In Ted Butler's Archive


A new thought occurred to me about the extraordinary Federal Reserve accommodation in the repurchase (repo) market that erupted in mid-September. I’d be lying if I claimed to understand exactly what’s going on, except to know that truly astounding amounts of money (many hundreds of billions of dollars) are involved and that certain facts seem clear. Most reports point to JPMorgan as being at the heart of the expanding repo drama. What follows is unadorned speculation about a possible connection between JPM’s role in gold and silver and the developing repo saga.

The Justice Department investigation into precious metals price manipulation by JPMorgan traders must be considered mature at this point. The first guilty plea was secured more than a year ago and has been followed by another guilty plea and indictments of enough JPM traders to raise the question of whether there were any precious metals traders at the bank operating legitimately. The Justice Department has gone out of its way to label the precious metals desk at JPMorgan as a criminal enterprise and has used the RICO statute in bringing charges – virtually unprecedented actions. The DOJ has left unanswered the question of whether its allegations of a criminal enterprise apply to the traders or also to the bank itself. The answer to that question is beyond monumental.

I had come to the opinion that the Justice Department doesn’t have the chutzpah to charge JPMorgan as a criminal enterprise, not because the charge wouldn’t be fitting, but because of the widespread financial and economic damage that would result from the most systemically important financial institution in the U.S. possibly being put out of business by such a serious charge. Any decision not to charge the bank itself still seems to me to be rooted in the fear of the unintended consequences for society in general that might result should the DOJ lower the boom on JPMorgan.

But perhaps I’m wrong and the Justice Department has been acting tough with JPMorgan behind the scenes. Certainly, it’s virtually impossible that senior management at JPM could not have been aware of the widespread allegations of price manipulation in precious metals that have persisted since the bank took over Bear Stearns in 2008. After all, the protection of JPMorgan’s reputation is an integral function of management, right up to the Board of Directors level. In addition, I’ve personally sent the bank’s CEO and board at least 1,000 of my articles which explain JPM’s illegalities. Therefore, it is impossible that senior management at JPMorgan was unaware of the ongoing precious metals manipulation at the hands of its traders.

It is also certain that the Justice Department has been in close and constant negotiation with JPMorgan about the very serious charges of precious metals manipulation and whether to charge the bank’s senior management as being aware or complicit in the crimes alleged and from which guilty pleas have been secured. This puts senior management in the crosshairs, potentially vulnerable to having their employment terminated or worse (ending up in the big house).

What if the DOJ has insisted on the dismissal of high-placed senior management for overseeing the criminal enterprise on the precious metals desk? What possible counteraction could senior management take when faced with dismissal, the loss of personal reputation or worse?

One of the few ways JPM senior management could fight back is by demonstrating just how important the bank is to the financial system and the economy and that the DOJ better tread lightly before charging the bank or its senior management as being complicit in the precious metals manipulation. What better way to do that than by throwing a monkey wrench into the repo market? Charge us and we’ll bring down the entire system. I suspect the whole repo crisis was deliberately initiated by JPMorgan as a means to persuade the Justice Department to back off in charging the bank or its senior management in the precious metals manipulation. While this is, admittedly, unadorned speculation on my part, it is also simply the connection of several factual dots. Furthermore, experts are predicting the repo market crisis is going to get much worse.

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