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OBSTRUCTION OF JUSTICE
By Theodore Butler
(The following essay was written by silver analyst Theodore Butler. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)
While I have mixed feelings on the current Martha Stewart trial (should it have been brought in the first place?), the government’s case is centered on the principle that lying in an investigation obstructs justice. That’s an important point in the legal process. It’s probable that the government has selected such a high-profile celebrity to try to send a strong signal to those who may be tempted to lie in future investigations.
It is important that no one obstructs the path to truth and justice in any investigation. But it should work both ways and apply to the government, as well. In fact, the government should probably be held to a higher standard. After all, most senior officials in the government swear an oath of office to upholding the Constitution and truth and justice.
I believe that the Commodity Futures Trading Commission (CFTC) is obstructing justice in its regulation of the COMEX silver market. I don’t know if the CFTC’s obstruction is based upon malfeasance or incompetence. But that doesn’t really matter. They are guilty of obstruction. This is a strong allegation, and it is one I do not make lightly.
The CFTC is openly shirking its responsibility of preventing market manipulation in the silver market. This is the primary reason why the CFTC and US commodity law exist. Every other responsibility is secondary. Therefore, it is incumbent upon the CFTC to be alert should they receive credible allegations of a market manipulation. That is not happening, and it is why I say that the CFTC is obstructing justice.
There is no doubt, in my mind, that the silver market is manipulated. Every day, more and more people agree. Manipulation is the number one crime in any market, and preventing it is the chief responsibility of our regulatory structure. The silver manipulation is proved by the law of supply and demand, which dictates that the price of a commodity must rise if consumption is greater than production. The very existence of silver “leasing” and the largest uneconomic naked short position in history are visible manifestations of the manipulation, as is the depressed and controlled price for two decades.
The CFTC (and the self-regulators at the NYMEX/COMEX) are obstructing justice by avoiding an open and public “trial” of the silver manipulation. Who knows, maybe they have good answers to the simple questions I have asked them. Maybe they have good reasons for not adopting the solutions I have offered. But, their refusal to even discuss these substantive issues is not comforting. What would happen to Martha Stewart, or any defendant, if no defense to government accusations was offered? What would happen if subpoenas and trial dates were ignored? Then why should a government, of, by and for the people be allowed to simply ignore and evade what is clearly a public mandate? What happens if the public presses the government to redress an obvious wrong and the government refuses? What if great numbers of concerned citizens demand the government to enforce existing law and the government looks the other way? Where does the majority turn to seek an open and impartial setting to judge whether their concerns are legitimate or not?
There are close to 3000 names on the silver petition, in addition to countless letters sent to the regulators, demanding a resolution of the silver manipulation. I have not seen one comment, from anyone, suggesting that the regulators should not address the issue. It’s as if the CFTC and the COMEX are intentionally trying to undermine public confidence in the integrity of the silver market. Refusing to respond quickly to legitimate questions about obvious problems, accompanied by fair solutions, asked by thousands of regular investors will not foster integrity.
I would like to put something into perspective here. I know hundreds of you have taken the time and effort recently to write to the regulators about this matter, and I know thousands of you have put your name and comments on the petition. For that, I thank you. What you have done, in my opinion, is to accelerate the timetable on what is a certain and inevitable outcome – the termination of the silver manipulation. I believe we are reaching critical mass.
When I initiated my campaign to end the silver manipulation in 1985, it basically consisted of writing to the CFTC and COMEX (directly and through elected officials) concerning the outsized dealer short position. I’d mail a letter, get a non-responsive reply a month or two later, write back advising why their answer was non-responsive, and initiate a new series of complaints as new evidence arose. This went on nonstop for up to 12 years, as did the silver manipulation. It was basically between them and me, and they disregarded me. There was nothing I could do about it, except start all over again.
Around 1996-97, I was introduced to the Internet and began to record my thoughts there. I still wrote to the authorities, and the silver manipulation continued, but others started to see what I was seeing. Others began to speak out about the manipulation in silver. People started to become outraged over the manipulation. I think this makes all the difference in the world. Regulators and government officials only seem to react when enough folks get angry. Precisely because so many regular people seem to be upset by this issue, I believe the regulators will be forced to act soon. If they don’t, they will be swept up with the real manipulators when this thing blows.
The key issue here is the excessive short position by the dealers on the COMEX. It has been instrumental in the 20 year silver manipulation. Let me be clear – without the uneconomic and outsized naked dealer short position, the price would be many times what it is currently. Take away that dealer naked short position, and there is no more silver manipulation. This is a problem for the dealers – they can’t get out of their short position. Sure, they can engineer sell-offs to cause technical fund and small speculator liquidations (like we’ve been witnessing), but they can’t completely cover their entire short position. That’s because there is no one willing to take their place on the short side. The dealers are stuck. They can’t just cover or buy back their shorts because that would cause the price to explode and expose them to massive losses and a legal quagmire. Since they can’t cover, their short position remains intact, as does the manipulation.
But time is not on the side of the dealers. The clock is ticking against them. That’s because of the real supply/demand situation and the deficit. Sooner or later, their uneconomic short position will consume them. That’s guaranteed by the law of supply and demand. In fact, there are two recent developments that promise to put serious pressure on the manipulative shorts. For one, we have recently evolved into pronounced deficits and shortages for a good number of base metals, like copper, nickel, lead, steel, and a host of other commodities. The deficits and shortages in all these commodities are as a result of surging world demand, principally caused by strong demand from East Asia. Prices are up sharply and inventories are down sharply. Like all these commodities, silver is demographically and economically sensitive. As I’ve written before, if the world economy is strongly demanding copper, lead, nickel and other commodities, it is impossible for silver not to also be in strong demand. This is not good for the shorts.
The second recent development putting pressure on the manipulative shorts is what I wrote in the body of this article, namely possible regulator involvement. Thousands of regular investors are putting pressure on the regulators to address their legitimate concerns. This is a bonus particular to silver, and not any other commodity. It has the potential to blow the market sky-high, by terminating the decades’ old manipulation. In fact, I think the regulators may be forced to give the silver issue a full and fair trial. That’s all we want; nothing more, nothing less. If they can throw the book at Martha Stewart, the government can, at the very least, look at the dealers’ silver books. Those dealers have caused a lot more economic harm that Ms. Stewart ever did. And the CFTC has obstructed justice a heck of a lot more, as well.