An example of how paper silver is used to illegally manipulate the silver market
A good example of how paper silver, especially silver derivatives, is used to illegally manipulate the silver market is the naked short selling of silver by J.P. Morgan Chase, a global financial services firm. They hold the world’s largest short position in silver (of which a large portion of the position is naked).
To understand the implications of the above we need to look at a couple of definitions first…
Short selling: “Short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender. The short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase, as the seller will pay less to buy the assets than the seller received on selling them. Conversely, the short seller will incur a loss if the price of the assets rises. Other costs of shorting may include a fee for borrowing the assets and payment of any dividends paid on the borrowed assets. “Shorting” and “going short” also refer to entering into any derivative or other contract under which the investor profits from a fall in the value of an asset” (Wikipedia).
In other words, you sell assets, normally securities or commodity futures (e.g. silver futures), which you borrowed in the hope of buying it back later at a lower price. You thus expect to profit from a drop in the price of the relevant assets.
Naked short selling: ”Naked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame, the result is known as a “fail to deliver”. The transaction generally remains open until the shares are acquired by the seller, or the seller’s broker, allowing the trade to be settled. Short selling is used to anticipate a price fall, but exposes the seller to the risk of a price rise” (Wikipedia).
In other words, you illegally sell assets, normally securities or commodity futures (e.g. silver futures), without borrowing the assets first or making sure you can borrow it (or that it even exist!).
If you hold a short position you’ve sold assets, normally securities or commodity futures (e.g. silver futures), which you borrowed in the hope of buying it back later at a lower price.
On the other hand, if you hold a naked short position, you’ve illegally sold assets, normally securities or commodity futures (e.g. silver futures), without borrowing the assets first or making sure you can borrow it (or that it even exist!).
More about naked short selling before we move on and look how J.P. Morgan Chase uses paper silver to manipulate the silver market…
Here’s an extract from an article titled “Gold Comedic Value of Naked Short Paper” done by Richard Daughty (alias Mogambo Guru) on the 1st of October 2010 (gold is used as an example but the same principals apply to the illegal short selling of silver):
START OF EXTRACT
And how does this “naked-short paper gold” thing work? Perhaps best explained by example, imagine Apu, famously of the Kwik-E-Mart of The Simpsons TV show. The scene opens with the doors of the convenience mart opening, and in walks some nice, trusting guy, to whom Apu says, “Hello, sir! How may I be of service today, valued customer? A Double-Blast Raspberry Squishee, perhaps?”
The customer says, “I want to buy an ounce of gold.” Apu cheerfully replies, “Excellent! Here is a piece of paper that says it is worth one ounce of gold. That will be $1,000. Thank you! Come again!”
As the scene unfolds, The Mogambo Guru – appearing on The Simpsons in the role of Sgt. Joe Friday – is acting in a terrific scene that is a parody of the old Dragnet TV show. The script continues that Sgt. Friday enters and asks:
Sgt. Friday: Do you have an ounce of gold to back up that paper gold that you just sold that man?
Apu: No, sir, I do not.
Sgt Friday: So you are naked-short gold?
Apu: What is this naked-short gold of which you speak, inquisitive customer?
Sgt. Friday: It’s when you can’t back up your contractual promise of delivery-on-demand of a tangible item with the tangible item already in inventory.
Apu: In that case, yes, I am naked-short, sir! And I am naked under my apron, too!
Sgt Friday: Just the facts, sir.
Apu (brightly): That IS a fact, sir!
Well, the question is not about how the quality of comedic dialog found in Simpsons episodes has suddenly declined, but, “How much money has Apu potentially lost by having a liability of one ounce of gold, for which he “sold” for $1,000, now that gold is worth $1,300?”
Since this seems to be a matter of simple subtraction, I quickly ascertain that Apu has a bookkeeping loss of $300, and a real $300 loss if that guy wants to redeem his piece of paper for the ounce of gold it represents!
Things are different in real life, of course, in that the numbers are all bigger, and nobody refers to me as “valued customer” but as “That crazy old guy is back!” and who see me as, apparently, a goose to be plucked, like the gold and silver naked-shorts of the commodity exchanges are getting plucked, although they are more like vipers than geese.
I wonder aloud, “How much money has been plucked from them?”
END OF EXTRACT
Given the extract above, it should be clear to even the most feeble minded among us what is meant by naked short selling and that it’s illegal, even in this system where the use of paper silver, especially silver derivatives has been legalized as a form of thievery.
Ok, let’s move on and look how J.P. Morgan Chase uses paper silver to manipulate the silver market on a massive scale…
In March 2010 independent British precious metals trader, Andrew Maguire, exposed systemic fraud and manipulation in the gold and silver commodity markets amounting to billions of dollars despite risk of injury to himself and his family. J.P. Morgan Chase traders in London have allegedly sold gold (and silver) on paper to the tune of USD5.5bn without any physical gold or silver available to back any of the relevant sales. Maguire reported the relevant fraud and manipulation to the Commodity Futures Trading Commission (CFTC), which they’ve chosen to largely ignore, despite detailed evidence backing Maguire’s claims.
We can already see some stepping out in defense of J.P. Morgan Chase with phrases such as: “Maguire had a vendetta against J.P. Morgan” or “it’s not possible, J.P. Morgan Chase is the world’s most trusted and respected financial institution” or “these guys are crazy. I am sick and tired of conspiracy theorists” or anything down those lines…
Well, believe it or not, but the “trusted and respected” J.P. Morgan Chase has a history of market manipulation, securities fraud and other irregularities. In fact, let’s give you a few examples, which you can research for yourself if you don’t believe us:
2002 – Blanchard and Co., the largest U.S. retailer in gold bullion and gold coins, files lawsuit against J.P. Morgan Chase and Barrick Gold Corporation for allegedly manipulating the price of gold.
2005 – J.P. Morgan Chase agrees to pay $2.2bn to Enron investors following the firm’s involvement in the accounting scandal that caused Enron’s collapse.
2006 – J.P. Morgan Chase agrees to pay $425m to settle a lawsuit for alleged market manipulation during the technology boom of the late 1990s where initial public offerings were of a concern.
2007 – American Express agrees to drop lawsuit against Visa, MasterCard and individual banks (including J.P. Morgan Chase) for illegally excluding American Express from the bank-issued card business within the States. The settlement amount comes to approximately $2.25bn.
2009 – “In November 2009, J.P. Morgan Chase & Co. agreed to a $722m settlement with the U.S. Securities and Exchange Commission to end a probe into sales of derivatives that helped push Alabama’s most populous county to the brink of bankruptcy” (Wikipedia).
2010 – Idearc shareholders file a class action lawsuit against J.P. Morgan Chase for alleged insider trading, common law fraud and securities fraud.
Ok, given the above, do you really believe J.P. Morgan Chase can be trusted and respected? Hell no! Can you now see the utmost importance of acquiring physical silver instead of opting for paper silver?