and as it should always have been. But as it progresses it becomes a threat to the systems we’re abandoning, raising the question of how they’ll respond, with what new lies and what kinds of coercion.

John Rubino | Editor of & co-author with James Turk of The Coming Collapse of the Dollar and How to Profit from It

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>