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Will Congress Aggravate Silver Manipulation?

Posted on 2012-11-05, By A-Best Staff

Will Congress Aggravate Silver Manipulation?

In 2008, the US Commodity Futures Trading Commission (CFTC) began investigating silver manipulation. That investigation is still underway and manipulation continues to plague the market. Members of the silver community have grown increasingly cynical about the CFTC’s ability and willingness to reign in manipulative practices, and US lawmakers’ decisions regarding the CFTC’s responsibilities and funding are raising the question of whether it is reasonable to expect improvement.

In the past, the CFTC’s job was to oversee the commodities markets, ensuring that they were transparent and free of fraud and manipulation. Many believe the agency has executed these tasks poorly as silver price manipulation is considered ongoing and obvious.

Now, in the era of Dodd-Frank, lawmakers have decided that the CFTC should also oversee the swaps market.

Swaps are financial products that are so opaque and complex that US authorities have yet to define them. They played a central role in the 2008 financial crisis, and according to CFTC Chairman Gary Gensler, the swaps market is eight times that of the futures market.

Yet a recent budget vote by the House Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies revealed that lawmakers want the CFTC to oversee both the futures and swaps markets with reduced funding, which Gensler portrays as virtually impossible.

In 2012, the CFTC had a budget of $205 million. For 2013, the CFTC wants to increase that to $308 million. However, Gensler said the House Subcommittee wants to chop the CFTC’s budget to $180 million.

“Picture the NFL expanding eightfold to play more than 100 football games in a weekend, leaving just one referee per game, and in some cases, no referee. Imagine the mayhem on the field, the resulting injuries to players and the loss of confidence fans would have in the integrity of the game,” Gensler said.

According to the chairman, the effect of cutting the CFTC’s budget amounts to Congress siding with Wall Street instead of the American public.

Impact on silver manipulation potentially negative

That US legislators would vote for this cut while expecting the agency to take on such a huge set of responsibilities definitely raises questions about their commitment to regulation. And, given the potential “mayhem on the field” that Gensler describes, silver investors should be wondering if the CFTC’s handling of silver manipulation will improve or worsen.

At first glance, it would seem that an agency claiming to be underfunded and understaffed would perform poorly in the circumstances. However, according to Gensler, the oversight of swaps may help to spur progress in regulation of the silver market.

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