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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Ironyman who wrote (45250)	11/23/1999 7:42:00 PM
From: Alex	Read Replies (1) \| Respond to of 116766

Uncomplicated questions on gold casualties by ANTHONY HILTON, City Editor A FEW YEARS back, Merrill Lynch in the US made a lot of money selling derivatives to the financial controller of Orange County, a municipal authority sandwiched appropriately enough between Los Angeles and Disneyland. The problem with these derivatives was that they went the wrong way and Orange County was effectively bankrupted by the exposure. Subsequently there was much huffing and puffing by regulators and, though no wrongdoing was admitted by Merrill Lynch that I can recall, there was a widely-held view that the firm had been a bit overzealous in selling sophisticated financial products to a relatively unsophisticated local authority. Orange County is being re-enacted right now in London. This time, the derivatives that have done the damage are gold futures and options. The sellers were the investing houses. The unsophisticated investors were mining companies. No one has a definitive list of the firms principally involved in the selling but the names that crop up most frequently in industry newsletters include Goldman Sachs, Chase Manhattan, Republic National Bank, American International Group, JP Morgan and UBS. The miners that have been caught allegedly include Ashanti, Newmont, Barrick and Placer Dome. The financial derivatives these companies bought have at worst bankrupted them and at best mortgaged their future production and profits for months and years to come. Clearly, when the managements bought these products they did not anticipate this outcome. But the question is whether, as in the Orange County case, they had no idea that such a disastrous outcome was possible, or whether they went knowingly into the risk. If ignorant, it raises the question of whether they were being sold appropriate products. One then has to ask whether the rules governing the behaviour of consenting adults in the wholesale markets should apply to the investing houses, or whether they should meet more demanding regulatory standards for dealing with the unsophisticated. Regulators in London are, publicly at least, pretending nothing untoward has happened. Good luck to them. But they should remember Murphy's Law. This problem will not go away and will probably boil over just as the Financial Services and Markets Bill, designed to legitimise the financial Services Authority and protect the City from scandals, is at a crucial stage in the Commons. The reaction of the Government and the Opposition if and when that happens will be marvellous to behold, though I doubt it will do the City much good. ¸ Associated Newspapers Ltd., 23 November 1999 Terms and Conditions This Is London thisislondon.co.uk