--- Begin Message ---
-Caveat Lector-
8:58p ET Wednesday, December 11,2002
Dear Friend of GATA and Gold:
A few random items tonight.
First, consider this Bloomberg news story
today about the value of the dollar:
"LONDON, Dec. 11 (Bloomberg) -- The dollar
fell against the yen on expectations a report
tomorrow will show the U.S. current-account
deficit widened to a record. The current-
account deficit, which includes trade and
investment and is a measure of the amount of
money leaving the United States, probably
widened to $132 billion in the third quarter
from $130 billion, according to a Bloomberg
News survey of analysts. 'If flows into the
United States start to slow down, that's a
problem for the dollar,' said Ian Stannard,
a currency analyst at BNP Paribas. The dollar
was also hurt by concern John Snow, nominated
by President George W. Bush to be the next
Treasury secretary, may let the U.S. currency
weaken to boost demand for U.S. exports. The
U.S. currency is up 3.2 percent against the
yen in the last month. The National
Association of Manufacturers has called for a
weakening of the currency, saying dollar
strength hurts U.S. competitiveness on the
world markets."
Why don't journalists ever spell out exactly
how U.S. government policy "may let the U.S.
currency weaken"? Why doesn't ANYONE ask
exactly how this is accomplished?
The U.S. government insists that it has
undertaken no foreign exchange interventions
for years. Yet the phrasing of this Bloomberg
story suggests that the government has
undertaken certain unspoken policies to keep
the dollar strong relative to other
currencies, policies that function as easily
and quickly as pushing a button. So what the
heck are they?
If there is no direct intervention in the
foreign exchange markets, there would seem to
be only one option for keeping the dollar
strong or letting it weaken -- manipulating
the gold price through intermediaries.
Adjusting the value of the dollar without
the announcement of such a policy and the
mechanism by which it is to be carried out is
itself the rigging of all markets that trade
in dollars. This the government is capable
of doing this is acknowledged in this Bloomberg
story, and it is clear to anyone who is willing
to see it or ask a question.
* * *
Market analyst Clif Droke has written a
recommendation for one of GATA's corporate
sponsors, Teryl Resources Corp. You can find
it at Gold-Eagle here:
http://www.gold-eagle.com/gold_digest_02/droke121002.html
* * *
Below is a somewhat disjointed Bloomberg
story today reporting how Morgan Chase and
Citigroup were called Enron's accomplices at
a Senate hearing. Note the wild understatement
by a Federal Reserve official at the end of
the story. To him, tax and securities frauds
are merely the "excesses" of "new products
and innovations."
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Citigroup, J.P. Morgan
Aided Enron, Senator Says
By Rob Urban
WASHINGTON, Dec. 11 (Bloomberg) -- Citigroup
Inc. and J.P. Morgan Chase & Co. helped Enron
design "sham" transactions to inflate
profit, hide debt, and evade taxes, said
Senator Carl Levin, in a hearing on the
banks' role in Enron's collapse.
"You aren't the victims of Enron. You folks
helped perpetrate these deceptions,'' said
Levin, chairman of the Senate Governmental
Affairs Permanent Subcommittee on
Investigations, in an exchange with J.P.
Morgan officials about a loan transaction
called "Slapshot" that gave Enron $60 million
in tax benefits.
That deal cloaked a $375 million loan inside
a $1.4 billion fake loan, of which Enron
repaid $1 billion instantly, allowing it to
write off higher interest payments for tax
purposes, the committee said.
Levin told Citigroup officials they should
have known a transaction in 2000 violated
accounting rules and bank policies and was
used to hide a $194 million debt and
improperly boost earnings by $112 million.
Committee investigators said documents and
interviews about the transactions show that
Citigroup and J.P. Morgan ignored their own
internal guidelines to satisfy a client,
helping Enron deceive investors and tax
authorities.
The two firms "actively aided" Enron "in
return for substantial fees and favorable
consideration in other business dealings,"
the committee said in a 35-page report
released this week.
In questioning J.P. Morgan officials about
the Slapshot transaction, which was made as
Enron was starting its pulp and paper trading
business, Levin cited J.P. Morgan memos that
promoted the deal based on the fact that it
wouldn't provide a "road map" to tax
collectors.
"Why would you want to use the lack of
transparency as a selling point," the
Michigan Democrat asked. "Is this something
you would pitch today?"
J.P. Morgan Managing Director Andrew
Feldstein replied: "We would not enter into
this transaction today."
"It's not about entering into it -- this
isn't something Enron cooked up,'" said
Levin. "It's a Chase design. You folks
created an appearance that there was a $1.4
billion loan when there was only a $375
million loan."
In addition, Levin said, Enron and J.P.
Morgan agreed that if tax authorities
disallowed the intended tax treatment, the
two sides would say that part of the loan was
made by Enron to the bank, which would create
another tax benefit.
"The result you describe does sound quirky,"
said J.P. Morgan Vice Chairman Michael
Patterson. "And we have changed our policies.
Beyond ensuring compliance, we now would have
to take into consideration how this would
look to the world were it to become public."
Questioning Citigroup officials about another
ransaction, Levin cited memos citing "verbal
guarantees" from Enron Chief Financial
Officer Andrew Fastow that Citigroup would
recoup a $6 million investment in an Enron
partnership called Bacchus. That investment,
which allowed Enron to keep a $194 million
loan off its books, and ultimately book a
$112 million profit, was a sham, Levin said.
Fastow's statement "was just a businessman's
understanding," said William Fox, head of
Citigroup's mining and energy group, who met
with Fastow, in answer to Levin's question.
"We did not view the oral assurance as a
guarantee. We viewed ourselves as being at
risk for the $6 million."
Committee investigators said documents and
interviews about the transactions show that
Citigroup and J.P. Morgan ignored their own
internal guidelines to satisfy a client,
helping Enron deceive investors and tax
authorities. The two firms "actively aided"
Enron "in return for substantial fees and
favorable consideration in other business
dealings," the committee said in a 35-page
report released this week.
Today's hearing opened with the questioning
of Fox and other Citigroup officials and
moved on to focus on J.P. Morgan.
"J.P. Morgan Chase like many other parties
dealt with Enron in the belief that it was a
respected and creditworthy company and that
it was not J.P. Morgan Chase's role to
second-guess our counterparty's accounting or
other structuring determinations," said
Robert Traband, a J.P. Morgan vice-president.
"J.P. Morgan suffered substantial injury, not
only by the loss of hundreds of millions of
dollars from its own transactions with Enron,
but also to the injury to its reputation from
the erroneous suggestions of some that J.P.
Morgan was 'involved' in Enron's wrongdoing.
For these and many other reasons, we regret
that we ever dealt with Enron," Traband said.
Citigroup rules at the time of the Bacchus
transaction in late 2000 prohibited doing
off-balance-sheet financing transactions with
a client if it would have a material impact
on the client's earnings. Enron improperly
booked $112 million in revenue based on the
transaction, senators said. Levin, also cited
an internal memo in which Fox said that Enron
was in the habit of using various accounting
strategy to boost earnings.
"You were very much aware that Enron dresses
up its balance sheet at year-end -- you wrote
this in a memo," Levin said to Fox. "You were
expecting a dressing up by Enron at the end
of the year 2000. Then Enron told you it was
unlikely there would be a material earnings
impact from this transaction and you just
took their word for it?"
Fox replied: "We were lied to. We relied on
Enron, which was the only one that can
determine the impact of a transaction on
earnings. We relied on Enron's word. They
were a highly respected company." In December
2000, Enron set up a joint venture for its
Canadian pulp and paper trading business
called Fishtail. The joint venture involved
J.P. Morgan and the LJM2 partnership
controlled by Enron's then-Chief Financial
Officer Andrew Fastow, the committee said.
Fastow pleaded innocent Nov. 6 to 78 counts
of fraud, money laundering and other charges.
Prosecutors have told him they plan to ask a
grand jury for a second indictment, the
Justice Department's Enron Task Force said in
a court filing.
Enron spokesman Mark Palmer said the Houston-
based company is continuing "to cooperate
with investigations into Enron's past." He
declined comment on any of the specific
charges made by the committee.
The Securities and Exchange Commission, as
part of its investigation into the collapse
of Enron, also is examining the roles of J.P.
Morgan and Citigroup in helping Enron hide
debt and inflate earnings. An earlier hearing
looked at Enron's involvement with Merrill
Lynch & Co.
Citigroup, the biggest financial services
company, has changed its policies on such
deals, known as structured financings, said
Charles Prince, chief executive of the
Salomon Smith Barney investment banking unit.
"Even assuming that these transactions were
entered into in good faith and were entirely
lawful, they do not reflect our standards and
they would not happen now at Citigroup,"
Prince said.
Levin concluded the hearing with testimony of
bank regulators and Securities and Exchange
Commission officials, who described efforts
to tighten regulation of structured finance
transactions such as those investigated by
the committee. "With many new products and
innovations, excesses in how products are
used emerge over time," said Rich
Spillenkothen, director of banking
supervision and regulation at the Federal
Reserve.
-END-
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