Thursday, November 13, 2014

The CIA and Drugs, Inc.: a Covert History

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Gary Webb was a good investigator. He linked a drug dealer in Los Angeles, through Contra suppliers, to CIA officers and Republican politicians. His editor let the story rip, and the “Dark Alliance” series made a mighty impact on Black Americans, who saw it as evidence that the ruling class was as racist as ever.
Webb stuck a stake in the evil heart of the national security state and embarrassed the CIA’s contacts in the mainstream media. All of which was unforgiveable. Pressure was applied, history re-written, and Webb, in despair, apparently committed suicide.
The irony, of course, is that Webb had exposed only a small part of the story. The fact of the matter is that the US government has always managed large portions of the illicit, international drug business, and was doing so long before the CIA came into existence.
Documented cases abound, like the Opium Scandal of 1927, in which a “former” US Attorney in Shanghai provided a Chinese warlord with 6500 Mausers in exchange for $500,000 worth of opium.
Two years later, US Customs inspectors found a huge quantity of opium, heroin, and morphine in the luggage of Mrs. Kao, the wife of a Nationalist Chinese official in San Francisco. At which point Secretary of State Henry L. Stimson hustled Chiang Kai-shek’s ring of drug dealing diplomats out of the country.
The State Department likewise protected a ring of drug smugglers in 1934, and thus allowed heroin to pour into New Orleans. Two historians said about the Honduran Drugs-For-Guns case: “the defense of the Western hemisphere against the Axis powers…reduced to insignificance clandestine attempts to link the managerial personnel of a major cargo airline to smuggling.”[i]
As it was in the beginning, it is now and ever shall be: the ruling class’s power resides in its control of the criminal underworld; and since 1947, it has been the CIA’s job to advance and protect the conspiracy.
Consider the Federal Narcotic Bureau’s drug conspiracy case on Bugsy Siegel, which included Lucky Luciano and Meyer Lansky, both of whom had provided services to the US government during the war. The conspiracy had its inception in 1939 when, at Lansky’s request, sexy Virginia Hill moved to Mexico and seduced a number of Mexico’s “top politicians, army officers, diplomats, and police officials.”[ii]
Hill came to own a nightclub in Nuevo Laredo and made frequent trips to Mexico City with Dr. Margaret Chung, an alleged prostitute and abortionist, honorary member of the Hip Sing T’ong, and the attending physician to the Flying Tigers – the private airline the US government formed to fly supplies to Chiang Kai-shek’s forces in Kunming, a city described as infused with spies and opium. As the FBN was well aware, Dr. Chung was “in the narcotic traffic in San Francisco.”[iii]
Chung took large cash payments from Siegel and delivered heroin to Hill in New Orleans, Las Vegas, New York, and Chicago. And yet, despite the fact that West Coast FBN agents kept her under surveillance for years, they could never make a case against her, because she was protected by the American military establishment. Indeed, Siegel’s murder in 1947 may have been a government hit designed to protect its sanctioned KMT-Mafia drug operation out of Mexico. As Peter Dale Scott strengthobserved, right after Bugsy was squashed, Mexico’s intelligence service, the DFS, formed relations with the top Mexican drug lord, at which point the CIA “became enmeshed in the drug intrigues and protection of the DFS.” By 1950, Mexican drug lords were receiving narcotics from the Lansky-Luciano connection, which stretched to the Far East.
The CIA’s involvement in the Far East drug trade began with its predecessor organization, the Office of Strategic Services, which supplied Iranian opium to Burmese guerrillas fighting the Japanese. This is no secret: General William Peers, commander of OSS Detachment 101 in Burma, confessed in his autobiography: “If opium could be useful in achieving victory, the pattern was clear. We would use opium.” [iv]
OSS chief William Donovan and Chiang’s intelligence chief, General Tai Li, tried hard to control drug trafficking in China during the war. To ensure security for KMT smuggling operations, the Americans sent a team to Chungking to train Chiang’s secret political police force. The head of the team, Charles Johnston, was described as previously having spent fifteen years “in the narcotics game.” [v]
Johnston’s team and Tai Li’s agents worked closely with Chiang’s designated drug smuggler Du Yue-sheng. Tai Li’s agents escorted Du’s opium caravans from Yunnan to Saigon, where the Kuomintang used Red Cross operations as a front for selling opium to the Japanese. In so far as national security always trumps drug law enforcement, this operation was afforded the same immunity as OSS Detachment 101.
After the war, the Americans did nothing to stop the French from importing tons of opium from Laos, and selling it on the black market to finance their colonial war against the Vietnamese. During a visit to Saigon in 1948, an FBN agent reported that opium was “the greatest single source of revenue” for the French.[vi]
CIA drug ops took a great leap forward in 1949, when Mao chased Chiang to Taiwan, where KMT gangsters slaughtered thousands of people and set up a worldwide drug ring. To facilitate this particular criminal conspiracy in the name of freedom and democracy, US officials exempted a subsidiary of William Donovan’s World Commerce Corporation from the Foreign Agents Registration Act, so it could supply the KMT with everything from gas masks to airplanes. This subsidiary was accused of smuggling “contraband” to America.
Some of the “contraband” no doubt emanated from the KMT’s 93rdDivision, which had fled from Yunnan into Burma in 1949. In exchange for launching covert raids into China, these enterprising KMT forces were allowed to grow and export opium onto the black-market in Bangkok and Hong Kong. In the same way the Israeli Lobby blackmails and bribes Congress to achieve its criminal ends, the US China Lobby attacked KMT critics and launched a massive propaganda campaign citing the People’s Republic as the source of all the illicit dope that reached San Francisco.
To facilitate the drug trade emanating from its KMT army in Burma, the China Lobby raised five million dollars of private money, which the CIA used to create its drug smuggling airline Civil Air Transport (CAT). The aforementioned General William Peers, as CIA station chief in Taipai, arranged for CAT to support KMT incursions from Burma into Yunnan – and thus enabled the KMT to bring to market “a third of the world’s illicit opium supply.”[vii]
When Burma charged the KMT with opium smuggling in 1953, the CIA requested “a rapid evacuation in order to prevent the leakage of information about the KMT’s opium business.” The State Department announced that KMT troops were being airlifted by the CAT to Taiwan, but most remained in Burma or were relocated to northern Thailand with the consent of Thailand’s top policeman and drug lord. US Ambassador William J. Sebald wasn’t fooled by this chicanery, and rhetorically asked if the CIA had deliberately left the KMT troops behind in Burma to continue “the opium smuggling racket.”[viii]
Suborning the Police
The story of the CIA’s drug empire is the biggest cover-up in American history – even though the basic facts are available in books like Al McCoy’s The Politics of Heroin in Southeast Asia and Richard M. Gibson’s The Secret Army.
Organizing the cover-up initially depended on the CIA’s ability to suborn the Federal Bureau of Narcotics, which, as the conflict in Vietnam heated up, was forced to investigate the flow drugs from the Far East to America. Thus, in 1963, FBN headquarters sent Agent Sal Vizzini to Thailand to open an office in Bangkok. As Vizzini told me, “Customs was already in Vietnam, but only under the aegis of helping the soldiers. Apart from that, no one’s making cases in Vietnam, because the CIA is escorting dope to its warlords.”
Vizzini’s assertion was validated on 30 August 1964, when Major Stanley C. Hobbs was caught smuggling 57 pounds of opium from Bangkok to a clique of South Vietnamese officers in Saigon. Hobbs had flown into Saigon on the CIA’s new drug smuggling airline, Air America. Hobbs’s court martial was conducted in secret and the defense witnesses were all US army and South Vietnamese intelligence officers. The records of the trial were dutifully lost and Hobbs was fined a mere three thousand dollars and suspended from promotion for five years. As a protected CIA drug courier, he served no time.
The FBN Commissioner wrote a letter to Senator Thomas J. Dodd asking for help obtaining information about Hobbs. But Dodd was stonewalled too, proving that the CIA is able to subvert drug law enforcement at the highest legislative level in the nation.
Later in 1963, FBN Agent Bowman Taylor replaced Sal Vizzini in Bangkok. Taylor was famous for slipping into Laos and making a case on General Vang Pao, commander of the CIA’s private army of indigenous, opium-growing tribesmen. Taylor didn’t know the identity of the person he was buying from: he simply set up an undercover buy, got a flash roll together, and went to “the meet” covered by the Vientiane police. But when the seller stepped out of his car and opened the trunk, and the police saw who it was, they ran away, leaving Taylor to bust the felonious general alone.
“Yep, I made a case on Vang Pao and was thrown out of the country as a result,” Taylor acknowledged. “The prime minister gave him back his Mercedes Benz and morphine base, and the CIA sent him to Miami for six months to cool his heels. I wrote a report to the Commissioner, but when he confronted the CIA, they said the incident never happened.
“The station chiefs ran things in Southeast Asia,” Taylor stressed, adding that the first secretary at the Vietnamese Embassy in Bangkok had a private airline for smuggling drugs to Saigon, as the CIA was well aware. “I tried to catch him, but there was no assistance. In fact, the CIA actively supported the Thai Border Police, who were involved in trafficking.”
Taylor shrugged. “The CIA would do anything to achieve its goals.”
The 118A Strategic Intelligence Network
Not only was the CIA protecting Vietnamese warlords, their Corsican accomplices, and its private armies of opium growers in Laos, Burma and Thailand, it was managing the caravan that moved opium to the world’s biggest market in Houei Sai, Laos.
In 1991, in Chiang Mai, Thailand, I interviewed William Young, the CIA officer who set the operation up.
The son of an American missionary in Burma, Young had learned the local dialects before he mastered English. During World War II, his family was forced to move to Chiang Mai in northern Thailand, where Young’s father taught William Donovan the intricacies of the region’s opium business.
Following a tour of duty with the US Army in Germany, Young was recruited into the CIA and in 1958, posted to Bangkok then Chiang Mai. From Chiang Mai, Young led a succession of CIA officers to the strategically placed Laotian and Burmese villages that would eventually serve as Agency bases.
It was Young who introduced General Vang Pao to his first official CIA case officer.
From his headquarters at the CIA airbase at Long Tieng, on the south side of the opium-rich Plain Of Jars, Vang Pao conscripted 30,000 tribesmen, many as young as 13, into a secret army to fight the Pathet Lao and its Vietnamese allies. In exchange for selling his people as cannon fodder, he was allowed to make a fortune selling opium. Much of the brokering was done at the village of Houei Sai in western Laos. Pao’s front man was the chieftain of the local Yao tribe, but behind the scenes Young set up deals between Pao, the top Laotian generals and politicians, and the KMT generals inside Burma. The Burmese generals operated clandestine CIA radio listening posts inside Burma, and in return were allowed to move 90% of the opium that reached Houei Sai.
It was a happy arrangement until October 1964, when the Chinese detonated an atomic bomb at Lop Nor. That seminal event signaled a need for better intelligence inside China, and resulted in the CIA directing Young to set up a strategic intelligence network at Nam Yu (aka Base 118), a few miles north of Houei Sai. The purpose of the 118A Strategic Intelligence Network was to use a KMT opium caravan to insert agents inside China. The agents placed by Young in the caravan were his childhood friends, Lahu tribesmen Moody Taw and Isaac Lee. Young equipped them with cameras, and while in China they photographed Chinese engineers building a road toward the Thai border, as well as Chinese soldiers massing along it. Knowing the number and location of these Chinese troops helped the CIA plot a strategy for fighting the Vietnam War.
Once the 118A network was up and running, Young turned it over to CIA officer Lou Ojibwe, and after Ojibwe was killed in the summer of 1965, Anthony Poshepny took charge. A Marine veteran who served with the CIA in the Indonesia and Tibet, “Tony Poe” was the balding, robust model for Marlon Brando’s Colonel Kurtz in Apocalypse Now! Poe also served as a father figure to the junior CIA officers (including Terry Burke, a future acting chief of the DEA) he commanded in the jungles of Laos.
When I interviewed Poe in Udorn, Thailand in 1991, he said he “hated” Vang Pao because he was selling guns to the Communists. But Poe was a company man, and he made sure the CIA’s share of opium was delivered from Nam Yu to the airfield at Houei Sai. The opium was packed in oil drums, loaded on C-47s, and flown by KMT mercenaries to the Gulf of Siam. The oil drums were dropped into the sea and picked up by accomplices in sampans waiting at specified coordinates. The opium was ferried to Hong Kong, where it was cooked into heroin by KMT chemists and sold to the Mafia and Corsicans.
FBN Agent Albert Habib, in a Memorandum Report dated 27 January 1966, cited CIA officer Don Wittaker as confirming that opium drums were dropped from planes, originating in Laos, to boats in the Gulf of Siam. Wittaker identified the chemist in Houei Sai, and fingered the local Yao leaders as the opium suppliers.
By 1966, when FBN Agent Douglas Chandler arrived in Bangkok, the existence of the CIA’s 118A opium caravan was a known fact. As Chandler recalled, “An interpreter took me to meet a Burmese warlord in Chiang Mai. Speaking perfect English, the warlord said he was a Michigan State graduate and the grandson of the king of Burma. Then he invited me to travel with the caravan that brought opium back from Burma.” Chandler paused for effect.
“When I sent the information to the CIA, they looked away, and when I told the embassy, they flipped out. We had agents in the caravan who knew where the Kuomintang heroin labs were located, but the Kuomintang was a uniformed army equipped with modern weapons, so the Thai government left them alone.”
As described by Young and Poe, the 118A Strategic Intelligence Network was the CIA’s private drug channel to its Mafia partners in Hong Kong – people like Santo Trafficante, the Mafia boss the CIA hired to kill Fidel Castro, and protected ever thereafter. The same thing is happening today in Afghanistan, with the DEA providing cover for the CIA and military, just as the FBN did in the 1960s.
Which brings me back to Gary Webb. The CIA wasn’t happy that Poe and Young were talking. Poe was told to shut up after his chat with me, and he did. But Young sold his story to a major Hollywood studio for $100,000. And that was unforgivable.
On April Fool’s Day, 2011, Thai police found Bill Young’s corpse. It had been perfectly arranged with a pistol in his one hand and a crucifix in the other.
Maybe he was depressed too?
And it is seriously depressing, the fact our utterly corrupt government, aided by its criminal co-conspirators in the mainstream media, pretends as if the CIA doesn’t deal drugs.
Notes:
[i] Douglas Clark Kinder and William O. Walker III, “Stable Force In a Storm: Harry J. Anslinger and United States Narcotic Policy, 1930-1962,” The Journal of American History, Volume 72, No 4, March 1986, p. 919, note.
[ii] Ed Reid, The Mistress and the Mafia, p. 42.
[iii] Reid, Mistress, p. 90.
[iv] William Peers and Dean Brellis, Behind The Burma Road, Boston: Little Brown, 1963 p. 64.
[v] Milton Miles, A Different Kind of War, New York: Doubleday, 1967.
[vi] William O. Walker, Opium and Foreign Policy, University of North Carolina Press, 1991, p. 177.
[vii] Burton Hersh, The Old BoysThe American Elite And The Origins Of The CIA, New York: Charles Scribner’s Sons, 1992 p. 300
[viii] Walker, Opium, p. 210.

The “Double Government” Secret Gets Out: “Vote All You Want. The Secret Government Won’t Change.”

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You know something is going on when the cautious Boston Globe publishes not one, but two, pieces dealing with the “double government.”
This cryptic phrase encapsulates a serious claim about the American body politic: That a permanent and largely unaccountable bureaucracy keeps on doing what it wants to do, no matter who the voters elect to the White House.
Both of the Globe articles refer to “National Security and Double Government,” a book by Michael J. Glennon, professor of international law at Tufts University. From the descriptions of its contents (we haven’t read the book yet, but we will—and perhaps excerpt), the author is talking, with due academic caution, about an out-of-control security/military apparatus.
The fact that the Globe thinks this book is important enough to warrant not one but two analytical pieces is significant, because Boston was the scene of the mysterious Boston Marathon Bombing.
In the aftermath of that tragedy, the national security apparatus and its allies in the media, academia and corporate America (including, significantly, the Globe itself) rushed to discourage us from looking deeper at what happened—while at the same time the nat-sec folks used the event to further expand their influence at the expense of civil liberties.
The Secret Government
One of the Globe’s pieces was a highly favorable review of Dr. Glennon’s book by former Republican Congressman Mickey Edwards. Edwards, a co-founder of the staunchly conservative Heritage Foundation, has over the years become more and more of a maverick—and more outspokenly alarmed by the path America has taken.
The other piece, which appeared in the Globe the same day,was a Q&A with Glennon. The astonishing headline was:
Vote all you want. The secret government won’t change.
The sub-headline wasn’t much tamer:
The people we elect aren’t the ones calling the shots, says Tufts University’s Michael Glennon
The genesis of the book was a question that confounded Glennon about President Obama: How did a man who won election pledging to change the national security policies of his predecessor effect so little of that? Here’s what Edwards wrote in his review:
The answer Glennon places before us is not reassuring: “a bifurcated system — a structure of double government—in which even the President now exercises little substantive control over the overall direction of U.S. national security policy.” The result, he writes, is a system of dual institutions that have evolved “toward greater centralization, less accountability, and emergent autocracy.”
The paradox, Glennon says, is that this barely accountable government machinery actually arose from President Harry S. Truman’s attempts to reduce the military’s growing and unchecked power. The unforeseen outcome was the growth of an unaccountable civilian power center.
No Secret Conspiracy (Or Theory)
Glennon’s was hardly the first well-reviewed book to deal with this topic. In 2009 Janine Wedel, an anthropology professor at George Mason University, published Shadow Elite, which received lavish praise from Arianna Huffington and the endorsement of her “book club,” despite the fact that the Huffington Post itself has a strong aversion  to  publishing “conspiracy” stories.
Perhaps Wedel avoided being tarred with the hackneyed “conspiracy theorist” because she argues that the shadowy networks she describes are not necessarily criminal or in cahoots with multinational corporations, but merely the outgrowth of powerful and self-replenishing (if often incompetent) elites.
Glennon will likely avoid the damaging label as well, with extensive research and more than 800 footnotes in his book to back up his thesis. The author “is hardly the sort to engage in such fantasies,” Edwards wrote:
This is no secret conspiracy nor a plot to deprive Americans of their civil liberties. It is the unintended consequence of a thoughtful attempt to head off the very threats that those attempts have inadvertently created. But if Glennon’s book is enlightening it is also scary. And it’s not fiction.
Glennon turns to a familiar explanation—that every nation gets the government it deserves—to bolster his argument as to why the double government has been able to flourish:
“The ultimate problem is the pervasive political ignorance on the part of the American people. And indifference to the threat that is emerging from these concealed institutions,” he told the Globe.
***
Of course, the notion that the American political process and a largely compliant and docile media keep focusing attention on the wrong people and institutions is one of WhoWhatWhy’s central themes. This heretical insight is typically pooh-poohed in the corporate media and even in the so-called alternative media. Any attempt to raise the lid on what’s been called Deep Politics is routinely disparaged and condemned as the droolings of the deranged.
Well, everyone has his or her own comfort level with uncomfortable material. Some may need a credentialed professor or two to start the conversation, and a major newspaper to weigh in favorably, before they dare open their minds.
We won’t complain. We’re just glad to know that we were sane all along.
Next (though we aren’t holding our breath for this) we hope to see the Boston Globe publish an in-depth investigation of that sub rosa “Double Government” and its peculiar handling of the Boston Marathon Bombing—which to our eyes has, at best, the hallmarks of a security-fail cover-up. And an incident that considerably expanded the rationale for, and power of, the same NatSec establishment that has belatedly so alarmed the Globe.

Petrodollar Panic? China Signs Currency Swap Deal With Qatar and Canada

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The march of global de-dollarization continues. 
In the last few days, China has signed direct currency agreements with Canada becoming North America’s first offshore RMB hub, which CBC reports analysts suggest “could double maybe even triple the level of Canadian trade between Canada and China,” impacting the need for Dollars.But that is not the week’s biggest Petrodollar precariousness news, as The Examiner reports, a new chink in the petrodollar system was forged as China signed an agreement with Qatar to begin direct currency swaps between the two nations using the Yuan, and establishing the foundation for new direct trade with the OPEC nation in the very heart of the petrodollar system. As Simon Black warns, ”It’s happening… with increasing speed and frequency.”
Authorized by China’s central bank, the deal will allow direct business between the Canadian dollar and the Chinese yuan, cutting out the middle man — in most cases, the U.S. dollar.
Canadian exporters forced to use the American currency to do business in China are faced with higher currency exchange costs and longer waits to close deals.
“It’s something the prime minister has been talking about. He wants Canadian companies, particularly small- and medium-sized businesses, doing more and more work in China, selling goods and services there,” said CBC’s Catherine Cullen, reporting from Beijing.
It’s happening. With increasing speed and frequency.
The People’s Bank of China and the Canadian Prime Minister’s office issued a statement on Saturday stating that Canada will establish North America’s first offshore renminbi trading center in Toronto.
China and Canada agreed on a number of measures to increase the use of renminbi in trade, business, and investment. And they further signed a 200-billion renminbi bilateral currency swap agreement.
Moreover, just today, hot off the presses, the central banks of China and Malaysia announced the establishment of renminbi clearing arrangements in Kuala Lumpur, which will further increase the use of renminbi in South-East Asia.
This comes just two weeks after Asia’s leading financial center, Singapore, became a major renminbi hub, with direct convertibility established between the Singapore dollar and the renminbi.
And as Black notes, everyone is in on the trend. All across the world, the renminbi is quickly becoming THE currency for trade, investment, and even savings.
Renminbi deposits in South Korea, for example, surged 55-times in one single year. It’s stunning.
The government of UK just issued a renminbi bond, becoming the first foreign government to issue debt in renminbi.
Even the European Central bank is debating to include renminbi in its official reserves, while politicians the world over are sounding not-so-subtle warnings that a new non-dollar monetary system is needed.
Nothing goes up or down in a straight line. And given how volatile Europe and the global economy continue to be, the dollar may certainly be in for its surges and bumps in the coming months.
But over the long-term it’s glaringly obvious where this trend is going: the rest of the world no longer wants to rely on the US dollar, and they’re making it a reality whether the US likes it or not.
*  *  *
And now, no lesser oil-producing state than controversial Qatar has signed an agreement too.. seemingly opening up the door to Petrodollar panic… (as The Examiner reports)
The petro-dollar system is the heart and soul of America’s domination over the global reserve currency, and their right to make all nations have to purchase U.S. dollars to be able to buy oil in the open market. Bound through an agreement with Saudi Arabia and OPEC in 1973, this de facto standard has lasted for over 41 years and has been the driving force behind America’s economic, political, and military power.
But on Nov. 3 a new chink in the petro-dollar system was forged as China signed an agreement with Qatar to begin direct currency swaps between the two nations using the Yuan, and establishing the foundation for new direct trade with the OPEC nation in the very heart of the petro-dollar system.
While this new agreement between China and Qatar is only for the equivalent of $5.7 billion over the next three years, Qatar becomes the 24th nation to open its Forex market to the Chinese currency, and solidifies acceptance of the Yuan as a viable option for the future in the Middle East.
China’s central bank announced Monday that it has signed a currency swap deal worth 35 billion yuan (about 5.7 billion US dollars) with the central bank of Qatar.
The three-year deal could be extended upon agreement by the two sides,said a statement on the website of the People’s Bank of China (PBOC).
Also on Monday, the two sides signed a memorandum of understanding on Renminbi clearing settlement in Doha. China agreed to extend the RMB Qualified Foreign Institutional Investor scheme to Qatar, with an initial quota of 30 billion yuan.
The deal marked a new step forward in financial cooperation between the two countries, and will facilitate bilateral trade and investment to help maintain regional financial stability, the statement said. - China Daily
It is perhaps no coincidence that the term for the new agreement is set for three years, and is within the exact time frame being predicted by the director of the Finance Institute under the Development Research Center of the State Council, Zhang Chenghui for the Renminbi to become fully convertible in the global financial system.
The need for new markets and a more stable trade currency in Qatar could be tied to a new report issued last week by French bank BNP Paribas which showed that petro-dollar recycling has fallen to its lowest levels in 18 years, signifying that even oil producing nations in the Middle East are finding it difficult to trust the U.S. dollar, and facilitate its use in trade due to its depreciation since the advent of the Federal Reserve’s massive QE programs.
Nearly every week now, China, Russia, or one of the BRICS nations are finalizing agreements that supersede the old system of dollar trade and reliance on the petro-dollar system. And as many countries begin to reject the dollar due to the exported inflation that is growing in nations that are relegated to having to hold them for global oil purchases, alternatives such as the Chinese Yuan will become a more viable option, especially now that the Asian power has taken over the top spot as the world’s biggest economy.
*  *  *
The demise of Petrdollar flows…

Big Banks Busted Massively Manipulating Foreign Exchange, Precious Metals and Every Other Market

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Currency Markets Are Rigged
Currency markets are massively rigged. And see this and this.
Reuters notes today:
Regulators fined six major banks including Citigroup (C.N) and UBS (UBSN.VX) a total of $4.3 billion for failing to stop traders from trying to manipulate the foreign exchange market, following a year-long global investigation.
HSBC (HSBA.L), Royal Bank of Scotland (RBS.L), JP Morgan (JPM.N) and Bank of America (BAC.N) also face penalties resulting from the inquiry that has put the largely unregulated $5 trillion-a-day market on a tighter leash, accelerated the push to automate trading and ensnared the Bank of England.
In the latest scandal to hit the financial services industry, dealers shared confidential information about client orders and coordinated trades to make money from a foreign exchange benchmark used by asset managers and corporate treasurers to value their holdings. Dozens of traders have been fired or suspended.
***
Britain’s Financial Conduct Authority (FCA) fined five lenders $1.77 billion, the biggest penalty in the history of the City of London, and the U.S. Commodity Futures Trading Commission (CFTC) ordered them to pay a further $1.48 billion.
***
The U.S. Office of the Comptroller of the Currency, which regulates banks, also fined the U.S. lenders $950 million and was the only authority to penalise Bank of America.
Gold and Silver Are Manipulated
Today, Switzerland’s financial regulator (FINMA) found “serious misconduct” and a “clear attempt to manipulate precious metals benchmarks” by UBS employees in precious metals trading, particularly with silver.
Reuters reports:
Swiss regulator FINMA said on Wednesday that it found a “clear attempt” to manipulate precious metals benchmarks during its investigation into precious metals and foreign exchange trading at UBS …
Gold and silver prices have been “fixed” in daily conference calls by the powers-that-be.
Bloomberg reported last December:
It is the participating banks themselves that administer the gold and silver benchmarks.
So are prices being manipulated? Let’s take a look at the evidence. In his book “The Gold Cartel,” commodity analyst Dimitri Speck combines minute-by-minute data from most of 1993 through 2012 to show how gold prices move on an average day (see attached charts). He finds that the spot price of gold tends to drop sharply around the London evening fixing (10 a.m. New York time). A similar, if less pronounced, drop in price occurs around the London morning fixing. The same daily declines can be seen in silver prices from 1998 through 2012.
For both commodities there were, on average, no comparable price changes at any other time of the day. These patterns are consistent with manipulation in both markets.
Derivatives Are Manipulated
Runaway derivatives – especially credit default swaps (CDS) – were one of the main causes of the 2008 financial crisis. Congress never fixed the problem, and actually made it worse.
Indeed, many trillions of dollars of derivatives are being manipulated in the exact same same way that interest rates are fixed (see below) … through gamed self-reporting.
Reuters noted in September:
A Manhattan federal judge said on Thursday that investors may pursue a lawsuit accusing 12 major banks of violating antitrust law by fixing prices and restraining competition in the roughly $21 trillion market for credit default swaps.
***
“The complaint provides a chronology of behavior that would probably not result from chance, coincidence, independent responses to common stimuli, or mere interdependence,” [Judge] Cote said.
The defendants include Bank of America Corp, Barclays Plc, BNP Paribas SA, Citigroup Inc , Credit Suisse Group AG, Deutsche Bank AG , Goldman Sachs Group Inc, HSBC Holdings Plc , JPMorgan Chase & Co, Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG.
Other defendants are the International Swaps and Derivatives Association and Markit Ltd, which provides credit derivative pricing services.
***
U.S. and European regulators have probed potential anticompetitive activity in CDS. In July 2013, the European Commission accused many of the defendants of colluding to block new CDS exchanges from entering the market.
***
“The financial crisis hardly explains the alleged secret meetings and coordinated actions,” the judge wrote. “Nor does it explain why ISDA and Markit simultaneously reversed course.”
In other words, the big banks are continuing to fix prices for CDS in secret meetings … and have torpedoed the more open and transparent CDS exchanges that Congress mandated.
Interest Rates Are Manipulated
Bloomberg reported in January:
Royal Bank of Scotland Group Plc was ordered to pay $50 million by a federal judge in Connecticut over claims that it rigged the London interbank offered rate.
RBS Securities Japan Ltd. in April pleaded guilty to wire frauda s part of a settlement of more than $600 million with U.S and U.K. regulators over Libor manipulation, according to court filings. U.S. District Judge Michael P. Shea in New Haventoday sentenced the Tokyo-based unit of RBS, Britain’s biggest publicly owned lender, to pay the agreed-upon fine, according to a Justice Department Justice Department.
Global investigations into banks’ attempts to manipulate the benchmarks for profit have led to fines and settlements for lenders including RBS, Barclays Plc, UBS AG and Rabobank Groep.
RBS was among six companies fined a record 1.7 billion euros ($2.3 billion) by the European Union last month for rigging interest rates linked to Libor. The combined fines for manipulating yen Libor and Euribor, the benchmark money-market rate for the euro, are the largest-ever EU cartel penalties.
Global fines for rate-rigging have reached $6 billion since June 2012 as authorities around the world probe whether traders worked together to fix Libor, meant to reflect the interest rate at which banks lend to each other, to benefit their own trading positions.
To put the Libor interest rate scandal in perspective:
  • Even though RBS and a handful of other banks have been fined for interest rate manipulation, Libor is stillbeing manipulated. No wonder … the fines are pocket change – the cost of doing business – for the big banks
Energy Prices Manipulated
The U.S. Federal Energy Regulatory Commission says that JP Morgan has massively manipulated energy markets in California and the Midwest, obtaining tens of millions of dollars in overpayments from grid operators between September 2010 and June 2011.
Pulitzer prize-winning reporter David Cay Johnston noted in May that Wall Street is trying to launch Enron 2.0.
Oil Prices Are Manipulated
Oil prices are manipulated as well.
Commodities Are Manipulated
The big banks and government agencies have been conspiring to manipulate commodities prices for decades.
The big banks are taking over important aspects of the physical economy, including uranium mining, petroleum products, aluminum, ownership and operation of airports, toll roads, ports, and electricity.
And they are using these physical assets to massively manipulate commodities prices … scalping consumers of many billions of dollars each year. More from Matt Taibbi, FDL and Elizabeth Warren.
Everything Can Be Manipulated through High-Frequency Trading
Traders with high-tech computers can manipulate stocks, bonds, options, currencies and commodities. And see this.
Manipulating Numerous Markets In Myriad Ways
The big banks and other giants manipulate numerous markets in myriad ways, for example:
  • Engaging in mafia-style big-rigging fraud against local governments. See this, this and this
  • Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here,here, here, here, here and here
  • Pledging the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car
  • Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this
  • Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this
  • Bribing and bullying ratings agencies to inflate ratings on their risky investments
The Big Picture
Why? Because the system is rigged to allow the big banks to commit continuous and massive fraud, and then to pay small fines as the “cost of doing business”. As Nobel prize winning economist Joseph Stiglitznoted years ago:
“The system is set so that even if you’re caught, the penalty is just a small number relative to what you walk home with.
The fine is just a cost of doing business. It’s like a parking fine. Sometimes you make a decision to park knowing that you might get a fine because going around the corner to the parking lot takes you too much time.”
Indeed, Reuters points out today:
Switzerland’s regulator FINMA ordered UBS, the country’s biggest bank, to pay 134 million francs ($139 million) after it found serious misconduct in both foreign exchange and precious metals trading. It alsocapped bonuses for dealers in both units at twice their basic salary for two years.
Capping bonuses at twice base salary?  That’s not a punishment … it’s an incentive.
Experts say that we have to prosecute fraud or else the economy won’t ever really stabilize.
But the government is doing the exact opposite. Indeed, the Justice Department has announced it will go easy on big banks, and always settles prosecutions for pennies on the dollar (a form of stealth bailout. It is also arguably one of the main causes of the double dip in housing. And there is no change in the air.)
Indeed, the government doesn’t even force the banks to admit any guilt as part of their settlements.
Wall Street has manipulated virtually every other market as well – both in the financial sector and the real economy – and broken virtually every law on the books.
And they will keep on doing so until the Department of Justice grows a pair.
The criminality and blatant manipulation will grow and spread and metastasize – taking over and killing off more and more of the economy – until Wall Street executives are finally thrown in jail.
It’s that simple …