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1:55p EST Thursday, March 30, 2000

Dear Friend of GATA and Gold:

Once again we are indebted to Reginald H. Howe,
proprietor of www.GoldenSextant.com, Harvard-trained
lawyer, former mining executive, and, if you ask me, as
brilliant a financial writer as there is, for the following
analysis of the Treasury Department's tentative and
evasive answers to GATA's questions about government
intervention in the gold market.

GATA is continuing to raise with the Treasury
Department and with members of Congress the question
of exactly what the Exchange Stabilization Fund is doing
in regard to gold. As Howe writes, we believe that we
have identified the question that the Treasury Department
cannot answer: Has the ESF been selling gold options?

Please post this as seems useful. Better still, U.S.
citizens should send it to their U.S. senators and
representatives and ask them to press for an answer to
the question.

The gold community's debt to Reg Howe is huge. I hope
that it is recognized someday.

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

* * *

The Exchange Stabilization Fund:
Anything But the Naked Truth on Naked Calls

By Reginald H. Howe
www.GoldenSextant.com
March 28, 2000

In a personal letter dated Jan. 19, 2000, to U.S. Sen.
Joseph I. Lieberman, D-Conn., Federal Reserve Chairman
Alan Greenspan responded on behalf of the Fed to
questions raised by the Gold Anti-Trust Action
Committee in an advertisment placed in Roll Call, the
congressional weekly newspaper, on Dec. 9, 1999.

I have discussed Greenspan's answers in three prior
commentaries, "Two Bills: Scandal and Opportunity in
Gold," "The Greatest Con: The Rubin Dollar," which also
discussed some recent official studies on the Exchange
Stabilization Fund, and "Gold Shenanigans: Suspicion
Shifts to the Treasury," which also analyzed the ESF's
statutory basis and authority.

Now the U.S. Treasury Department has surfaced with two
sets of purported answers: 1) a letter dated March 20,
2000, from Marti Thomas, an acting assistant secretary
for legislative affairs, to a constituent of U.S. Rep.
Sherrod Brown, D-Ohio; and 2) a letter dated Feb. 23,
2000, from the department's inspector general, Jeffrey
Rush Jr., to U.S. Sen. Mitch McConnell, R-Ky. Read
carefully, neither letter negates in any way the
contention that the Exchange Stabilization Fund is
involved in the gold derivatives market, still less my
suggestion that that it is writing naked call options
on gold.

Question 1 in GATA's ad
(www.egroups.com/group/gata/309.html) read:

"Does the Federal Reserve or the Treasury Department,
either on their own behalf or on behalf of others,
including other government agencies, such as the
Exchange Stabilization Fund, lend gold or silver,
facilitate the lending of gold and silver, or trade in
any securities, such as futures contracts and call and
put options, involving gold and silver?"

The Treasury Department's responses
(www.egroups.com/group/gata/415.html):

By the assistant secretary: "The Treasury Department
does not, either on its own behalf or on behalf of
others, including other government agencies such as the
Exchange Stabilization Fund, lend gold or silver,
facilitate the lending of gold and silver, or trade in
any securities, such as futures contracts and call and
put options, involving gold and silver."

By the inspector general: "The Treasury Department does
not lend gold or silver, facilitate the lending of gold
and silver, or trade in any securities, such as futures
contracts and call and put options, involving gold and
silver."

Question 1 identifies the ESF as a government agency
separate and apart from the Treasury Department. Given
the ESF's statutory history as a sui-generis self-
financing fund under the exclusive and unreviewable
control of the secretary of the treasury and the
president, this approach appears eminently justified.
Not surprisingly, therefore, the assistant secretary
adopts it by closely tracking the language of the
question in the answer, which refers to the "Treasury
Department" as distinct from "other government agencies
such as the Exchange Stabilization Fund." Thus the
answer states merely that the Treasury Department does
not act as agent for the ESF in trading gold or gold
derivatives. It says nothing about the such trading by
the ESF directly or through other agents -- for
example, a bullion bank such as Goldman Sachs.

The inspector general's answer omits any reference to
agencies or the ESF. However, in an introductory
statement he wrote: "We perform annual audits of the
United States Mint's Custodial Gold and Silver Reserves
and the Exchange Stabilization Fund, which are part of
Treasury's operations." Thus it is possible that he
considers the ESF to be part of the Treasury
Department. But nothing is said about the scope of the
inspector general's audits of the ESF. In all
likelihood these are confined, like the congressional
appropriations process, to the ESF's administrative
expenses and do not reach its operational funds or
market activities. Indeed, given the statutory language
governing the ESF and its legislative history, the
situation could hardly be otherwise.

Question 9 in GATA's ad read:

"Do the Fed or the Treasury Department or any other
government agency ever own or deal in derivatives that
are connected with precious metals? Do any of these
agencies write call options against the Treasury's or
Federal Reserve's gold holdings, or write naked call
options?"

The Treasury Department's responses:

By the assistant secretary: "The Treasury Department
does not own or deal in derivatives that are connected
with precious metals, nor do other government agencies
write call options against the Treasury's gold
holdings."

By the inspector general. "No."

Here the assistant secretary does not track the
language of the question in the response. Instead, the
answer refers only to the Treasury Department, making
no mention of any other agency, let alone the ESF.

What is more, the answer wholly ignores the reference
in the question to writing naked call options on gold.

In short, this answer is purposely constructed not to
include a denial that the ESF is writing naked calls on
gold, the precise charge that I have made in earlier
commentaries. Nor does the inspector general's answer
add any clarification regarding the ambiguity implicit
in his response to Question 1.

The Fed's answers not only carried the weight of being
a personal response by Alan Greenspan, its chairman, to
a U.S. senator, but also were prefaced by a strong
general policy statement:

"Most importantly, the Federal Reserve is in complete
agreement with the proposition that any such
transactions on our part, aimed at manipulating the
price of gold or otherwise interfering in the free
trade of gold, would be wholly inappropriate."

The acting assistant secretary of the Treasury
Department attempted a similar statement, closing the
letter to Representative Brown's constituent: "More
generally, I would like to underline that the Treasury
Department does not seek to manipulate the price of
gold, silver, or other precious metals by intervening
in or otherwise interfering with the market." Again,
there is no specific reference to the ESF.

Other than the president himself, the secretary of the
treasury is the only person with authority to speak to
the policies of the ESF. His failure to come forward
with a policy statement putting his personal prestige
on the line as Greenspan did speaks volumes.

Unlike an acting assistant secretary in the Treasury
Department, Secretary Summers has actual knowledge of
the ESF's activities. But Summers also knows that
legalese pushed to its most virulent extreme --
Clintonese -- is a very dangerous tool when employed to
mislead a member of Congress. Shading the truth about
what the ESF is doing in the gold market by relying on
an ambiguous distinction between the Treasury
Department and the ESF is simply too dangerous to be a
realistic option for Summers in his communications with
Congress, particularly on an important subject of which
he has actual, complete, and personal knowledge.

What the Treasury Department's responses have done is
narrow the controversy. Accepting them as accurate
means that the Exchange Stabilization Fund is the only
official U.S. government instrumentality yet to be
accounted for with regard to allegations of recent
manipulative activities in the gold market.

So here are three simple questions for Secretary
Summers:

1. Within the past five years, has the Exchange
Stabilization Fund traded, directly or indirectly, for
its own account or through agents, in gold or gold
derivatives, including but not limited to writing or
selling naked or covered call options on gold?

2. If the answer to Question 1 is affirmative and the
ESF has traded through agents, who are the agents and
on what exchanges or in what markets have they executed
transactions on behalf of the ESF?

3. If the ESF has written or sold covered calls, either
directly or through agents, what is the source,
location, and legal ownership of the gold bullion on
which the calls were written or sold?

The only people with statutory authority to answer
these questions for the ESF are the secretary of the
treasury and the president. Anyone else supplying
answers must show that they are made with the full
knowledge and approval of one or both of these
authorized officials.

The responsibility for obtaining answers rests with
Congress. What is more, both Democratic and Republican
members are now recipients of weasel answers from the
Treasury Department. Both major parties in Congress are
thus fully on notice of credible and serious
allegations that the current administration has turned
the Exchange Stabilization Fund into a political slush
fund to aid its closest friends on Wall Street,
starting with Goldman Sachs, former Treasury Secretary
Robert Rubin's old firm, by giving them the inside
track on a manipulative scheme to cap the gold price.

But what is far more important, leading members of both
parties are on notice that this alleged scheme is
likely the lynchpin of this administration's dollar
support policy. Should it collapse, as all such schemes
do, it is likely to take the dollar with it and plunge
the nation into a financial crisis the likes of which
have not been seen since the Great Depression.

So Congress has a choice: to exercise its
constitutional responsibilities and demand the truth
about the ESF, or to indulge explanations about it from
lower-level officials phrased in Clintonese. But either
way, if the ESF is engaged in a scheme to support the
dollar by manipulating the gold price, the piper will
be paid: a lot now, or more -- maybe much more --
later.