Howe''s new study comprehensively documents central banks'' ''long con'' in gold

9:41p ET Thursday, May 8, 2003

Dear Friend of GATA and Gold:

For years GATA's Bill Murphy and Reg Howe have been
warning about JP Morgan Chase's derivatives business,
and for their trouble they have been derided as nuts.
As you'll see from the Reuters dispatch appended here,
Federal Reserve Chairman Alan Greenspan today validated
their warnings.

Not that Greenspan could suggest DOING anything
about the problem. Indeed, he said he continues to
oppose government regulation of derivatives.

So what is Greenspan's game here? Is he just trying to
ensure that the historical record shows he saw Morgan's
collapse coming, even if he didn't do anything about it
or even facilitated it? Is he warning other financial
houses to wrap up or re-insure their positions with
Morgan? Is he giving alert citizens a hint of his own
and the Fed's ineffectuality so they may begin
contemplating how to protect themselves?

In any case, something big and bad seems to be up
-- something for which the only antidote may be
the sort of shiny yellow stuff available from the
reputable enterprises listed at the bottom of this
dispatch.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Greenspan alludes to JP Morgan's derivatives risk

By Chris Sanders and Eric Burroughs
Thursday, May 8, 2003
a href=http://biz.yahoo.com/rf/030508/financial_jpmorganchase_derivatives_1.hht...
tml

NEW YORK (Reuters) -- JP Morgan Chase found itself under
the spotlight on Thursday when Federal Reserve Chairman
Alan Greenspan alluded to the bank's massive derivatives
portfolio and the threat it may pose to markets.

JP Morgan's $28 trillion share of the more than $100 trillion
derivatives market makes the bank almost too big to fail,
experts said.

The No. 2 U.S. bank is by far the leader among the handful
of banks that dominate the derivatives market, and
Greenspan warned that troubles like credit rating downgrades
at one of the firms could lead to disorder in financial markets.

JP Morgan declined to comment on Greenspan's remarks.

The bank's role in the derivatives markets means it has
financial relationships that extend well beyond Wall Street,
reaching deep into Corporate America and around the world.

quot;The government is not going to let the derivatives market
collapse because JP Morgan collapses,quot; said Richard Bove,
a bank analyst with Hoefer amp; Arnett.

But as Greenspan warned in a Thursday speech, quot;When
concentration reaches these kinds of levels, market
participants need to consider the implications of exit by
one or more leading dealers.quot;

In his role as chief bank regulator, Greenspan is letting the
world know he is keeping a keen eye on the rapidly
expanding derivatives market.

That said, Greenspan again praised the role that complex
derivative contracts have played in fortifying banks against
the repeated shocks that have hit in the past few years,
including the stock market crash, economic downturn,
record bankruptcies and the Sept. 11 attacks.

Derivatives are contracts based on the value of underlying
securities or other variables, ranging from interest rates
and currencies to energy and weather. They allow users
both to spread risk and to make big leveraged bets.

quot;He's making the market aware of the issues and letting
the market correct them. There's a lot of power in the
raised eyebrow,quot; said Eugene Ludwig, a managing partner
at risk management firm Promontory Financial Group,
and former head of the Office of the Comptroller of the
Currency.

Aside from JP Morgan, Deutsche Bank and Bank of
America are the main players in the complex marketplace.

Longer-term, Bove said, the message is clear. The
government, because of an implicit guarantee that it
would never let such a large institution like JP Morgan
fail, does not want so much risk sitting on the balance
sheet of one bank.

In its latest quarterly statement, JP Morgan said that
through the end of March it was owed $87 billion in
derivatives payments at a future date by parties it has
dealt with. Derivatives involve an exchange of payments
over the duration of the contract, ranging from a few
months to several years.

Still, the market is already changing.

A senior swaps trader on Wall Street said as interest
rate swaps and other derivatives products become more
commoditized, quot;top dealers will chip away at (JP
Morgan's) business.quot;

----------------------------------------------------

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