Date: Fri Dec 04 1998 19:53
LazloT (Reprinted from The Spotlight) ID#316200:
Copyright © 1998 LazloT/Kitco Inc. All rights reserved
Wall Street's Golden Egg Is Scrambled
Borrowing gold dirt cheap, a leading hedge fund used the gold to finance its
investments. Then the house of cards came tumbling down.
Exclusive to the Spotlight -- By Martin Mann
New York City, New York - The White House is quietly assembling a task force of
federal investigators to look into reports that a back-room syndicate of Wall
Street's largest banks and hedge funds has been engaged in vast and risky
speculative maneuvers that involved, among other tactics, rigging the market value
and global supply of gold.
This vital precious metal has been bought and sold for more than a year in large
quantities at unnaturally low and stagnant price levels in both of the world's principal
gold trading centers, London and New York, sources noted.
When Federal Reserve Chairman Alan Greenspan engineered an emergency bailout
worth billions last September for a foundering East Coast hedge fund, known as
Long Term Capital Management ( LTCM ) , regulators found that this private
investment firm had assumed large hidden trading positions in gold.
That was a disturbing discovery, sources say. LTCM was known for wheeling and
dealing in the securities and currency markets, but not in commodities.
“They made enormous bets on stocks, bonds and even Asian currencies,” says
veteran financial analyst Ron Welker. “When they suddenly went bust in late August,
they were in danger of defaulting on speculative forward contracts worth a
staggering $200 billion. But gold was never supposed to be part of LTCM's
portfolio.
“LTCM used gold merely as an instrument to finance its gambles,” says Welker.
“They found that they could borrow gold in any quantity at dirt-cheap interest rates,
often amounting to no more that one and one-half percent. They immediately sold
their borrowed bullion, and thus acquired funding on which they paid only minimal
interest, far below the prevailing loan rates.”
There was a catch, of course. “Gold prices had to be kept stagnant, otherwise
LTCM would have incurred a loss, instead of a profit, when its gold-borrowing
contracts expired and it had to buy back the bullion it had sold in order to return it
to the lenders,” Welker explained.
But LTCM was not alone in making mammoth speculative bets in the financial
markets, regulators found.
“Wall Street's largest commercial and investment banks are increasingly acting like
hedge funds themselves,” says Tracy Corrigan, who covers U.S. money markets for
The Financial Times, the prestigious business daily based in England.
Behind the scenes were the Rockefeller dynasty's flagship, Chase Manhattan
conglomerate, Citigroup, the largest U.S. financial services corporation, and
Bankers Trust. They were all found to have turned to the sort of high-risk
speculation characteristic of hedge funds.
”They all reported losses running into the billions after LTCM's collapse”, says
Welker. “Many of these magabanks were apparently also involved in borrowing and
manipulating vast amounts of gold to finance their betting streaks.”
SPECULATIVE RAIDS?
Was gold used to help fuel the speculative raids that wrecked the economies of
half-a-dozen Asian countries last year? A group of regional leaders, led by Prime
Minister Dr. Mahathir Mohamad, Malaysia's long-ruling nationalist strongman,
wants to know.
Moreover, as this issue of The Spotlight went to press, it was learned that at the
Clinton White House, a recently formed and mysterious authority known as the
President's Working Group on Financial Markets is moving to coordinate its own
broad investigation of these speculative excesses that have roiled the worlds financial
and commodity markets in recent months. |
