Was AIG, In Addition To Being The Riskiest Company In The World, Also A Precious Metals Manipulator?

Tyler Durden's picture

A little under two years ago, there was a big debate in the precious metals community, in which two groups of individuals were arguing for and against possible silver market manipulation, via arbing the COMEX and the OTC. On one hand you had such distinguished economists/bloggers as Mish (here and here) and Jon Nadler of Kitco (here) claiming there is no such thing as a COMEX-OTC arb because markets are ultimately efficient, and the second a trade is effected in one market, it implicitly affects all other markets, making spread arbing, and thus "manipulation" impossible. On the other hand, you had C.Loeb making precisely the opposite argument (here). After a brief flare up, the debate died down, with a partial win acceded to Nadler, who ended the debate with the following rhetorical statement: "Also, by the way, why not NAME the sinister manipulative banks in question? Why not ask them outright as to the motives behind their positions (or better yet, who their clients were) and whether or not they acted in a "willfully nefarious" manner? Conclusion: One can take any database and make it suit their conspiracy argument. That, however, does not make for proof of any kind." In other words, Mr. Nadler was asking for a bank to confirm it was arbing the COMEX-OTC spread, which in turn would unwind his defense argument, and lend credence to the claim that some players, due to their massive scale or otherwise, succeed in manipulating the silver (or gold) market by profitably spreading the legs of the trade in two completely different markets and arbing this spread. For the longest time people looked exclusively at JPMorgan for clues. Boy, were they wrong... and are they about to be surprised that in addition to almost blowing up the world, AIG FP has admitted that it itself, as the defacto risk mastodon and suicide bomber under Joe Cassano, with "$426 billion in total on and off balance sheet risk equivalent delta," was precisely just this spread manipulator. But don't take our word for it. Take AIG's.

Presenting exhibit A: AIG production document FRBNY-TOWNS-R1-210712 (pp 34-35) - highlight ours.

Oh, so the arb does exist...

There are about 249,999 other pages we need to go through to find additional supporting and incriminating evidence to this formerly Strictly Confidential Internal Risk Analysis, but a very relevant question at this point for Mr Nadler is: now that you have your confirmatory smoking gun, does that change your thesis? And a much more critical question for the gentlemen at the COMEX: just how was the world's arguably biggest trader at the time, AIG-FP, arbing your market and the OTC, and just how much of this falls under the confines of "legal"? And, lastly, maybe the most critical question - who inherited these positions, who unwound them, and, if no unwind occurred, who is currently in possession of AIG-FP's "large exposure in the Comex vs OTC arbitrage trades"?

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DoChenRollingBearing's picture

And where in the Hell is all this gold?  Inquiring minds want to know, sleazy dirtbag companies do not us to know.

As the Master, Gordon_Gekko (also fofoa) has said, time is short, buy physical gold now!

russki standart's picture

Do not waste any time on asking Nadler to rethink his position. He has been a perma bear on gold for years despite managing kitco.com. Many who follow the gold market think he is akin to a one string ukelele, capable only of one tune. Personally, I think he is in bed with the gold suppression cabal. I pay no attention to this quisling except when I need additional confirmation for timing my entry into a trade.

Amish Hacker's picture

I always assumed that Nadler was trying to steer investors into Kitco unallocated accounts, by trash-talking goldbugs and the need for physical AU. At the same time, he has begrudgingly admitted that a small gold position (say, 5%) might help portfolio returns. That way, when gold goes up, he can say he gave great advice; when it gets pounded, he says, "I told you so." 

I find his utterly predictable anti-gold comments and snarky, look-at-me writing style not worth reading.

JLee2027's picture

Now I'm confused

TheGoodDoctor's picture

So what the fuck is going on Tyler? Break it down so we can understand! Who did what with what precious metals. Man this gets weirder everyday.

Nolsgrad's picture

get the fuck long Silver.



Arius's picture

why do you need the details for? first is difficult to get them otherwise how can one manipulate and steal?

but second, most importantly, nothing you or i can do about it...all we can is protect ourself while the window is still open...

arm50's picture

sounds like a variance arb, no?

Tyler Durden's picture

very much so. however, when you are that big, you don't play the arb. you create /are the arb.

arm50's picture

agreed, i'd guess it is misspecified as an arb book, rather than a var book w/ crappy listed hedges.

knukles's picture

Curious, not only as to whether positions have been "unwound or transferred" to another party, but more importantly, if transferred, under what aegis, for AIG-FP was not deemed a failed entity thereby closing out all positions in the traditional normal course of business.... unless paying off all of the swaps at 100% was ever until then considered "normal".  Which we know was not, any more than the abrogation of senior secured debt holders rights by the US Government in the disposition of GM and Chrysler.

As such, would it not be pertinent as to if the positions were transferred, were they assumed in the form of principal (hedge) or on behalf of another (spec) albeit narrowly defined and grossly oversimplified.  Were AIG-FP's positions done for themselves as a house account or on behalf of another client, such as a governmental entity as some believe the suspected positions (shorts) of HSBC and JPM?

Further, whether closed or remaining open, does the prohibition as to settled swap client's attempting to legally glean any future monetary relief from AIG-FP (or AIG for that matter) apply equally to the exchange and unlisted markets which comprised the precious metals book in question?

I simply wonder whether there is not reasonable information to be gleaned regarding the PM mysteries that may not be enlightened through discerning the very nature of the positions in question.



anarchitect's picture

Another question is, if the arb is COMEX-OTC, is it necessarily silver?  Silver shows up in the spreadsheet in a couple of places, but there are a lot of base metals in there as well.

CD's picture

I love how he amounts of exposures for some counterparties listed on pages 92 on are blacked out -- but the list is in descending order of exposure, and amounts just a few thousand away are left exposed... As stupid question on the side -- why do some entities (RBS, GS, etc.) appear several times on the list -- why are the AIG exposures to these NOT summed up?

IrrationalMan's picture

They are most likely seperate legal entities.  For example, most banks have set up Special Purpose Entities and other distinct Legal entities that play out differently for CSA (Collateralized Support Annex) and in the case of bankruptcy.

CD's picture

Logical enough, though the names are seemingly identical in most cases (GS has a couple of SIVs listed that I noticed). I was thinking accidental/deliberate extra space in Excel to break up positions that would otherwise have seemed too large if summed up.

Nigaz's picture

Calling Nadler a "distinguished" anything is a joke.  Paid shill, yes.  The Liesman of the gold world, yes...

cbaba's picture

Yes, John Nadler is a paid Shiller.

His all postings are against gold or silver price manipulation, he always think gold will go down below to 3 digits.

Tyler, i am surprised to hear this guys name is coming up as an expert or whatsoever,he is Jim Cramer of the Gold market.

Arius's picture

dont be hard on the guy..nadler - TGL -the famous Gartman, remind me of another distinguished high financer Mr. Fuld of 31 floor...he really believed on lehman and its great history hold the 500 million on stock until expired worthless...they might be stupid but they are hanging on.... i respect them for that...someone got to hold the other side of the trade...otherwise everyone would buy gold and WHERE the price would be then?  limited supply???

e_goldstein's picture

i always thought he was better at his previous gig:



Sands8oo's picture

Long story short - the "manipulation" of gold/silver has seemed to have been lacking evidence of a party in possession of huge sums of worthless derivatives (the shorts that continuously bombard the market during any sustained period of upward movement - just look at the intraday chart from two days ago to see what I'm talking about) - but now it seems AIG could be (or was) on the books for exactly that...


Best questions are at the end of the article - "who inherited these positions, who unwound them, and, if no unwind occurred, who is currently in possession of AIG-FP's 'large exposure in the Comex vs OTC arbitrage trades'? "


My guess is, at this point, those positions have ballooned to FAR FAR GREATER size than they once were with the continued un-adulterated manipulation of the precious metals markets... This little bit below from the FINREG bill should clue everyone in to the fact that the Federal Reserve DEPENDS on banks to intervene on its behalf (or in coordination with it) to 'manage' currency values, interest rates, and the value of gold and silver:


banks can "continue to handle foreign exchange, interest rate, and gold and silver swaps and to hedge their own risks. Activity in cleared and uncleared commodities, agricultural, energy, and equities swaps, and credit would have to move to an affiliate within two years."



Gordon_Gekko's picture

Anybody who "denies" PM Manipulation is either an idiot or complicit in their manipulation. Period. END.

drwells's picture

Looks like the total notional value of these things is actually lower than in recent years, depending on how accurate/comprehensive these BIS data are:



Commander Cody's picture

I think you answered the question since it is obvious that the Fed/Treasury are manipulating the PM market.  There were/are many reasons to have bailed out AIG and continue to maintain control so as to not rock the boat and destroy the free lunch.  Cassano was a tool of the system and will never be convicted of anything, and Benmosche's arrogance is a clear indicator of his part in this fraud.

anarchitect's picture

What is Barrick Gold doing on page 92, in the middle of a list of mostly banks and pension funds, to the tune of $288M?

Sands8oo's picture

I think we all know what Barrick is doing there - total instrument of the system - buy shares of ABX and support downward gold price manipulation


Its that simple

anarchitect's picture

That was true until recently, when Barrick supposedly lifted its hedges. I haven't looked at the composition of Barrick's board lately, but it was infested with swill last time I saw it. Question is, did some of Barrick's hedges simply get offloaded to AIG?

An interesting theory is that AIG and Enron were massive money laundering operations, and not on behalf of what would would normally be called organized crime. Derivatives are well-suited to this kind of fraud because the winnings and losses cancel out, which would allow a pre-arranged loser to transfer money to the winners.

Hephasteus's picture

It's doing whatever the hell the FED tells it to. Don't you remember. The FED gave gold herpes for 30 years. If they fed doesn't buy the gold the stupid consumers won't know what to do with it.

Vendetta's picture

Don't know but they have been unwinding their hedges against themselves to the tune of $10 billion.  This article just mentions $3 billion. 


I reckon since the banksters bought out the management of the company, they had the rigging rig good and it would great sailing in an ocean of fiat forever.

weinerdog43's picture

I'm afraid I have to agree.  I used to read him regularly.  Now, I don't even bother.  He is very much like Karl D....extremely wedded to his own ideas regardless of the facts on the ground.  Too bad.  Someone who can admit they were wrong about something increases my opinion of them for having the courage to say so. 

Nolsgrad's picture

you guys complicate the shit out of things. Look, easy fun. Take GLD*10/SLV, now take a 5 day simple moving average. Whenever the spread on the average gets over X(being the magic number) short one vs. the other


Instant money maker. Or at least it has been for the past 2 years.

Gordon_Gekko's picture

Nobody gives a fuck about the stock market anymore.

DoChenRollingBearing's picture

I made a trade Weds. (yesterday) for the first time in MONTHS!  I sold my SLV (cost basis approx. $13.75) in one of my accounts.

I have been a bleacher seats observer of the markets for months now, except for buying physical Gold!  And other PMs and ammo...

Physical mes amis...

Thoreau's picture

Congrats! 1st time you haven't been junked.

FaithEqualsZero's picture

who is currently in possession of AIG-FP's "large exposure in the Comex vs OTC arbitrage trades

Who indeed! 3 guesses and the first 2 don't count

Sands8oo's picture



Thoreau's picture

I'm no PM bug; but Nadler is the John Homes of gold tools.

Caviar Emptor's picture

I deplore yet totally get the government backed sniping at gold. Consistent with the language in that declassified White House document from 1969 which discusses an intervention to reduce the gold price. They have to maintain a myth so it takes lots of cash to do so. In the current economic environment I bet they've had to double or triple their efforts to keep gold from running to $2000. If they didn't then they'd have a run on the currency. Shills will be shills. 

sergeyvz's picture

AIG has a long history of dealing in silver since 1989, including a position as a LBMA market maker in gold and silver before its withdrawal from LBMA on May 28, 2004.

See for example Ted Butler's archives:
The Weight of Evidence, Dec 2003

See also:
Withdrawal of AIG from LBMA on May 28, 2004
ZeroHedge: Did Gordon Brown Sell UK's Gold To Keep AIG And Rothschild Solvent?

Bendromeda Strain's picture

Huh... right after Rothschild's exit. Funny, that.

bozzy's picture

Great post - do I sense that the regular crushing of the PM markets is starting to come unzipped?

The problem at present is that it seems to be profitable, in that apart from the shorting of any strength and then covering in the cowed and depressed price conditions which follow the initial sweep, there is an opportunity to write calls in the certain knowledge that you have the power to bring the price below strike, and so the calls expire worthless.

AIG, JPM - these are schoolyard bullyboys, guaranteed by the administration. There is no market when a participant has a purse which is effectively larger than the market itself. 

DoChenRollingBearing's picture

Fcuk 'em all!

As money comes in, part of it goes to buying Au, Pt and Pb.  For the moment, I am comfortable with my Ag and small "spec money" in Palladium, which has an interesting supply / demand angle.

One man's opinion!

bigdumbnugly's picture

great job tyler.  great find.  documentation and the naming of names.

but though the answer as to who was and who now is now the grand exaulted poobah of PM price manipulation is laid bare, the bigger question is:   what now?

no way the head of the snake willingly eats its own tail.  i don't see this taken down through the normal legislative means.  everyone is implicit. 

what happens here?