Thank You, Mr. Spitzer
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.)
The market structure, as indicated by the latest Commitments of Traders Report (COT), continues to support a liftoff in prices. While there was a slight deterioration in the latest COTs in gold and copper, silver hardly worsened at all. Remember, the reporting period covered a time of a rally in prices. And since we had significant tech fund selling and dealer buying in the three days since the Tuesday cutoff, undoubtedly the structure has improved. It’s no fun to see silver suddenly sell-off 30 or 40 cents, but it did allow the dealer wolf pack to close out as many as 5000 more net silver shorts.
After observing them for over 20 years, I still can’t tell if the brain-dead tech funds are truly as dumb as they appear for selling silver in the hole, once again, or if there’s a more nefarious reason for their consistently stupid behavior. I suppose it doesn’t really matter, since it has set the silver market upon the launch pad one more time. The only question that remains to be answered is will the dealer wolf pack sell short on the next real rally. I say no, and we’ll find out soon enough. But make no mistake – we are at, or very close to, the moment of truth.
Last week, I wrote about the surprise announcement that AIG was relinquishing its market making role in silver (and gold) on the London Bullion Merchant Association. The news had been literally out for only hours when I wrote about it. I was quick to label it as being profoundly important for the silver market. I still believe that is the case. I’ve reflected on this development for a week now, and would like to expand on it.
The responsibility for this remarkable sea change in the silver market can perhaps be traced to one man – Eliot Spitzer. Sure, it took the efforts of many of us to raise and frame the issue in the first place, but it’s my guess that without the presence and stature of Attorney General Spitzer, I’m afraid we would be howling at the moon. Without Spitzer taking a look, it would be business as usual for the wolf pack.
I know that many of you had come to doubt that Mr. Spitzer would intervene on our behalf, given what seemed an interminable passage of time for a crime in progress. I understood this, and although I maintained strong public faith in the man, I confess to my own occasional private moments of doubt. Especially considering how manhandled the silver market has continued to be by the dealer wolf pack.
But the one thing that caused me to maintain my faith in Spitzer was by asking myself the same thing I always ask when I’m trying to anticipate how someone else will react, namely, if I were in his place, what would I do? This is a rule I try to live by, that I think is too often neglected. It’s easy to criticize, particularly public officials for the problems of our day. But if you make the conscious effort to try and place yourself in their shoes, in the here and now, and project what you would do, if you were them, it gives you pause for thought. None of this – I wouldn’t have gone into Iraq in the first place, or I never would have let the debt become so large – it would be easy if we could undo things. I’m talking about what we would each do now, in the other guy’s shoes, with current conditions. As I’ve written previously, it’s a pet peeve of mine to criticize without offering a solution.
In the case of Spitzer, I asked myself often, what would I do in his place? Not what I would do to these silver crooks (which would be too extreme to even write about), but what would I do if I were him, the NY Attorney General? The very first thing I would do, if I were him, would be to deal with it as privately as possible. There was absolutely no need for him to keep us all apprised on what he was doing. Let’s face it – if the silver market is manipulated as I believe and allege, this is a very big problem. Some of the biggest firms in the financial world appear to be involved. Considering the possible ramifications to the financial system, if you are the AG, you don’t go in with guns blazing. You try to fix the problem with as little collateral damage as possible.
In one of Eliot Spitzer’s first Wall Street encounters, he extracted a $100 million settlement from Merrill Lynch, in the research analyst scandal, which led to the billion+ dollar settlement with other firms. He was criticized for letting them off too gently. He admitted he probably could have criminally indicted Merrill, but was worried about the potential impact on the system and society. Would it serve the greater good to destroy Merrill Lynch, or other large financial firms, as opposed to punishing them and making sure the bad behavior doesn’t recur? These are the things you must consider, if you are in his shoes.
People can believe whatever they want to, including that Eliot Spitzer isn’t responsible for AIG pulling in its horns in silver. But as the guy who raised the name AIG in the first place, there is no doubt in my mind as to Spitzer’s role. And if the remaining Silver Managers in the wolf pack think it will be business as usual for them with AIG’s reduced role, they will be underestimating what I think is Spitzer’s determination and sense of right and wrong.
In this day and age of general disappointment with our elected officials, it is easy to paint all with the same brush. In my opinion, it’s important to recognize when a public servant goes beyond doing what is minimally expected, and takes the initiative to do much more as I think Mr. Spitzer has done. If that’s the case, there’s no better public servant out there than Eliot Spitzer. The enclosed letter is self explanatory.
June 7, 2004
The Honorable Eliot Spitzer
State of New York
New York, NY 10271
Dear Attorney General Spitzer:
On behalf of myself and the more than 3500 individuals who signed the silver petition and/or wrote to you separately, I want to extend my sincere thanks and gratitude for what I believe to be your contribution in this matter. If true, you are a noble servant of justice and the common man.
In little more than six months the large commercial dealers have become reluctant to hold the concentrated naked short positions that they held in the past. I see an obvious change in silver delivery patterns, in particular, by AIG. I sense the chance of a COMEX silver delivery default has grown extremely remote. These accomplishments alone would warrant much gratitude and praise.
But it is the announcement last week that AIG is suddenly abandoning its long term market making role in silver (and gold) on the London Bullion Merchant Association, that caps your achievements to date. This is a profoundly favorable development for all those who value market integrity.
Of course, the task is not complete, as the silver market still remains controlled by other powerful dealers, and can not yet be considered free by any reasonable person. I believe it’s probable that you understand this and will not rest until the job is finished.
If that’s correct, it is important to recognize you as a public servant who works effectively towards the common good. When I look at the many important issues you and your office deal with daily, what you’ve likely achieved so far in silver is remarkable. I can only hope that your public life is long and unlimited in scope.