Ted Butler says the ten-year anniversary of the failure of prominent investment bank Bear Stearns, and its takeover by JP Morgan, is cause for reflection…
No doubt that the ten-year anniversary of the failure of the prominent investment bank, Bear Stearns, and its takeover by JPMorgan is cause for reflection. Bear Stearns was a force to be reckoned with and held a storied past on Wall Street and its fall was a seminal financial event. To that end, there have been any number of retrospective articles, most often offering the perspective of the major players involved and what the takeover meant to the acquirer, JPMorgan.
The general theme is that Bear Stearns failed because of mortgage securities gone bad and that JPMorgan, had it realized the enormous legal fees and fines it would be forced to pay as a result of the takeover, would not do so again. Like many, I was transfixed by the daily events that led up to that fateful weekend in 2008 when Bear’s failure and JPMorgan’s acquisition occurred. About the very last thing on my mind at the time was any direct connection with silver or gold. It would be months before I came to realize that JPMorgan’s takeover of Bear Stearns would be the most important development in the modern history of silver.
To this day, I have never seen any mainstream media article even mention silver and gold in connection with the takeover of Bear Stearns, and after ten years I wouldn’t expect that to change. Never mind that Bear Stearns failure coincided, to the day, with gold hitting all-time highs (over $1000) and silver hitting 30 year highs ($21). Even though it’s easy to calculate that Bear lost more than $2 billion in being short gold and silver from yearend 2007 to mid-March 2008, never is that fact mentioned in any mainstream account.
But in a turn of events quite personal, but supported by any number of verifiable facts, a completely different picture emerged to me. In fact, there were a series of events that would follow JPMorgan’s takeover of Bear Stearns in March 2008 that make it clear just how important the takeover was in the history of silver.
On May 14, 2008, barely two months after JPM’s takeover, the CFTC issued its second 16 page public letter in four years, denying there was any problem with a concentration on the short side of COMEX silver by large entities. Both public letters were in response to numerous complaints by readers received by the Commission about a silver price manipulation alleged in articles I had written. The public letters were widely trumpeted as proving there was no manipulation (mostly by those previously convinced there was no manipulation to begin with). Naturally, I was disappointed and disagreed with the agency’s findings, but at that point, I was still completely in the dark and unaware of any Bear Stearns connection.
All that changed a few months later when I happened to check on a report regularly issued by the CFTC in the form of the monthly Bank Participation Report of August 2008. The BPR was hardly followed by anyone at that time and, truth be told, in all the years I had reviewed this report, I never learned much from it (other than knowing that banks were generally on the short side of COMEX gold and silver futures). So when I first reviewed the Bank Participation Report of August 2008 (about two weeks after it had been published), I expected a rehash of what I had always experienced before, namely, a report that added little to my understanding of silver and gold. Instead, what I discovered would change my understanding of silver and gold tremendously.
Having first reviewed the report early in the evening, what I found was so confounding that I wouldn’t sleep at all that night, made worse by not being able to bounce my findings off anyone, given the late hour. What I found was a shockingly large increase in the short positions in COMEX silver and gold futures by one or two US banks from the July Bank Participation Report. I took the shockingly large increase at face value, namely that a big US bank (or banks) had sharply increased its gold and silver short positions over the prior month. Since this was at the heart of what I had been alleging for more than 20 years to that point, I concluded that the CFTC had a good bit of explaining to do.
As a result of the article and the attention it received, the CFTC announced it had opened an investigation into an alleged silver market manipulation by its Enforcement Division in September 2008, even though it had concluded just months earlier in its second public letter in four years that no manipulation existed. The new investigation would last five years before it was closed in 2013 (no, I was never contacted in connection to that investigation).
As luck would have it, a number of readers were concerned enough about my allegations in the “The Smoking Gun” article that they took it on themselves to write to their elected officials who, in turn, wrote to the agency seeking comment on my findings. The CFTC responded to the various congressmen and senators that I had it all wrong, in that there was no big increase from July to August in the US bank category for short positions in COMEX silver and gold. Instead, the increase in the 2008 August Bank Participation Report represented the finalization of a merger earlier in the year of an investment bank by a commercial bank. Bingo! – Another Eureka moment.
Since Bear Stearns was classified at the time as an investment bank, not a commercial bank, it’s massive short positions in COMEX silver and gold were never included in the Bank Participation Report and I had no idea that it was the big short seller (same with AIG Trading which was the largest short seller before Bear Stearns). Of course, I knew there was an unusually large concentrated short position in COMEX silver for many years, but I could only guess at who the biggest short might be. But all that changed when JPMorgan took over Bear Stearns, although I would have to wait until the Bank Participation Report of August 2008 and the subsequent letters from the CFTC to various lawmakers confirmed it was JPMorgan who was now the big silver crook and manipulator.
The revelation that JPMorgan was the biggest COMEX silver and gold short changed everything. No longer would I have to confine my allegations of manipulation to some unnamed financial institutions, now I could point to JPMorgan as the big silver and gold market crook of crooks. Not only could I now provide the name of the biggest market crook, I could do so with complete immunity from blowback from JPMorgan, arguably the most powerful financial institution in the world (although I wasn’t so sure of no blowback at the time). I certainly didn’t waste any time in pointing the finger at JPMorgan in the fall of 2008 (a year before I started this subscription service) and I have continued to point the finger at these crooks for almost ten years non-stop.
The discovery, in September 2008, that JPMorgan was now the largest short seller in COMEX gold and silver made it clear that the CFTC lied in its previous public letters denying there was no problem with big shorts in the silver market. Two months before the CFTC said there was no problem for the second time publicly (in May 2008), the biggest short went under and needed to be taken over, most likely because its big silver and gold short positions moved drastically against it. No problem indeed.
So clear was the proof that JPMorgan was now the central precious metals manipulator that I took to looking at the market through the eyes of JPM. In doing so, I believe I have come to look at silver and gold in the most realistic manner possible. Without the CFTC’s letters to lawmakers confirming both Bear Stearns’ previous role and JPMorgan’s subsequent role in silver and gold, I’m not sure if anyone, including myself, would be aware of what JPMorgan has wrought over the past ten years. I suppose I would have picked up on JPMorgan’s massive accumulation of physical silver which started in early 2011 at some point absent the great revelations of 2008, but nowhere near as quickly as I did.
My version of what really occurred in the takeover of Bear Stearns by JPMorgan includes JPMorgan being subsequently caught off guard by the big run up in silver prices into April 2011, which I contend was as a result of a physical market tightened by investment buying and not by positioning in COMEX futures contracts. With JPMorgan caught short on COMEX contracts and facing severe potential damages, it set about to do two things; one, extricate itself from the silver run up by setting off a series of price smashes starting on May 1, 2011, designed to kill off physical investment buying (mostly in silver ETFs) and two, insuring it never faced a similar predicament by buying as much physical silver as possible as a means of covering its massive COMEX paper short position. That JPMorgan accomplished both of its objectives starting in April 2011 is now a matter of public record.
Only after JPMorgan bought enough physical silver by 2012 to 2013 to cover its COMEX paper short position, did it realize it didn’t have to stop accumulating metal as a defensive measure; but that it had the means, motive and opportunity to turn what was a highly defensive original motive into a highly offensive one in terms of an unprecedented pure money making opportunity. Why else would JPMorgan, perhaps the purest example of a profit making machine, go on to buy 700 million ounces of physical silver, if not to profit? Not that it may matter much when JPMorgan switched from defense to offense, but none of this would have probably occurred had JPMorgan not taken over Bear Stearns. That’s why I feel the takeover is the most important development in the modern history of silver.