Silver Bankers With Big Derivatives Losses & the Fed May Be Funding Them

02-19-2011 • JessesCrossRoadsCafe.blogspot.com/

My question is simple. What are bankers like J.P. Morgan and HSBC doing playing in such size in this market? What is the economic and productive benefit? Perhaps there is a good answer. The taxpaying public certainly deserves to know. The CFTC says they have looked into this, but the detailed results of their findings remain less than forthcoming. IF this is legitimate hedging then all well and good, but then there is no justification for secrecy. If these are trading positions held by the bank, or by the bank as agent for speculators, then there may be a greater reason for secrecy, but the magnitude of the shorts is far out of bounds in size. Ten years of production is not a short position, but the entire market and then some. The CFTC certainly appears to be acting poorly as the market regulator for the people. Given the regulatory failures of the past ten years that lead to the financial crisis, it would be useful if the Congress were to make very pointed inquiries regarding this situation. But given the performance of the Congress, and their affinity for the deep pockets and big contributions of the financial sector, that may be too much to hope for. The comment and analysis below is from Harvey Organ's most recent commentary. "The huge rise in silver price has caught the silver bankers totally offside on the silver banking. The BIS data released in November (www.goldexsextant.com) shows that the G 10 bankers have collectively sold forwards and swaps to the tune of 4 billion oz and short naked calls for another 3 billion oz. The total, 7 billion oz represents 10 years of production. If you just do the forwards, then it is 7 years of annual silver production. Let us say the average cost of acquiring these derivatives and forwards equate to $15.00 for silver. Thus collectively the entire G10 bankers are feeling massive pain (losses) to the tune of: 7 billion oz of silver( 32.30-12.00) = 7 billion x $17.30 = 121.1 billion dollars of losses. This is in a market of only 14 billion dollars. It begs the question to what economic need was this done.This is still off balance sheet. If you include only the forwards or swaps (the lending of actual metal to which nothing has come back yet) then the losses are: 4 billion x 17.30 or 69 billion dollars. Regardless how you look at it, the bankers are in serious trouble with this huge rise in silver prices. I hope you understand the severity of the situation."