More Evidence from 1995

October 21, 2001 – Bill Murphy, proprietor of www.lemetropolecafe.com and the founder of GATA (see www.GATA.org), is being inundated with email from all over the world. These emails come from what Bill calls “GATA’s army”, countless people from all walks of life throughout the world who share one common aim – to get at the truth about the factors and influences causing the abnormal conditions within the gold market and the low price of gold.

An email Bill received just a couple of days ago from Steve K. (we don’t know his last name to give him full credit for his diligent research) is very interesting. It provides more evidence that the ESF was active in the gold market in 1995.

This new evidence is important because it ties neatly into the subject matter of “Behind Closed Doors”, which I wrote this past spring. In that article I made reference to a very enlightening quote by Virgil Mattingly, General Counsel of the Federal Reserve. According to the transcripts of the January 31st, 1995 meeting of the FOMC, Mr. Mattingly said: “The [ESF] statute is very broadly worded in terms of words like “credit” – it has covered things like the gold swaps – and it confers broad authority.” [Emphasis added]

There have been numerous protestations from various government officials that the ESF has done nothing in the gold market since the 1970’s, but we know that these denials can be totally disregarded. Though I have already made this point many times, it bears repeating that these denials of ESF activity are meaningless, and the reason is clear. Only the Secretary of the Treasury and the President have the authority to speak for the ESF, and so far neither of them has uttered a word. Nor has either of them denied ESF activity in the gold market. Why not? What do they know about the ESF that they are unwilling to share with the American people? Maybe the new evidence unearthed by Steve K. can help answer these questions.

Let’s go back to January 31st, 1995, the date of the FOMC meeting mentioned above. The Mexican crisis began the month before. Robert Rubin, a former CEO of Goldman Sachs, was newly appointed as the Treasury Secretary. And Congress had just voted down President Clinton’s proposal for $40 billion of government guarantees to Mexico.

Though labeled at the time as a “Mexican bailout”, it was in fact a bailout of those who had loaned money to Mexico, including – as many observers noted at the time – clients of Goldman Sachs. After all, rather than accept any proposal from Washington, Mexico could have instead just defaulted on its debt. A default would not have meant the end of Mexico as we know it. But a default would clearly have meant big losses for some Wall Street types well connected to Washington. As a result, the so-called ‘Wall Street/Washington Axis’ swung into action.

Rather than accept the Congressional rebuff on its proposed $40 billion bailout package, the Clinton administration instead began seeking alternative sources of public/taxpayer money to deal with Mexico’s nascent debt default. In the end, they turned to the secretive ESF. The Federal Reserve’s participation in the bailout, which was being made in concert with the ESF, was the subject of discussion by the FOMC members when Mr. Mattingly made his statement about the “gold swaps”. I contend that this revealing admission of gold activity was not redacted from the transcripts because of a simple clerical error. Not only does the ESF operate in secret. All one has to do is read the transcripts of the FOMC to see how much of the debate is redacted and kept secret from the American people. To what end? Simple. Just as is clearly explained in Crashmaker (www.crashmaker.com), it doesn’t serve the aims of the Wall Street/Treasury Axis to be forthright, as it would reveal their true agenda.

So what has Steve K discovered? It is a very revealing document (see: www.usdoj.gov) prepared by the Department of Justice on March 2nd, 1995. Written by Walter Dellinger, Assistant Attorney General, it is a legal opinion on the “Use of the Exchange Stabilization Fund to Provide Loans and Credits to Mexico”.

To provide some background, it must be first recognized that our political leaders don’t do squat without getting a legal opinion about a proposed action they may be contemplating. The reason is simple. The US Code is so vast that it is beyond anyone’s capacity to understand, and they don’t want to run afoul of the law and end up in prison. So they need a CYA – cover your ass – opinion, and these are readily available from the DoJ. So Edward S. Knight, General Counsel of the Treasury Department, wrote to the Department of Justice about the legality of the actions being proposed by Mr. Rubin, the Treasury Secretary, to use the ESF to lend money to Mexico, which in turn would be used to bailout the Wall Street types and others who had made loans to Mexico. Mr. Dellinger’s reply was very revealing.

Mr. Dellinger reviewed in detail the Treasury Department proposal in order to advise whether or not it was legal. He said that it was legal because: “In carrying out the support package, the Secretary will be “deal[ing] in gold, foreign exchange, and other instruments of credit and securities” within the meaning of 31 U.S.C. § 5302.” [Emphasis added] This is, by the way, the same statute referred to by Mr. Mattingly. In other words, the proposal to support Mexico was not going to be done just with foreign exchange, nor just by credit instruments (loans and loan guarantees). But the Treasury proposal would also involve gold.

Some may argue that Mr. Dellinger was just quoting the referenced statute, but this argument is not correct. His quote modified the statute by changing “deal” into “dealing”. So why didn’t he modify the statute quote a little further by omitting “gold” if there was no intention of using gold in the bailout? Omitting this word would have made clear the Treasury Secretary’s intention, if gold was not to be used in the bail-out. So it is obvious that by not omitting “gold”, it was the Treasury Secretary’s intention to use gold in the bailout. And the timing of this DoJ legal opinion dovetails neatly with that of Mr. Mattingly’s quote about the gold swaps. So it seems clear that gold would be part of the Treasury package to Mexico.

But how would the gold be used? We don’t have the exact answer for certain yet. But GATA’s army is still digging.