Thursday, May 9, 2013

Are We On The Verge Of Witnessing The Death Of The Paper Gold Scam?

by Michael
Gold Bars
The legal claims on physical gold far exceed the amount of physical gold that the banks actually have by a very, very wide margin.  And right now the bankers are scared out of their wits because their warehouses are being drained of physical gold at a frightening rate.  So what happens when their physical gold is gone but they still have lots and lots of people with legal claims to gold?  When that moment arrives, it will represent the end of the paper gold scam.  Many believe that the recent takedown of the price of paper goldwas a desperate attempt by the bankers to put off that day of reckoning, but it appears to have greatly backfired on them.  Instead of cooling off demand for precious metals, it has unleashed a massive “gold rush” all over the globe.  Meanwhile, word has been spreading among wealthy families in both North America and Europe that they had better grab their physical gold out of the banks while they still can.  This is creating havoc in the financial community, and at least one major international bank has already declared that it will only be settling those accounts in cash from now on.  The paper gold scam is starting to unravel, and by the time this is all over it is going to be a complete and total nightmare for global financial markets.
For years it has been widely known that the promises that banks have made regarding their gold far exceed their actual ability to deliver, but we have never reached a moment of such crisis before.
Posted below are quotes from people that know precious metals far better than I do.  What these experts are saying is more than a little bit disturbing…
-CME President Terry Duffy: What’s interesting about gold, when we had that big break two weeks ago we saw all the gold stocks trade down significantly, we saw all the gold products trade down significantly, but one thing that did not trade down, was gold coins, tangible real gold. That’s going to show you, people don’t want certificates, they don’t want anything else. They want the real product.
-Billionaire Eric Sprott: So we see all of these paper (trading) volumes going through that bear absolutely no relationship to what’s going on in the physical markets. As you know I have always been a proponent of the fact that supply in the gold market was way less than demand, and by a very large factor. I think demand exceeds supply by at least 60%. The central banks are surreptitiously supplying that gold, and ultimately they will be running on fumes.
When we hear about the LBMA not willing to deliver gold, and JP Morgan’s inventories at the COMEX have gone from 2.4 million (ounces) down to 160,000 ounces, it just makes you realize that all of this paper trading means nothing. It’s the real physical market that you have to rely on.
-JS Kim: FACT #1: COMEX gold vaults were recently drained of 2 million ounces of physical gold in one quarter, the largest withdrawal of physical gold bullion from COMEX vaults in one quarter during this entire 12-year gold and silver bull. There has been speculation about the reasons that spurred these massive withdrawals of gold from COMEX vaults, but the most reasonable speculation is that no one trusts the bankers to hold on to their physical gold anymore, especially in light of Fact #2. Note below, that both registered AND eligible stocks of gold had heavily declined in recent months. Such an event signals a general distrust of the banking system from everyone holding gold in registered COMEX vaults.
FACT #2: One of the largest European banks, ABN Amro, defaulted on their gold contracts and informed their clients that they would only settle their gold bullion contracts in cash and not in physical. So much for the supposed legality of financial contracts as a “binding” contract. So whether Fact #1 caused Fact #2 or vice versa is irrelevant. What IS apparent is that the level of trust in bankers to safekeep physical gold and physical silver is disappearing, as it should be, and as it should have already been for years now. But truth always takes some time to catch up to banker spread lies and that is what is happening now. I have been warning people never to trust bankers in deals involving gold and silver for years now, as in this article I wrote nearly four years ago informing the public that the SLV and GLD are likely a banker invented scam as well.
FACT #3: Silver fraud whistleblower and London trader Andrew Maguire stated that the LBMA was having trouble settling gold contracts in bullion as well and stated that institutions that asked for physical settlement “were told they would be cash settled instead by a bullion bank.” In plain English, this is a default. So Andrew Maguire reported that the LBMA had already gone into default. In light of Fact #1 and Fact #2, the dominoes were starting to tumble and the house of cards that the bankers had built in gold and silver paper derivatives to deceive and hide the true fundamentals of the physical gold and physical markets from the entire world was rapidly starting to crumble. A financial earthquake of magnitude 2.5 was quickly threatening to evolve into one of the biggest financial earthquakes of all time in which the world’s confidence in all global fiat currencies would effectively have a well-deserved funeral.
-Jim Sinclair: I think the reality is the supply situation is extremely volatile at this point, and even discussing it is like rubbing a raw nerve to the people who are in charge. The amount of discussion on the subject of warehouse supply, supply that is represented by the gold leases, indicated to the central planners that the demand for physical was going to continue to effect the exchanges.
Although they did not expect any grandstand delivery, the mere continued draining of physical inventories was threatening the very functioning of the paper exchange. That threatening of the paper exchange and its ability to continue functioning is really taking off the blinders and revealing the truth behind the critical question, ‘Where is the gold?’
The question now is, ‘Where has the gold gone?’ Who has all of this gold? Because of the nature of gold leasing, all of this gold has been purchased and it has gone somewhere. The reality of the empty vaults reveal that the gold has gone missing.

-Ronald Stoeferle: We’re seeing this rush to physical gold not only in the retail market, but also for the institutional players…[it's] just overwhelming…I [estimate] a 130-to-1 [ratio of paper to physical gold]…and I think in the last week we were really close to [triggering] a default of the paper market.
-Gerhard Schubert, head of Precious Metals at Emirates NBD: I have not seen in my 35 years in precious metals such a determined and strong global physical demand for gold. The UAE physical markets have been cleared out by buyers from all walks of life. The premiums, which have been asked for and which have been paid have been the cornerstone of the gold price recovery. It is very rare that physical markets can have a serious impact on market prices, which are normally driven solely by derivatives and futures contracts…
I did speak during the week with several refineries in the world, of course including the UAE refineries, and the waiting period for 995 kilo bars is easily 2-3 weeks and goes into June in some cases. A large portion of the 995 kilo bars in the UAE goes normally into the Indian market, but a lot of the available 995 kilo bars are destined for Turkey, at this time. We heard that premiums paid in Turkey have reached anything between US $ 20 and US $ 35 per ounce.
-James Turk: Another indication of the demand for large bars is the huge drawdown in the gold stock in COMEX warehouses. It is noteworthy that COMEX reports show the drawdown is largely the result of dealers removing their inventory, their working stock. When that happens, you know the availability of supply is constrained.
What all of this means, Eric, is one thing. If the central planners want to keep the precious metals at these low prices, to meet the demand for physical metal they will need to empty more metal from central bank vaults, or borrow metal from the ETFs as some have suggested is happening. Otherwise, the central planners will have to step back and stop their intervention, thereby letting the price of gold and silver rise so that demand tapers off, bringing demand and supply of physical metal back toward some kind of balance.
We’ve seen this same situation several times over the last twelve years. It is what I have been calling a “managed retreat.” Despite the current weakness, I firmly believe we have again entered a critical period where the central planners will need to retreat once again in order to let the gold and silver prices climb higher.
-The Golden Truth: And then I get a call from a close friend in NYC last Friday.   His career has been in private wealth management in the private bank department of the Too Big To Fail banks.  He’s been looking for work and chats with old colleagues all the time.  He called my Friday and told me he just got off the phone with a very high level private banker from a big Euro-based TBTF bullion bank, but who was at JP Morgan until about six months ago.
This guy told my friend that there is a scramble by many very wealthy European families/entities to get their 400 oz bars out of the big bank vaults. He knows this personally, for a fact.  He said the private banker community is small over there and the big wealthy families all talk to each other and act on the same rumors/sentiment.  The Bundesbank/Fed and the ABN/Amro situations triggered this move.  He knows for a fact JPM tried to calm fears about 3 months ago by sending a letter to it’s very wealthy clients assuring them their bars were safe, in allocated accounts.  He said right now those same families are walking into the big banks like JPM and demanding delivery of their bars or threatening to take their $100′s of millions in investment portfolios to competitors.  His wording was “these people are putting a gun to the heads of private banks and demanding their gold.”
I know this information is good because I know my friend’s background and when he tells me his source is plugged in, the guy is plugged in. Not only that, my friend’s source said that there’s no doubt that someone like a John Paulson, not necessarily specifically him, but entities like him or it may include him, have held a gun to GLD and demanded delivery of physical in exchange for their shares.
Regarding the Bundesbank/Fed situation, recall that the Bundesbank asked to have some portion of its gold sitting – supposedly – in the NY Fed vault in NYC sent back Germany. The total amount is 1800 tonnes.  After behind the scenes negotiations, the Fed agreed to ship 300 tonnes back over seven years.  To this day, the time required for that shipment has never been explained.  Venezuela demanded the return of its 200 tonnes held in London, NYC and Switzerland and received it all within about four months.
And regarding the ABN/Amro situation.  ABN/Amro offered a gold investment account product that offered physical delivery of the gold in the investment account when the investor cashes out.  About a week before the gold price smash, ABN sent a letter to its clients informing that the physical delivery of the bullion was no longer available and that all accounts would be settled with cash at redemption.
I believe it was these two events that triggered the big scramble for physical gold by wealthy families/entities who were suspicious of the integrity of their bank vault custodial arrangement anyway.
*****
So what does all of this mean?
It means that we are entering a period when there will be unprecedented volatility for precious metals.  There will be tremendous ups and downs as this crisis plays out and the bankers try to keep the paper gold scam from completely unraveling.
Meanwhile, nations such as China continue to stockpile gold as if the end of the world was coming.
According to Zero Hedge, Chinese gold imports set a brand new all-time record high in March…
Quite the contrary: as export data released by theHong Kong Census and Statistics Departmentovernight showed, Chinese gold imports in March exploded to an all time record high of 223.5 tons.
And the number for April is expected to be even higher.
Does China know something that the rest of us do not?
We are also seeing a rapid decoupling between spot prices and physical prices.  In fact, it is quickly getting to the point where the spot price of gold and the spot price of silver are becoming irrelevant.
For example, demand for silver coins has become so intense that some dealers are charging premiums of up to 30 percent over spot price for silver eagles.
That would have been regarded as insane a few years ago, but people are now willing to pay these kinds of premiums.  People are recognizing the importance of actually having physical gold and silver in their possession and they are willing to pay a significant premium in order to get it.
We are moving into uncharted territory.  The paper gold scam is rapidly coming to an end.  In the long-term, this will greatly benefit those that are holding significant amounts of physical gold and silver.

Shark Tank WARNING US Debt Crisis SOON

Shark Tank WARNING US Debt Crisis SOON

World Bank a security risk to the world order?

Former senior legal counsel at the World Bank turned whistleblower Karen Hudes talks about the corruption inside the World Bank and her personal saga to find out about it. She says a worldwide currency war is certain and NATO in jeopardy, if the wrongdoing isn’t finally addressed. 
By Lars Schall
Karen Hudes studied law at Yale Law School (J.D.) and economics at the University of Amsterdam (M.Phil). She worked as a corporate and securities lawyer at a major New York law firm and for several years at the Export Import Bank of the US, before she became a senior counsel in the legal department of the World Bank (1986 – 2007). Her personal web site can be found here: http://www.kahudes.net.
Lars Schall: Dr. Hudes, let’s talk about the World Bank, which is often described as a “Bretton Woods organization,” since it was officially founded at the famous international conference in Bretton Woods, New Hampshire in 1944. However, the plan to establish this bank (and the International Monetary Fund) originated years before with the highly secretive “War and Peace Studies” that were conducted by the Council on Foreign Relations and the US State Department, while the money for the study came from the Rockefeller Foundation. (1) Given this background of being part of the “Grand Area” design and strategy for the post-war world order, isn’t the World Bank really a tool to exercise American hegemony?
Karen Hudes: I take issue with one part of that question – when you say, “American hegemony.” If you unbundle the political structure inside the United States, it’s not what you see is what you get.  It’s not that the American citizens are the ones that are running the country. There is a very wealthy group that is secretly, through domination of the press, trying to keep the citizens in the United States in the dark. And so when you say a tool of “American hegemony,” the answer is it is a tool of hegemony but I would take the “American” out of the equation. What you saw in the last presidential election was massive amounts of foreign money coming in, in an attempt to influence voters. (2)  That’s the group that I’m talking about and I would be very happy, as a sidebar at some point, to discuss who that group is, where they are, and what they’re doing.  Because I didn’t know about that group when I started on my saga, but I found out about them later on.  Now I try to tell them that they have to start behaving themselves.  They are not above the law; they think they are, but they are subject to the law.
L.S.: Okay, then let us go straight down to the nitty-gritty: Can you name the individuals and institutions of that group? 
K.H.: I’ll tell you what I can do; I can point you to a very good study that was done by three systems theorists at the Swiss Federal Institute of Technology in Zurich, ranked as the best university in continental Europe.  What they did was examine the interlocking ownership of the world’s 43,000 transnational corporations using mathematical modeling tools. Are you familiar with that study?
L.S.: Yes, I am. I believe you are referring to a study which showed basically that a small group respectively “super-entity” of 147 financial institutions and multinational corporations is pretty much in control of the world economy. (3) 
K.H.: Yes, that’s right. So, it’s whoever is behind that group which is in control of 1 percent of the investments but that 1 percent through corporate interlocking directorships is now in control of 40 percent of the assets and 60 percent of the revenues of this set of 43,060 transnational companies.  That’s who that group is. Now, do I know who the individuals behind that group are? They’re very good at secretly hiding, so I’m not going to hazard a guess. But once we get the legal machinery in place, we will find out in great detail who these individuals are, and they will be playing by the rules along with everybody else on this planet. 
L.S.: Before we come back to that issue: How do you evaluate the World Bank’s track record in general? 
K.H.: It’s a magnificent place that has been hijacked by that group, so you really can’t blame it for some of the terrible things that have happened.  But some of the most talented people in the world end up there.  In particular, the group of World Bank whistleblowers that I have been working with is a dream team. They are fabulous, and by working together we have succeeded in exposing what the “super-entity” of financial institutions was trying to take away from the people around the world behind their backs.  I wouldn’t call it a “Coup d’État” because we have simply taken back what was rightfully ours. 
So, the World Bank is a mixture which includes that group of whistleblowers. Their lives have been really, really severely damaged by the power of that group that was trying to prevent them from doing their jobs. When the World Bank renovated its headquarters in 1997, an architect/construction engineer tried to prevent a 70% cost overrun caused by mismanagement.   Can you imagine, an organization that’s teaching everybody how to run projects has a cost-overrun of $220 million dollars over the estimates?  Anyway, he warned that this project was going to have the overruns, and he was fired in gratitude. Where is this man now?  He’s managing projects for China.  Anyway, when we were mentioning him as a whistleblower, he said: “I don’t want this publicity; I’m not a whistleblower.  I was simply doing my job as a professional project manager and architect.”  But some people, their lives were just completely wrecked. 
So that’s what the World Bank is: you’ve got 5 percent who are fighting for justice, you’ve got human resources secretly managed by the “super-entity” of financial institutions, and you’ve got everybody else in the middle taking cover where they can. 
L.S.: Why should anybody care about the World Bank and its actions? 
K.H.: It’s an institution at the very center of the world financial system owned by 188 countries.  This institution can prevent a currency war and can also serve as a bridge when there is consensus about how to amend the functioning of the world financial system.  It takes 50 years for an international institution to function.   There is a simple convention that the Board of the World Bank will only vote up or down what is proposed by the President of the World Bank.  When the Board tried to end that convention in 2009, the following day I was locked out of the World Bank’s headquarters.  
In 1944 there were 44 countries at the Bretton Woods Conference; one of the Dutch delegates was a young lawyer named Aaron Broches, who later became the longest-serving general counsel of the World Bank. I wasn’t at the World Bank when Broches was general counsel, but I got to know him because I was interested in finding out about the history of the World Bank.  Broches gave me the operation manual.  He was there when Robert McNamara came to the World Bank as the president in 1968. Broches told me that’s when the World Bank really started to deteriorate. McNamara made the place much more corrupt than it had been before that. The World Bank was established by treaty that was negotiated by the 44 countries which came to the Bretton Woods conference. By now, the Bretton Woods treaties have been signed on to by 144 additional countries. 
So, the reason people need to care about the World Bank is it is a fabulous tool.  We couldn’t create it today; but we’ve inherited it, we’re standing on the shoulders of our predecessors, and it is the tool by which we are taking back the rule of law, and we’re proceeding actually further than it’s ever gone.  People complain about international law, they say it’s not enforceable, it’s just wishful thinking; no.  International law exists, and it goes from the very bottom of the system way up to the top.  Because the groups that want to be free to dominate the place and not be subject to law, their game is over, finished. This is a sea-change.
L.S.: But isn’t the whole thing related to the financial crisis and the fact that those people who’ve committed crimes are not punished for their crimes – isn’t that an clear indication to the contrary? 
K.H.: Yes, but just wait until we finish doing what we need to do, because when I talk about taking back the World Bank for the rule of law, we’re talking about the beginning of a different approach.  International law was developed by Hugo Grotius, a Dutch lawyer, famous for his escape in a trunk from the castle of Loevestein in 1621 where he was imprisoned by the Calvinists. Grotius believed in freedom of the seas and combined ethics, politics and law.  
He said: “It is fitting that those who have the leading place in an alliance should arrogate to themselves no privilege in relation to their own interests, but should make themselves conspicuous above the others through their careful management of the common interests.”(4) 
Now here’s where it becomes really interesting.  Bond holders are entitled to accurate financial statements from the World Bank under securities laws in every single jurisdiction where the bonds are held. The World Bank has issued $135 billion in bonds denominated in the world’s currencies; anyone who holds a World Bank bond can hold the World Bank accountable.  And this means that anyone inside that organization with financial information has got the right to make sure that is correctly represented in the World Bank’s financials.  If there’s an inaccuracy in the financial information, the correction must take place, and any person who reveals that inaccuracy must be protected and not retaliated against.  This is now a requirement in the appropriations legislation for the US contribution to the World Bank capital increase. (5)  If you buy a World Bank bond (and I did so), you are empowered to fight for international law as an individual.
So, we now have a mechanism for requiring transparency.  Does every government want transparency?  Of course not, that’s why it has taken me fifteen years so far.  But that’s where we are now, with governments accountable to their people in a way that they weren’t before.
L.S.: You assume that a world-wide currency war is certain if the World Bank fails to adhere to the rule of law. How do you come to this conclusion? 
K.H.: It’s a very important question.  You can see definite signs of an impending currency war by the US government’s seven year delay in complying with Germany’s request to repatriate 300 tons of gold; the difficulty in obtaining gold for immediate delivery; Japan’s devaluation; and legislation in a dozen states to recognize gold and silver bullion as legal tender.  I elaborated on this in a recent interview with gold and precious metals expert, Tekoa Da Silva. (6)
I have been warning for nearly ten years that US’ failure to play by the rules at the World Bank would end in a currency war.   I come to this conclusion because one of the things the World Bank is, is it’s a knowledge bank.  You have very clever companies that have developed services that they would like to incorporate in World Bank projects. For example, I was working on a project in Ghana on a freedom of information law.  The Ghanaians hired the Sentia Group, headed by Jacek Kugler, former Chair of the Department of Politics and Policy at Claremont Graduate University  He was President of International Studies Association (2004-5) and Peace Science Society (1995-6). He was also editor of International Interactions.
The model developed by Jacek Kugler is 90 to 95% accurate. (7)  There are actually two models that I am relying upon.  The published version is: “The War Presidency: Options Taken and Lost.” (8)  This analysis holds that what the United States did in the Iraq war may have made some sense in the context of the regional problems, but it was absolutely suicide for the US to fly in the face of its major allies.   If the corruption in the United States continues to jeopardize the US’ relationship with the NATO countries, (which we are now seeing in the refusal of the United States to comply with Germany’s request for repatriation of its gold), China would come way up very, very fast, but via a currency war that will force trade back to a barter system and disrupt the world economy on a scale that will make the great depression of the 1930′s and the recent world depression in 2008 pale by comparison.  
I found out in the Ghana project using the Sentia stakeholder analytic tool that the reason that the freedom of information law was not being passed was because the German government, which was financing the project , wanted a perfect freedom of information law.  It turned out that in Ghana the people who were opposed to the law had enough political power that they could prevent the law from being passed. Once the German government understood that there was no ownership in Ghana for a perfect law, the local version of the legislation passed. 
I was fired illegally as a legal officer of the World Bank trying to keep the World Bank on track in the securities markets.  I informed the US Congress that the World Bank was out of compliance on the capital markets, and was illegally fired in retaliation.  So I thought I would be reinstated immediately. I didn’t understand that the single biggest impediment was the fact that that group that I was talking about, the one that’s dominating the capital markets, is also dominating the media. I didn’t realize how concentrated the media was in the United States. 
In the last 20 years the number of owners of the media in the US has gone from 50 down to 5.  So I couldn’t get my story out. (9)  I can regale you about what happened with the National Press Club, which has been hoodwinking the American people by censoring important information.   When we are finished ending the cover-up of corruption, the media will have admitted that it was certainly newsworthy when the governors, attorneys general and chief justices of the 50 states were involved in resolving this illegality.  How can it be that the American people don’t know this now?  That is why I’m so grateful to you for bringing my story to your readers. 
L.S.: When did you come to the conclusion that a world-wide currency war is certain by using this game theory stakeholder analysis?
K.H.:  In 2004 I asked Jacek Kugler whether he would model rule of law at the World Bank.  This is the second model, and is consistent with the published model, because the World Bank is a microcosm of the world economy.  The input to the model requires an assessment of where the stakeholders are on rule of law at the World Bank, how powerful they are, and also how important rule of law is for them.  So for example, the president of a country may be powerful, but he’s got a lot on his plate, so that issue is not so important for him.  Kugler refers to that as “salience”.  The numbers as to how powerful the countries were is based on their shareholding in the World Bank; for instance the US has 16 percent.  But I had to estimate how important rule of law was to the World Bank’s member countries, where they stood on the issue, and so on.  However, where I guessed wrong was I didn’t understand the media.  I thought the media was part of a solution; I didn’t understand that it was very much part of the problem.  
In 2007 I warned the US Treasury Department that the model of rule of law at the World Bank was predicting that the US would lose the 66 year-old Gentlemen’s Agreement to appoint the president of the World Bank. (10)  That is what happened in 2010. (11)  The model started predicting that rule of law would prevail rather than a currency war as soon as the UK and European Parliaments published my testimony. (12)
L.S.:  But is the loss of the Gentlemen’s Agreement actually something bad?  I mean the US is just one country out of more than 188 in the World Bank?
K.H.:  Let’s look closer at Hugo Grotius’ point: ‘If you’re at the top of the food chain in the world and you rule benevolently in everybody’s interest then this is a good thing.  But once you stop doing that, you stop acting as a trustee for the world and you start acting for the interest of a small group whose interests are different from the whole, then it’s a bad thing.  So, if the US had acted under the World Bank’s rules, and complied with the securities laws of the jurisdictions where World Bank’s bonds are held, the US could have kept its Gentlemen’s Agreement.  It’s only when the US acts illegally and against the interests of the whole of the group that the Gentlemen’s Agreement needs to end. 
L.S.: Okay, I still don’t get it, and so make it plain, please: a) why do you think a world-wide currency war is certain by using this game theory stakeholder analysis? And b) please explain why NATO is in jeopardy – and maybe more important, give our readers some reasons why it would be a bad thing if NATO would break-up? Is NATO still a defense alliance?
I also spoke to Secretary Chuck Hagel on August 6, 2008 when he represented Nebraska as a Senator in the U.S. Congress, and I told him that this stakeholder analysis was predicting that the Gentlemen’s Agreement would end if the U.S. did not stop its hegemony at the World Bank and that “playing cat and mouse with these serious governance issues at the World Bank is also a security risk to the world order.”  After Chuck Hagel became Secretary of Defense, I called up the Inspector General’s office in the Defense Department and said, “I happen to think that Secretary Hagel will be very interested to know about a problem that’s going to make him lose NATO.”  And the next weekend I got a request from LinkedIn to contact the Defense Department’s project manager for their version of the stakeholder analysis.  I am also in touch with NATO. 
NATO is in jeopardy because of tensions with Germany and Europe over the corruption emanating from the “super-entity” that is trying to dominate the world economy.  The stakeholder analysis is predicting that this corruption can be overcome through coalitions that demand the rule of law. Informed citizens demanding an end to the corruption will turn things around.  I believe that the corruption in NATO, like the Bretton Woods institutions, can be overcome.  
As a lawyer, I believe that institutions can be retrofitted, improved, and salvaged and that when cover-ups of corruption end it is possible to close the loopholes that permitted the corruption to exist. When I say that NATO will break up, I am referring to NATO as a proxy for the transatlantic alliance.  Whether the accession of new countries to NATO has changed the character of NATO is a larger issue.  As the corruption coming from the “super entity” of financial institutions we discussed earlier is tackled, many existing institutions will change.  Lawyers prefer incremental change, and working within an existing institutional framework.  The alternative is an approach like the French revolution.  Is that preferable? 
L.S.:  Was corruption part of the decision to get rid of Paul Wolfowitz and Robert Zoellick as heads of the World Bank?
K.H.:  Yes, of course.  The Board of Executive Directors asked Paul Wolfowitz to leave for promptly giving a 35% pay raise to his significant other who was working for the World Bank when Wolfowitz assumed the presidency.  That was just the tip of the iceberg; the corruption was systemic.(13) 
L.S.:  Well, related to Robert Zoellick I think this is not really clear to the public…
K.H.:  No, of course not, that’s because the “super-entity” of financial institutions bought up the media.  It was because of Robert Zoellick’s corruption that the World Bank’s Committee on Governance refused a second term to Robert Zoellick, and Senator Harry Reid, Majority Leader in the US Senate, told Zoellick that he was not going to be renominated for a second term as president of the World Bank by the United States.  After Mitt Romney appointed Zoellick to head national security transition planning during the US presidential campaign, I tried without success to inform voters about the corruption problems. (13)  CBS, which broadcast the presidential debates, knew about the corruption at the World Bank because they used my information to embarrass the UK’s Prime Minister David Cameron during his interview on the David Letterman show on September 27, 2012.  After my testimony in UK Parliament about corruption at the World Bank, the UK’s Minister of Development, Andrew Mitchell, was raked over the coals in the “plebgate affair.” (15)  But CBS refused to ask a question on international corruption during the presidential debate. 
L.S.: When did you personally became aware of improper practices at the World Bank?
K.H.:  I learned of the corruption at the World Bank gradually: think of old Polaroid pictures that develop slowly.  My understanding of the problem increased from working with other World Bank whistleblowers and seeing what happened after I disclosed corruption up the corporate ladder within the World Bank.   So, the first thing that clearly jolted me was in 1997 when the Board at the World Bank said under the Strategic Compact, ‘We’ll contribute to the World Bank budget, but we’re putting a condition that we want to see improved management’.   I was the representative of the Staff Association on the Drysdale Committee which was looking at Human Resources Reform under the Strategic Compact.  At the end of the exercise I said, “You know, for reform in an organization, you need to have monitoring to see whether the reform has taken hold.”  When my recommendation wasn’t incorporated, I was perplexed, and wondered, “Why don’t people want to monitor reform of human resources?”
We called in Alberto Bazzan, a human resources manager from IBM.  After about a year, Alberto came to me — this was when Jim Wolfensohn was the President of the World Bank — and said “Karen, it’s not working, I don’t get to see Jim Wolfensohn very often but whenever I do, if I tell him somebody should be promoted, that person gets fired.  If I tell him that somebody should be fired, that person gets promoted.  Alberto also said, ‘I don’t know how much longer I’m going to last,’ and sure enough; he got fired too.
L.S.: You also became aware of irregularities in connection with a bank in the Philippines. Please elaborate on this.
K.H.:  At the end of the East Asia financial crisis in 1999, the World Bank had a ‘structural adjustment loan’ in the Philippines.  In structural adjustment loans, the World Bank finances government reform policies rather than goods and services. In corrupt regimes these loans are controversial because the reforms are not owned by the country, and the proceeds do not end up in government treasuries. So, what happened in the privatization of Philippines National Bank (PNB) was the man who owned Philippine Airlines, which was in default to PNB, ended up buying the government shares in PNB.  The investment advisor said, ‘You know, depositors aren’t going to like that PNB is being managed by a borrower in default. This is a real problem’. 
I went to the World Bank’s country director for the Philippines and told him what the investment advisors said; that the man who owned Philippine Airlines had broken the securities laws in the Philippines by failing to disclose his acquisition of more than 10% of PNB’s shares.  I told the World Bank’s Country Director in the Philippines to warn the government the World Bank could not disburse the rest of the structural adjustment loan.  I wrote the letter.  It said, ‘Dear Philippines Government, you’re not going to get the money, you’re not complying with the conditions’.  I said, ‘could you please sign this letter and send it to the government’.  Instead, I was reassigned. There was another condition in the loan requiring the Philippines’ laws on banking supervision to be improved, and those laws were never passed after I was reassigned.   So I went to the legal department, and I said, ‘You can’t reassign lawyers who are doing their jobs.”   
I live on the same street as Larry Summers, and my kid was in the same elementary class as Larry Summers’ kid.  When this nonsense with the human resources reform happened, I complained to Larry Summers at a PTA meeting.  I said, “The World Bank is not being managed right: when we try to correct the mismanagement, the wrong people get fired; what’s going on here?”  There was going to be a new general counsel, and a friend of mine told me that there wasa good candidate.  So, I told this to Larry Summers.  After this man came in as the World Bank’s General Counsel, I asked him, ‘Why are you reassigning me when I’m doing my job’. 
So after I was reassigned in the Philippines, I told the Executive Director who represented the Dutch government on the Board what was going on, and the two of us had a meeting with Jim Wolfensohn. At the meeting we said, ‘This idiot who you hired as General Counsel is leading to corruption in the Philippines, you’ve got to do something about this’. Jim Wolfensohn’s response was to put me on probation. 
I went to the decision meeting when it came time to disburse the Philippines loan and told the Vice President for the East Asia Region, “The conditions haven’t been met for disbursement.’  And of course, that vice president knew that I was going to go back up to the Board, so he had to cancel the loan for $200 million.  There was a matching loan from Japan which was also cancelled. The depositors in the Philippines got nervous with a defaulted borrower in control of PNB, and there was a run on the bank.  The Philippines Deposit Insurance Corporation had to bail out PNB with a $500 million loan.  The President of the Philippines, Joseph Estrada, was ultimately impeached in 2001, and in 2007 an anti-corruption court in the Philippines convicted Estrada of plunder and confiscated cash and properties worth $29 million.     
When the World Bank’s Evaluation Department told the World Bank’s Board of Directors that the World Bank’s supervision performance on the structural adjustment loan for the Philippines’ financial sector had been satisfactory, I said that the Evaluation Department was misinforming the Board.  The World Bank never ended its misinformation to the Board on the Philippines financial sector adjustment loan.  That was the kernel of the cover-up, which kept on mushrooming. 
L.S.: Why were you fired ultimately in 2007?
KH:  I was fired illegally in retaliation for informing the US Congress about the cover-up on the Philippines.  In 2006 I was a candidate for the World Bank’s General Counsel position.  During my interview, I told the Executive Search firm about the failed human resources reforms and the internal control lapses.  Executive Search firms for the general counsel position of companies with bonds on the securities markets have to correct internal control problems.  When there is an international organization whose Board consists of member countries, this problem becomes especially serious.  I informed the Treasury Department that the Sentia stakeholder analysis was predicting that the US was going to lose the Gentlemen’s Agreement.  When the Treasury Department did not respond, I informed Senators Biden, Clinton, Obama, and Lugar on the Senate Committee on Foreign Relations.  
Senator Lugar backed me up with three letters to the World Bank before I was fired, and my Congressman wrote a fourth letter at Nancy Pelosi’s request after I was fired illegally in retaliation.  Senators Leahy and Bayh also joined Senator Lugar in demanding a Government Accountability Office investigation into corruption at the World Bank the year after I was fired.  When the World Bank stonewalled the GAO investigation, Congress put conditions on the US contribution to the World Bank’s capital increase requiring reform to end the effects of retaliation. (16)
There are other World Bank whistleblowers reporting the same problems as I did.  They have stories that are equally outrageous.  You cannot run a bank as if it were your personal slush fund.  You have got to have accountability; you have got to have internal controls.  When I reported to Congress that the World Bank had deficient internal controls, I also pointed out that because of the special position of the World Bank in the world financial system, not only are you wasting tax payers’ money, but you’re going to end up with a currency war. When the World Bank fired me and stonewalled the GAO investigation, the governance crisis at the World Bank assumed constitutional proportions.   
L.S.: In order to deal with your problems, you bought a certain kind of bond. Please tell us this story.
K.H.  The World Bank is an international organization and has immunity from lawsuits brought by its staffmembers.  But the World Bank has waived its immunities to bondholders.  In 2009 the Chairman of the World Bank’s Governance Committee, the Chairman of the Board’s Audit Committee, and the Chairman of the Board’s Ethics Committee, together with the Dean of the Board, reinstated me when I was trying to end the convention that the Board may only rubber stamp actions initiated by the World Bank’s President.  When I was locked out of the World Bank’s headquarters building, I bought a World Bank bond and sued in federal court. 
L.S.: And what has been the result?
K.H.:  The short answer is that the US is viewed as a scofflaw nation in violation of its treaty obligations and securities laws in all of the jurisdictions in which the World Bank’s bonds are traded, including state blue sky laws.  Last week an Ambassador of one of the World Bank’s members wrote, “I would also like to recognize the work you are doing in trying to bring the Bretton Woods institutions to bear on the need to meet the agreed international states in the course of their operations.”
The long answer is that the Judge in the District Court ignored the fact that I was a bond holder and dismissed my suit.  So I appealed and the stakes were increased a little bit.  The day after I blogged that the Board of the World Bank was taking over the litigation (17),  the Court of Appeals issued an unpublished decision that did not contain the reasoned opinion that was required under applicable precedent.  Then the clerk ignored my notice that the International Bank for Reconstruction and Development and I were withdrawing the case after it was settled by the World Bank’s Development Committee. I reported the clerical error in the federal courts to the Chief Justice of the Supreme Court, to the rest of the Judicial Conference, and again more recently to the Judge who heads the Judicial Conference Executive Committee.  I also reported to the National Governors Association, the National Association of Attorneys General, and the Conference of Chief Justices of the state Supreme Courts that the federal courts were ignoring 187 Ministers of Finance. 
On April 19, 2013 the Development Committee issued me a pass to attend the Spring meetings of the Bretton Woods institutions.  On April 20, 2013 the U.S. Secret Service barred me from attending the rest of the meetings.  On April 21, 2013, in a letter that was cleared by the World Bank’s shareholders, I informed Julia Pierson, Director of the Secret Service, that the Secret Service had acted illegally.  Later that day the Secret Service issued me an invalid barring notice, which had been signed by a World Bank official who exceeded his authority.  
L.S.: It’s almost unnecessary to ask you this, but anyway: Did you get any protection as a whistleblower? And what are your thoughts in general how whistleblowers are treated these days in the US?
K.H.:  That’s a wonderful question.  I started out with a law firm to help me with my case.  At one point that firm gave me some documents which were very helpful, including a report from the Joint Economic Committee of the US Congress to the effect that World Bank governance is very bad and its accounting is terrible.(19)   A couple of years ago, I went back to that firm to thank them for having given me that very important document.  And the next thing I knew, that firm referred an assignment to me in the Philippines.  Well, I have gotten some very powerful people in the Philippines rather angry.  I thought it was kind of dangerous to go to the Philippines, so I said, “I’d be very happy to take that assignment, but I think I’m going to sub-contract the work in the Philippines.”  The work dried up when I wasn’t going to the Philippines anymore.
I have filed many complaints with local, state and federal law enforcement officials about illegal acts and not a single complaint has been satisfactorily resolved.  It is the job of each and every citizen in a democracy to inform themselves what is happening to their whistleblowers and to protect them.  The accountability feedback loop has been largely impaired by the “super-entity” of financial institutions which bought up the media in the U.S.
L.S.: There was actually an investigation to address the corruption at the World Bank, which was headed by former Federal Reserve chairman Paul A. Volcker. What do you think about the results of this investigation?
K.H.:  After studying Development Economics at the University of Amsterdam, I have some excellent contacts.  In 2005 the Dutch Ministry of Foreign Affairs asked for an investigation of the Audit Committee into my complaints about the lapses on the Philippines financial sector structural adjustment loan.(20)  The Chair of the Audit Committee at the time, Pierre Duquesne, asked instead for an investigation into the Institutional Integrity Department. The Volcker Panel has been thoroughly discredited.  (19)
L.S.: Have there been other responses, for example in the UK?
K.H.:  Yes. I met with the UK’s Serious Fraud Office on September 28, 2010, and informed them that KPMG did not follow Generally Accepted Auditing Standards. The Serious Fraud Office called the SEC on October 10, 2010, but the SEC only stonewalled. Two Committees of the UK Parliament published my testimony to this effect.  (See note 11) After the SEC refused to respond to the Serious Fraud Office, that was when a UK lawyer advised me, ‘It’s time, Karen, to go to the credit rating agencies.’ All of these problems are going to drive down the US credit rating, there’s no question about it.  That is why the Attorney General, Eric Holder, is suing the credit rating agencies. Thirteen other countries have written to me about the illegality I have been reporting to them.
Now, I’ve made these points to the state attorneys general, to the state governors and to the Chief Justices of state Supreme Courts.   When there are these compliance issues, the states are also responsible for protecting the bond holders under blue sky laws.  I finally got a letter from Maryland’s governor, Martin O’Malley, requesting me to have my Senators in US Congress solve this problem. So I went to Senators Mikulski and Cardin, and they didn’t solve the problem.  I went to Senate Legal Counsel and to the House General Counsel, and informed them that there was an impasse between the state regulators and the SEC. 
Then I went to Secretary Hagel and said, “First of all we’re landing in a currency war and second of all, we have a serious disconnect between the states and the federal government.  How is this going to be resolved, martial law?  The Judicial Conference is confronting a situation where 188 Ministers of Finance have reinstated me, have granted me a security pass, and the President of the World Bank and Secret Service prevent me from entering the building;  the clerk of the D.C. Circuit Court of Appeals has dismissed my case in error; the Judicial Conference refuses to correct the clerical error, and the citizens with a few exceptions remain in the dark.  What you have is a country which is seriously, seriously out of compliance.  So, when you say the World Bank is out of compliance; no, it’s the US government.  It’s all of the different pillars of government.  It’s the federal government, it’s the judiciary.  The Congress isn’t doing such a great job either; they passed an appropriations law with conditionality and failed to require GAO to carry out an audit into corruption that they commissioned.
L.S.: Yes.  You also assume the repatriation of German gold that was announced by the Deutsche Bundesbank in January of this year has something to do with the problems at the World Bank. Why so?
K.H.:  That’s a very good question.  The Secretary of the Treasury and the Chairman of the Federal Reserve together with the Chairman of the Securities and Exchange Commission sit on the National Advisory Council on International Monetary and Financial Policies, and these are the entities that have accepted KPMG’s unqualified audit of the International Bank for Reconstruction and Development when the bondholders can have no confidence in the accuracy of the World Bank’s financial statements because of the corruption that I and other World Bank whistleblowers have reported.
Germany asked to repatriate 300 tons of gold three months after the New York Federal Reserve refused Germany´s request for a physical inspection of vaults in which Germany´s gold was stored.    Instead, the US Treasury offered a paper audit.(21)  The Inspector Generals of both the Treasury Department and the Federal Reserve have not inspired any confidence in my case, to put it bluntly.  A dozen states are also moving to recognize gold as legal tender,(22) and Texas is permitting its pensions to invest in gold now.(23)
It’s part and parcel of this corrupt illegality; this illegality is creating such turmoil that people have concerns about the soundness of the US dollar as a currency.  Now, I’ve seen the letters that you’ve written and about why Germany needs its gold.  I think probably the best answer is that in a situation that I’ve just outlined where you have illegality from top to bottom, you don’t want your gold anywhere else because you don’t know what’s going to happen to it.  I can’t say for sure when the decision of your audit committee was made that required the audit.
L.S.:  Yes.
K.H.:  The strength of my case is that I have documented the illegality from the very bottom of the financial system to the very top. The only reason this matter is not resolved is because of this control of the media which is jeopardizing democracy in the United States. I’ve documented a serious case of what is called state capture. Is it going to be resolved? I do know that all of these World Bank whistleblowers have their own contacts with their governments.  Although the credit rating agencies have had a front row view, most American citizens haven’t, with the exception of a group called the National Taxpayers Union, which has a blog about me. (25) 
L.S.: What do you think about the fact that the BRICS nations are creating their own development bank to rival the World Bank and the IMF?
K.H.:  I congratulate them, and I’m very glad that they did this. 
L.S.:  Yes, but do you think that this creation of a new development bank by the BRICS nations is a result of this corruption at the World Bank?
K.H.:  Absolutely. 
L.S.: And since we also raised the issue of gold, is it any surprise to you that these BRICS nations are buying gold, for example, Russia and China, whereas the western Central Banks and the IMF have a very different approach to gold?
K.H.:  Professor Antal Fekete has written about the significance of the current very high demand for immediate delivery of gold.(24) It is becoming clear that the corruption in the international financial system is risking a situation in which gold supply will cease as persons who hold gold refuse to relinquish it for paper money, referred to as “permanent backwardation.” We have got to prevent this from happening. It’s the “super entity” of financial institutions that’s unsettling everything; they have got to play by the rules. They can’t have a free pass to corrupt the world. No; that’s ended, that’s over. The fact that most people don’t know about them or what they do or what the BIS is, that has to end.  Everybody has to know, and there has to be an orderly transition to a world financial system that makes some sense. This current situation where they control the press makes no sense whatsoever, and it’s got to end. 
L.S.:  Apropos the BIS; is it also involved?  And you’ve said most people don’t know what the BIS is, so what is the BIS?
K.H.:  The answer is yes, the BIS is involved. The BIS, Bank for International Settlements, is the consortium of central bankers.  The central bankers are private, they’re not government entities. Anyway, I wrote the BIS to ask them what on earth is going on?  I never heard back from them, which is kind of curious.
L.S.: Final question.  How would you solve the problems we were talking about if the choice was yours?
K.H.:  I’ve been thinking a lot about the answer to that question.  I think there are two very easy answers.  The first is that whistleblowers have to be made whole, as required by US Congress for the US contribution to the World Bank capital increase. The second is that the democratic deficit in the international financial system where people don’t know what the BIS is has to end. People don’t know it’s their Ministers of Finance that are dealing with these issues and what their Ministers of Finance are up to.  People have to become aware of this because it’s dangerous to have this democratic deficit.  So that’s what I would change, I would change the flow of information. 
L.S.: Yes, but how would you change the flow of information?
K.H.:  Well, that’s a serious, serious question.  There has to be awareness that people are getting their information filtered, and I think once they’re aware of it, this is going to change.  I think a lot of the solution is going to come from the internet.  That’s why there are so many efforts now to limit the Internet.  I went to a conference on this, and it was no surprise to me that the person who was running this conference didn’t think it was suitable for me to address the conference.  You know, need I say more.  There is censorship, and the censorship has to stop.
One of the very positive developments is that people expect that soon there will be very wide access to the internet by all of the people on this planet.  So we have to ensure that the Internet remains functional, and that we pay serious attention to what happened with the death of Aaron Swartz; this is no accident.
L.S.: Yes, yes.  But isn’t also the internet a wonderful surveillance instrument for intelligence agencies?
K. H.:  Yes.  Recently I’ve gotten to know a US whistleblower who knows a great deal about domestic surveillance: Mark Novitsky.  People have got to become aware about what all is going on, and that should help us make a begin in solving this extremely serious and dangerous problem.
L.S.:  Thank you very much for taking your time, Dr. Hudes!
K. H.: Thank you very much for having me!
SOURCES:
(1) See Laurence H. Shoup / William Minter: “Imperial Brain Trust: The Council on Foreign Relations and United States Foreign Policy“, Authors Choice Press, New York, 2004. For a shorter introduction into this topic see Andrew Gavin Marshall: “The Council on Foreign Relations and the ’Grand Area’ of the American Empire”, published December 13, 2011 here: http://andrewgavinmarshall.com/2011/12/13/the-council-on-foreign-relations-and-the-grand-area-of-the-american-empire/

(2) See Anna Stolley Persky, “Truth or Fiction? Foreign Interests in U.S. Elections”, Washington Lawyer, published November 2012 available here:
http://www.dcbar.org/for_lawyers/resources/publications/washington_lawyer/november_2012/foreign_elections.cfm
(3) See Stefania Vitali, James B. Glattfelder, and Stefano Battiston: “The network of global corporate control“, ETH Zurich, published September 2011 available here:
(4) See Hugo Grotius: “On the Law of War and Peace”, Book XV, available here: http://www.archive.org/stream/hugonisgrottiide00grotuoft/hugonisgrottiide00grotuoft_djvu.txt
(5) § 7082 of the Consolidated Appropriations Act, 2012 (Pub. L. 112-74). available here: http://www.whistleblower.org/storage/documents/whistleblowerlanguageinHR2055.pdf
(6) Tekoa Da Silva, World Bank Whistle-blower: “Precious Metals To Serve As An Underpinning For Paper Currencies”, May 6, 2013, available here:
http://bullmarketthinking.com/world-bank-whistle-blower-precious-metals-to-serve-as-an-underpinning-for-paper-currencies/
 

(7) See Randolph M. Silverson, “The Contributions of International Politics Research to Policy”, Political Science and Politics, published March 2000, available here https://www.apsanet.org/imgtest/ContributionsInternationalPolitics-Siverson.pdf See page 62
(8) Jacek Kugler, Ron Tammen and Brian Efird: “The War Presidency: Options Taken and Lost”, International Studies Association Meetings, Montreal, Canada, published February 2004, available here: http://citation.allacademic.com//meta/p_mla_apa_research_citation/0/7/4/2/7/pages74272/p74272-1.php
(9) See NSNBC International, “World Bank Whistle-blower. Confidence in the Dollar as an International Currency Is Waning. The End of Bretton Woods ? published May 2, 2013 available here:  http://nsnbc.me/tag/karen-hudes/
(10) Analysis on the Rule of Law at the World Bank in 2004 by the Sentia Group available here:  http://kahudes.net/wp-content/uploads/2012/05/board-of-governors.pdf See pages 16-23
(11) Development Committee Communique, published  April 25, 2010 available here:
http://www.imf.org/external/np/cm/2010/042510.htm (see paragraph 6)
(12) House of Commons International Development Committee, Written Evidence for the inquiry into The work of the Independent Commission for Aid Impact, published July 7, 2012 available here:
House of Commons Public Administration Committee, Written Evidence for the inquiry into Public engagement in policy making, published November 2, 2012 available here:
The European Parliament Committee on Budgetary Control Hearing on Whistleblowing May 25, 2011 available here:
(13) Foreign Policy, Zoellick Pick Roils Romney Campaign, August 8, 2012 available here: http://thecable.foreignpolicy.com/posts/2012/08/08/zoellick_pick_roils_romney_campaign
(14) K. Hudes and S. Schlemmer-Schulte, “Accountability in Bretton Woods”, 15 ILSA J. of Int’l & Comparative L. 501 (2009) Available here: http://www.kahudes.net/wp-content/uploads/2012/05/ilsaJournal1.pdf
(15) Wikipedia entry for “Plebgate”, http://en.wikipedia.org/wiki/Plebgate The Week magazine 24 September 2012  called Mitchell’s public flogging “Gategate” available here: http://www.theweek.co.uk/politics/gategate/49169/gategate-friends-ids-take-pleasure-andrew-mitchell-gaffe
(16) § 7082 of the Consolidated Appropriations Act, 2012 (Pub. L. 112-74). Available here:http://www.whistleblower.org/storage/documents/whistleblowerlanguageinHR2055.pdf
(17)  Foreign Policy Magazine, The Romney National Security Transition Team That Might Have Been, November 7, 2012, Available here: http://thecable.foreignpolicy.com/posts/2012/11/07/the_romney_national_security_transition_team_that_might_have_been
(18)  Letter from Joint Economic Committee of the U.S. Congress to James Wolfensohn dated April 8, 2005, Available here: http://kahudes.net/wp-content/uploads/2012/10/101.pdf
(19)  Email from Netherlands Ministry of Finance dated January 13, 2005 that my allegations should be discussed by the World Bank’s Audit Committee. http://kahudes.net/wp-content/uploads/2012/10/89.pdf
(20) Common Dreams Newswire dated April 6, 2010 concerning intimidation of staff in the Institutional Integrity Department during the Volcker Panel investigation. Available here: http://www.commondreams.org/newswire/2010/04/06-3
(21)  Office of the Treasury Inspector General, Audit of the Department of the Treasury’s Schedule of United States Gold Reserves Held by Federal Reserve Banks as of September 30, 2012, Available here:

(22) States seek currencies made of silver and gold, CNN Money, February 3, 2012, Available here: http://money.cnn.com/2012/02/03/pf/states_currencies/index.htm

(23)  James Rickards: Texas Law Would Protect Its Gold from Government Seizure

(24) National Taxpayers Union, Whistleblower Protections: A Living Example of Their Relevance, December 20, 2012, Available here:  http://www.ntu.org/governmentbytes/government-reform/whistleblower-protections-a1220.html

(25) Antal E. Fekete,American Bases In Germany and the Gold Basis, January 28, 2013, Available here:http://www.professorfekete.com/articles/AEFAmericanBasesGermanyGoldBasis.pdf