House of Morgan: From gold bugs to paper hangers


11p EDT Tuesday, May 2, 2000

Dear Friend of GATA and Gold:

I don't know exactly what's going on with the index
of major gold mining shares on U.S. exchanges, the
XAU, which rose nearly 10 percent today even as
Switzerland was confirming its plans to sell gold,
but the observations of a few others elsewhere may
bear repeating in one place:

-- Reginald H. Howe of
wrote on April 16 that the Swiss sales might be
part of a European Central Bank plan to cover
leased gold that has been sold and never could
be gotten back at the ordinary market without
skyrocketing the price.

-- The Swiss sales were in any case covered by
the Washington Agreement last September and
so were hardly worthy of all the suspense
contrived about them, apparently to depress
sentiment about gold.

-- There is increasing evidence and speculation
about manipulation of markets by governments.
GATA sure isn't alone anymore in complaining about
this kind of thing. Take a look at the essay by
Daan Joubert at Gold-Eagle, wherein he examines
the Dow Jones Industrial Average and finds the
footprints of an elephant all over the place:

And then there's Anthony Hilton's column in
today's London Evening Standard, which follows
below. Hilton is the paper's financial editor and
yet, in regard to Goldman Sachs, he sounds
just like GATA's own chairman, Bill Murphy.

Please post this as seems useful.

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

* * *

Why the cartel busters leave Wall Street alone

By Anthony Hilton
City Editor
London Evening Standard
May 2, 2000

The U.S. Justice Department and its allies seem pretty
determined to break up Microsoft. Having read in
Michael Lewis' book, "The New New Thing," how Microsoft
allegedly behaved towards Netscape, one can understand
why the company has got to be so disliked, despite its
obvious success.

What is intriguing, however, is that Microsoft has
become a target when others who seem to have been much
more overt in their use of market power and maintained
their position for much longer seem not to have
attracted any interest at all from the Justice

To British eyes there is a much more worthwhile target
for the U.S. authorities. The most long-lasting and most
obvious intriguing pricing arrangement in the world is
the one that the American investment banks in New York
maintain in their domestic market for the selling of
new issues of shares, or IPOs -- initial public

In spite of the fact that Morgan Stanley, Goldman
Sachs, and Merrill Lynch are supposed to be in
ferocious competition, it still costs a client company
about 5% of the capital raised to get new money. It
does not matter which investment bank the client goes
to, a big one or one of the not-quite-so-bulging in the

The fee, coincidentally, is always the same. Nor is it
a rock-bottom price -- quite the opposite. It is a rate
far in excess of anything charged in the City even back
in its clubby days when some thought it had cartel

The houses concerned insist that there are no formal
arrangements between them, and absolutely nothing
illegal. This, however, makes it seem all the more odd
that the price of capital-raising has never dropped to
the levels to be found elsewhere in the world.

Also slightly undermining the big firms' protestations
are the people who have worked for these houses who
tell tales about the pressure that comes from rival
houses if one strays outside the areas where it is
expected to operate or the prices it has traditionally
charged. It is worth noting too that because the big
firms co-operate in many joint underwritings, they do
have the sanction of cutting each other out of deals if
they are displeased.

One could argue that mystifying though it might be,
what happens in the United States domestic market
should be of no concern to us. Unfortunately, we cannot
be that complacent, for it is the huge profitability of
the domestic U.S. market that has allowed American
investment banks to finance their expansion in the rest
of the world, most notably Europe, and impose their
vision of transaction-driven investment banker
capitalism on the rest of the world.

That huge profitability enabled them to run their
overseas offices at a loss for years and to hire the
best talent at salaries and bonus levels European firms
find impossible to match. It is in many ways the
equivalent of dumping, something the U.S. authorities are
again very much opposed to when it is done to them. The
one doing the dumping uses the profits generated in the
home market to invade foreign markets and then employs
pricing strategies that wipe out the local competition.

But if there is as much to be concerned about as non-
American observers suggest, why has no American
government moved against Wall Street? The answer could
be that, unlike Bill Gates' Microsoft, Wall Street
firms have always been assiduous in supplying the
president of the day with senior members of his

President Clinton's recently-retired Treasury Secretary
Robert Rubin came from Goldman Sachs and one can go
back in every administration for 20 years to the
appointment of the then-Merrill Lynch boss Donald Regan
to President Ronald Reagan's government in 1980. Each
President relies on Wall Street money to get to office
and relies on Wall Street brains to keep him there.

In such a situation one might understand why a junior
in the Justice Department who had the bright idea of
launching an action against an alleged Wall Street
cartel might find it short of support from his bosses.
Promoting such a case is unlikely to be a career-
enhancing move.