GATA challenges SoGen, World Gold Council, Len Kaplan to debate

By Bill Murphy, Chairman
Gold Anti-Trust Action Committee Inc.
11p CT Tuesday, November 19, 2002

The following remarks by Fed Chairman Alan
Greenspan sound like quot;cover your buttquot; talk.

* * *

Greenspan Says Central Banks
Must Watch Derivatives

By Michael McKee

WASHINGTON, Nov. 19 (Bloomberg) --
Governments must be careful not to over-
regulate financial derivatives and central
banks should not give the impression they
will always bail out institutions if those
instruments fail, Federal Reserve Chairman
Alan Greenspan said.quot;

* * *

The whole report on Greenspan's speech is
appended here.

Something is up and this wimp knows it. This
is exactly what the Gold Anti-Trust Action
Committee, the GATA Army, and Doug Noland of
www.PrudentBear.com have sounded the alarm
about for years.

My guess is that the gold/interest rate
derivative neutron bomb is slowly going off.
Now that it is too late to do anything about
it, Sir Blowhard is speaking out, after
blocking any sort of regulation of
derivatives while he supposedly was minding
the store.

Remember that a GATA delegation consisting of
Frank Veneroso, Reg Howe, Chris Powell, and
myself met with with House Speaker Dennis
Hastert at the U.S. Capitol on May 10, 2000,
and warned him of a looming derivatives
crisis. We gave him a copy of our Gold
Derivative Banking Crisis report, which we
also gave to U.S. Rep. Spencer Bachus,
chairman of the House Subcommittee on
Domestic and International Monetary Policy,
which has supervision of gold and silver
issues. Bachus brought seven staff members to
that meeting.

GATA then met with the Dr. John Sylvia, the
chief economist of the Senate Banking
Committee.

The next day I delivered a copy of the Gold
Derivative Banking Crisis report to the
office of every House and Senate banking
committee member.

The retiring chairman of the Senate Banking
Committee, Phil Gramm of Texas, is a hack. He
refused to acknowledge what GATA had to say.
His wife, Wendy, a former chairman of the
Commodities Futures Trading Commission, was
on the Board of Directors of Enron. I could
go on and on about our quot;behind-the-curvequot;
Congress. When it comes to taking on the
big-money crowd, they don't want to hear
about it.

No one is more calculating than Sir Blowhard,
down to his use of adjectives. This story is
no fluke. We are close to the day when all
heck breaks lose. Greenspan is close to his
day of reckoning.

Buy gold and the gold shares.

Got to be in it to win it!

* * *

Greenspan Says Central Banks
Must Watch Derivatives

By Michael McKee

Washington, Nov. 19 (Bloomberg) --
Governments must be careful not to over-
regulate financial derivatives and central
banks should not give the impression they
will always bail out institutions if those
instruments fail, Federal Reserve Chairman
Alan Greenspan said.

Derivatives, such as futures and options, are
based on other assets and used to insure
against price swings. They have become
quot;centralquot; to global growth because they
make it easier to take risks, Greenspan told
the Council on Foreign Relations.

At the same time, derivatives' reliance on
leverage creates the quot;remotequot; possibility
of a chain reaction of failure, quot;a cascading
sequence of defaults that will culminate in
financial implosion if it proceeds
unchecked,quot; he said.

Fed officials feared that could happen
following the September 1998 collapse of Long
Term Capital Management, a hedge fund which
lost $4 billion mainly from wrong bets on
differences between bond and futures prices.
While the Fed didn't use its lender of last
resort power by putting money into the firm,
the central bank helped organize a rescue by
Wall Street banks and other creditors.

quot;Such a public subsidy should be reserved
for only the rarest of occasions,quot; Greenspan
said. quot;If the owners or managers of private
financial institutions were to anticipate
being propped up frequently by government
support, it would only encourage reckless and
irresponsible practices.quot;

Gauging Risk

The increased use of derivatives has helped
lenders better gauge risk because the
possibility of default is built into their
price, Greenspan said.

In recent months, derivative interest rates
have risen on concerns about corporate
governance, he said. quot;The perceived risk of
default of both financial and nonfinancial
firms has risen markedly in the wake of
company-threatening scandals, though levels
remain moderate for both.quot;

The Fed chairman's text, similar to remarks
he delivered in London on Sept. 25, didn't
discuss the U.S. economy or monetary policy.
On Nov. 6, the central bank voted to lower
the U.S. benchmark overnight bank lending
rate to a 41-year low of 1.25 percent.

Instead, he expanded on arguments he's made
in the past against over-regulation of the
derivatives market. Derivatives are measured
by notional amount, the value of underlying
assets. Their use is growing as a slump in
stocks prompts investors to seek returns
elsewhere.

$128 Trillion

Derivatives trading outside exchanges grew 15
percent to a record $128 trillion in the
first half of the year, driven by contracts
pegged to interest rates, the Bank for
International Settlements said earlier this
month. The market is more than four times
global gross domestic product as measured by
the World Bank.

The development of derivatives such as
securitized bank loans, credit card
receivables, and secondary mortgage markets
is helping build a quot;far more flexible,
efficient, and resilient financial system
than existed just a quarter-century ago,quot;
Greenspan said.

For that reason, governments must be careful
to ensure they don't stifle risk-taking in
regulating derivatives.

quot;We have the responsibility to prevent major
financial market disruption through
development and enforcement of prudent
regulatory standards,quot; Greenspan said. quot;But
we also have the responsibility to ensure
that the regulatory framework permits
private-sector institutions to take prudent
and appropriate risks, even though such risks
will sometimes result in unanticipated bank
losses or even bank failures,quot; Greenspan
said.

Terrorist Attacks

quot;While regulation must change as financial
structures do, such regulatory change must be
kept to minimum to avoid fostering
uncertainty among innovators and investors,quot;
Greenspan said.

Over the past year, the U.S. was able to
withstand the Sept. 11 terrorist attacks, the
quot;draining impact of a loss of $8 trillion in
stock market wealthquot; and a quot;sharp
contractionquot; in capital investment largely
because derivatives spread risk, particularly
for major banks.

quot;Importantly, despite significant losses, no
major financial institution was driven to
default,quot; he said.

Derivatives have also made possible the
secondary mortgage market that has been quot;so
criticalquot; in supporting consumer spending by
allowing Americans to refinance their homes,
he said. And they kept the collapse of
telecommunications companies at the end of
the 1990s from cascading into a wider
financial crisis, he said.

Because banks and other lenders could
mitigate their credit risk, damage from
defaults by Enron Corp., Global Crossing
Ltd., Railtrack Group Plc, and Swissair Group
was limited, Greenspan said.

quot;In particular, the still relatively small
but rapidly growing market in credit
derivatives has to date functioned well, with
payouts proceeding smoothly for the most
part,quot; he said. quot;Obviously, this market is
still too new to have been tested in a
widespread down-cycle for credit. But so far,
so good.quot;

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

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figoldstein@buycoin.com

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

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USA

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a href=http://www.Crowne-Gold.comhttp://www.Crowne-Gold.com/a
Holding: GATAComm@aol.com

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