The Invisible Hand and Cartels
Adam Smith originally developed the theory of the invisible hand in which he described the unintended social benefits of an individual’s self-interested action. He is also notably famous for his book “The Wealth of Nations”, which was an inquiry into the nature and causes of the wealth of nations. However, an important feature of his time was the legalization, and protection of cartels! Adam Smith’s complaint about ‘trades’ was precisely about their legal status.
He wrote “Every individual necessarily labors to render the annual revenue of the society as great as he can … He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention … By pursuing his own interests, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.”
Cartels became illegal in 1970 but businesses already realized that private markets were more productive and profitable than government run economies and thus started to impersonate the invisible hand but operate more like cartels. We know these impersonators now as “Market Makers” or “Whales”, while knowing next to nothing about who they are.
Governments know of this trick too and even try to incorporate the invisible hand in to regulations. Former Fed Chairman Ben Bernanke explained that “The market-based approach is regulation by the invisible hand” which “aims to align the incentives of market participants with the objectives of the regulator.”
Like Adam Smith says, “He intends only his own gain, and he is in this, as in many other cases, led by and invisible hand to promote an end which was not part of his intention”. You know, this sounds familiar to me…should I say…the double slit experiment? Allow me to explain without going too much into detail; Scientists discovered the sheer presence of the observer trying to measure and observe the experiment changed the outcome of what initially happened. (Here is a great video explaining the Double Slit Experiment ) But if one cannot measure nor observe the invisible hand, how do you know it’s there? Simple. We wait, pay attention, and observe what they leave behind because if we try to observe them they will simply fail to emerge.
WHAT IT IS:
A cartel is a group of companies, countries or other entities that agree to work to influence market prices by controlling the production and sale of a particular product.
I like to shake things up so I included this conspiracy video of “Illumicorp” (which by the way does not show up with a red spelling error on google) because it does a good job explaining how the invisible hand works for business involved in shady practices and the manipulation of goods. This video is 100% fake in my opinion, but if you look past the BS, it can give you knowledge on how easily business and communicate and conspire in secrecy from the public. If businesses are conspiring and starting cartels, what would the main goal be?
A cartel’s main goal is to control price; Let’s think of some current cartels
- Mexican Drug Cartel
- OPEC can be considered a cartel
- Siemens led electronic equipment cartel
- Article talking about US agriculture cartels
There have been numerous cartels forged and fallen in the past decade let alone century. It’s necessary to understand this and get a good grasp that cartels do still exist and they are very much a part of current economics. This practice is essentially how you win the game of “Monopoly” you quite literally become a monopoly; which closely resembles a cartel.(Firms that may act as though there is a real cartel and undertake cartel-like’ behavior, even though there is no formed cartel, which may be subject to investigation by the regulators.) With cartels being illegal since 1970, you would have to be out of your mind to form a cartel. This list above barely scratches the surface of how many cartels have been caught and or are still out there.
But catching a cartel is nearly impossible because they do not exist until you catch them.
It’s comparable to trying to observe the doubling of particles in the double slit experiment; you simply can’t observe it until it has left evidence to observe. Otherwise, they will change their outcome if directly observed. Knowing this we can catch a cartel by looking at the “interference” pattern they leave in their wake.
Aside from its definition a cartel has another defining characteristics to it. A cartel is a collection of otherwise independent businesses or countries that act together as if they were a single producer and those are able to fix prices for the goods they produce. It is also important to know that while cartels do exist they do not exist in every single market, they exist in easily manipulated markets like commodity and futures trading, with some of the most well know favorites of these cartels being Gold, Silver, Oil, Uranium, and now Bitcoin.
The Plunge Protection Team (PPT) is a colloquial name giving to the working group on financial markets. The team was created to artificially inflate the price rather than suppress it by using the printed money to keep the stock and bonds market up giving the illusion of prosperity.
Banks and Cartels “A Love Story”
The banks that are supposedly being accused of cartel like behavior have a history of romance with cartels. HSBC, CME, and UBS are three banks that know very well the inner working of cartels and how to get away with it. Let’s look at their history.
HSBC, “The Cartels Bank”, was recently exposed on a Netflix series named “Dirty Money” after they reexamined HSBC’s $881 Million dollar money laundering scandal involving the Sinola Cartel.
A famous quote about war states the following “Unless you plan on ending your enemy on the spot always leave an escape route for them.” and this is exactly what the regulators did. Europe’s largest bank, HSBC paid 1.9 billion in fine to avoid prosecution for harboring 881 million in proceeds from illegal drugs. This went pretty under the radar until Netflix’s “Dirty Money” brought the issues back to life and has since seen a 100% rating on Rotten Tomatoes. According to the director of the episode, the 1.9 Billion fine was only about 5 weeks of their total yearly profit. The ties between HSBC and the Sinaloa Cartel are blatantly obvious but this mainly wasn’t about their laundering crimes, it was about their audacity to commit and recommit those crimes. MarketWatch recently revealed that banks have been fined a total of $243 billion since the financial crisis with HSBC paying out $4.5 billion.
The CME is running a cartel to suppress the price of gold by clearing OTC Forward contract. The London Precious Metals Clearing Limited exists for the safekeeping of gold and silver in high security vaults. What the LPMCL does is they clear old forward contracts and allocate them to an unallocated account. “Unallocated accounts do not entail specific bars being set aside and the customer has a general entitlement to fungible metal. Unallocated accounts are the most convenient and commonly used method of holding gold and silver.” What the LPMCL means by this is that there doesn’t have to be physical gold in these unallocated accounts nor does there have to be a verification of the gold in the unallocated accounts as well. This goes against industry standard that was set in the safekeeping and storage of gold.
A well known hedge fund, Greenlight, switched their entire gold exchange traded fund position into physical gold after extensive investigation. They moved in to a professional storage facility. If you are to go to a well known gold storage facility, Gold Money, and take a look at section 8E of their user agreement it says “At any time request GoldMoney to change the goldgrams in to grams of gold or ounces of silver that are available for physical delivery to the user. They say physical because physicality is an industry standard. The LPMCL, which is owned and managed by HSBC, ICBC Standard Bank, JPMorgan, Scotiabank and UBS are clearing these spot and forward transactions for CME. They are doing this under COMEX rules where you can deliver ETF shares which don’t even have to be physical gold. Its essentially just a bunch of paper gold in a vault that is being used to associate physical gold in demand.
Let’s look back at the characteristics of a cartel too, “A cartel is a collection of otherwise independent businesses or countries that act together as if they were a single producer and those are able to fix prices for the goods they produce” Five independent businesses/banks that are acting together under LPMCL as if they were a single produce and are able to fix prices for the goods they produce the clearing them through CME. When I put it that way it seems pretty suspicious huh?
Looking to the FEDs to stop this is pretty useless as well, get this; The SEC’s 10k states “That in addition the trustee has no rights to visit the premises of an sub custodian for the purpose of examining the Trust’s gold or any records maintained by the subcustodan and no subcustodain is obligated to cooperate in any review.” What they mean is you do not have the right to audit these accounts to see if there is even physical gold in the account.
Which would you rather have? One Ounce of Gold or one COMEX Receipt for 1 oz of gold. With the receipt you now have counterparty risk as well as credit risk because what if they are running a giant scam/cartel and they get caught? Well the paper becomes essentially useless and the people with the physical gold that maintain their purchasing power. In the current gold price suppression scheme it is getting harder to deliver the physical gold bullion that people are requesting in exchange for their receipts.
With the change in rules, the OTC forwards are now being cleared through the CME and this is the next stage of the gold price depression scheme. It will eventually become a lot harder to get physical bullion. This is why we are seeing with the price of gold and silver drop as we speak. They suppress the price so they do not lose control of it. Itt’s a lot less attractive to hold gold at $1,200 and silver at $15 and ounce than it is to hold gold at $120,000 an ounce and silver at $15,000 an ounce. By suppressing the price, they can control it to ensure that the commodity of whatever they are controlling doesn’t become too desirable and leave their grasps. Worst of all if they suppress gold enough and crash the market, they will be the ones profiting off of paper gold and the ones left holding the bags will be the people holding physical gold. When people see a big loss and sell their gold, it gets bought by the same people who initially caused crash; only then being used to back their paper investment making it look like they’ve had it all along.
UBS Investment Bank along with many of the world’s largest banks have been fined multiple times for manipulating foreign exchange markets from December ‘07 to January ‘13. US levied 5.3 billion in forex fines in 2015. Banks have an interesting way of dancing around these rules by hiring independent trading experts. In July, three former currency traders pleaded not guilty after being accused of being part of a group called “the cartel” and face charges in connection with a sprawling probe into the rigging of forex benchmarks. In January 2018, Jason Katz pleaded guilty to participating in a price fixing conspiracy in the forex markets. It is not unlike banks to have a fall victim to make sure that they are not directly at fault while just have to pay a fine.
But more recently eight banks are in talks with the Commission of the EU for their participation in an illegal forex cartel. Apart from UBS, the cartel included Royal Bank of Scotland, JP Morgan Chase, Citigroup, Barclays, HSBC and two other banks. They face fines of several billion euros, according to the U.K.-based newspaper. After the conclusion of the US investigation into its forex trading scandal, the fully compliant UBS bank cooperated and paid $342 million in fines but was forced to plead guilty for its part in the Libor scandal.
In 2018, Pensions representing more than 386,000 public workers across the country sued 6 major US banks with claims that for nearly two decades these giants have conspired to inflate prices and stamp out competition in a crucial $1 Trillion market. UBS was listed in a complaint filed in Manhattan federal court which claims these banks make up about 70% of the market. After competition threatened to cut banks in this market by up to 60%, the cartel responded with threats. If the banks are trying to manipulate security lending, it could be a big red flag for pension funds that rely on the income from securities lending to support retirees and other hard working Americans.
Here is a recent filing on January 29th, 2018 by the Commodities Future Trading Committee, about the CFTC filing eight anti-spoofing enforcement actions against three banks (Deutsche Bank, HSBC & UBS) & Six Individuals
These are just one of many examples of these banks being major player in current cartel cases. A simple google search with “(Banks Name) is a Cartel” will bring up millions of results, it’s frightening to look at. Especially since CME is currently the only place you can actively trade bitcoin futures. If banks are working with cartels in current markets, what is to stop them from collaborating and start to manipulate crypto market?
Three words: The Bitcoin ETF
The Cartels Crypto Playgrounds
Bitcoin is now facing the possible threat of suppression by the cartels and there is evidence to back it up. CME opened the doors for its bitcoin futures market on Oct-2018 and since that day the cartel has been hiding among the kids on the playground we call the cryptosphere.
CME Futures opened October 2018 and closed on December 17th, 2018. The historic run of bitcoin ended the day CME futures closed.
The cartel works it magic by manufacturing FUD and scheduling the release just as bitcoin is hitting importing TA support and resistance levels. Here a chart from Super Crypto showing the coincidental timing.
Zero Hedge did a small report back in march on the timing of drops during the crypto crash. In short it states for the three days in a row (March 7-9th, 2018), the close of European trading around 11:30ET each day had a sudden, heavy volume selling pressure across the crypto-space. This would backup claims of coordinated manipulation and manufactured FUD. Do not fool yourself in to believe that FUD is hard to manufacture. On February 7th, China’s central bank’s mailbox was hacked to email a false notice about bitcoins crackdown. These falsified claims were distributed to the US media by the bank claiming that Hong Kong Monetary Authority and PBOC were going to team up and start to become more strict on all aspects and services of bitcoin trading China and Hong Kong.
“Read the above article and ask a question to yourself — Who would do such a thing? Only those who have interest in breaking down the Bitcoin price — Right? Would an ordinary IT guy or a hacker do this? NO — because they cannot benefit from doing this FUD. Only influential cartel who can benefit by creating a FUD would do this.”- Super Crypto
It makes me think that maybe the reason that the SEC wants to protect the average investor is because they knew what type of untold dangers are out there. With over 59 bitcoin ETF proposals turned down so far, you could make a case that they know the potential danger that an ETF could impose to bitcoin’s future prosperity.
The Bitcoin ETF Manipulation
ICE’s Crypto Exchange Plans Scream Market Manipulation!
I had dinner with an executive at CME in Chicago this week, he said the regulators concerns about manipulation have “moderated” and they’d prefer an institution launch this product.
— Charlie Shrem (@CharlieShrem) July 26, 2018
It is a slippery slope when dealing with the mainstreaming of Bitcoin and the adoption of cryptocurrencies. Wall Street is notorious for creating so called value out of nothing, and it is likely they are trying to do the same thing with bitcoin. This could very well be the beginning to Wall Street trying to create financial claims to bitcoin out of thin air while not being backed by bitcoin. Bitcoin has an advantage over gold however and this is its algorithmically enforced scarcity.
Leverage is how smart people go broke and Wall Street knows this all too well. They plan to control the crypto market leverage the same way the control gold, by creating more financial claims to coins than there are underlying coins; Thereby influencing the underlying coin price via the derivatives market. They want financialize cryptocurrencies via leverage, the same way leverage has “financialized” other suppressed commodity market.
“As cryptocurrency markets develop further, here’s what I’ll be on the lookout for: financial institutions beginning to create claims against cryptocurrencies that are not fully backed by the underlying coins (which could take the form of margin loans, coin lending / rehypothecation, coin-settled futures contracts, or ETFs that don’t 100% track the underlying coins at any given moment). None of these are happening in the market yet, though. So far, regulators have only allowed bitcoin derivatives in cash-settled form among major derivatives counterparties. While cash-settled derivatives can affect the price of the underlying asset, the magnitude of the impact is lower than the impact if derivatives were settled in an underlying that is “hard to borrow” or “special” (using securities lending parlance). Bitcoin is especially “hard to borrow” so a requirement to deliver the underlying bitcoins into derivatives contracts would amplify bitcoin’s price fluctuations. Eventually it’s likely regulators will approve bitcoin-settled derivatives among major derivatives counterparties. At that point, banks will be looking to borrow the underlying bitcoin—and that’s when the custodial arrangements made by institutional investors will start to matter. Will custodians make their custodied coins available for borrowing in “coin lending markets” as they do with securities lending today? Or will they deem the cybersecurity risks of lending coins (which entails revealing private keys) too high relative to the extra return available for coin lending? And will institutional investors even allow coin lending by their custodians? Regardless, when bitcoin-settled derivatives appear on the scene, it’s very likely that cryptocurrencies will be “hard to borrow” for quite some time because HODLers (long-term holders) own most coins and rarely use custodians.”
This quote from Caitlin Long’s “ICE Creating New Cryptocurrency market: A Double Edged Sword” does a fantastic job or summing up the most likely outcome for bitcoin if ICE is allowed to go through with their ETF.
One Problem: Bitcoin Is Not Like Gold
However, Bitcoin did not come to the table unprepared. Bitcoin is really hard to borrow and unlike gold there is a limited supply of 21,000,000 BTC. You cannot create nor destroy these BTC and when the last BTC is mined there will be no more being created, thus being regulated by supply and demand.
Futures market could continue to have dominance because communities keep giving high praise and putting emphasis to the futures market as a primary reference point for prices and trades. To only add on to this, “the cartel” is able to print as much money and issue as many futures contracts to sell into the market and crash it. The trick here is that the same people giving this high praise to the futures market are the same ones running the cartel and manipulating prices.
If we refer to the futures market whereby an entity can issue unlimited amount of futures contract without any real cost and sell back into the market, then of course the market would crash. But we need to realize this: the crypto market is supposed to be blockchain-based, i.e. involving on-chain transactions transparent to all. Futures market is offchain-based and opaque to all. If we do not give significance to such market, everything would be fine, but we don’t like mentioned above. If a DEX is created in which all transactions will be on-chain, then this “cartel” entity would not be able to issue unlimited futures contract to sell. And if they do decide to sell, disclosure of the sale will be available to all. We need to have a paradigm shift in focus from the priority of the futures exchange (CME) back to centralized and decentralized exchanges to restore order.
Andrew Haldane and the governor of the Bank of England are right. We need to break up our banks, limit their capacity to speculate and bring them back to earth. We are being tricked in to investing into gold and silver only for the banks to short the prices and make money from our loss.
In an ironic quote in a press release from ICE’s CEO, Jeffrey Sprecher, “In bringing regulated, connected infrastructure together with institutional and consumer applications for digital assets, we aim to build confidence in the asset class on a global scale, consistent with our track record of bringing transparency and trust to previously unregulated markets.” (emphasis added) It baffles me how these are the same people that slandered bitcoin and cryptocurrencies no less than six months ago, but now have had a revelation and a 180 degree change of story in less than 6 months.
Bitcoin Vs Fiat
The idea of trade and market exchange automatically channeling self-interest toward socially desirable ends is a central point behind theory of the invisible hand. In our case, the central disagreement between economic powers (Bitcoin vs FIAT) can be an argument about how powerful the true “invisible hand” is. The thought that self interest could be channeled to socially desired ends could be our answer. Utilizing this tool, we can lessen the grip of the cartels fraudulent “invisible hand” and put an end to the corruption that plagues our current financial system. We cannot let them fabricate and defame the legitimacy and trust of bitcoins and the blockchains.
Thankfully we have the long term HODL-ers, will be resistant to giving up their BTC giving meaning to the phrase “Hard to Borrow”. As for liquidity, there can be a good type of financialization which can have a big positive for bitcoin; but its when liquidity arises from leverage that we cannot let be the death of bitcoin. Bitcoin and the blockchain are already transparent and immutable due to their decentralization. We are the guardians of this technology and we need to protect it, we cannot let this fall into the wrong hands or the future of Bitcoin could be at risk.
Keyser is all about helping Nocoiners become Hodlers. He got his first experience with crypto in 2015, and has been an active member of the community since. He started writing to help make the jump in to crypto easier for everybody