The Libor Scandal: History’s Largest Market Fraud?
While the Supreme Court’s health care decision and the 2012 election season have been dominating news in the U.S., in London a banking scandal is unfolding which threatens to engulf much of the British financial and political establishments. The story has barely registered in the U.S. outside of the financial press, but the scandal is set to spread across the Atlantic, and is being discussed as potentially the biggest market manipulation fraud in history.
Barclays bank has been fined $453 million by U.S. and UK regulators, and its American chief executive, Bob Diamond, has resigned after admitting its staff rigged the inter-bank “Libor” rate — a daily measure of the interest rates at which banks lend to one another — over a period of several years. The Libor rate affects interest rates paid to investors and by borrowers on mortgages and other loans. According to the Wall Street Journal, more than $800 trillion in securities and loans are linked to Libor.
This rigging was divided into two phases. Starting in 2005, Barclays traders conspired to manipulate Libor up or down for personal gain. This is bad enough, but it’s the second phase of the scandal that’s likely to have the greater ramifications. Around 2008, with the financial crisis in full swing, senior figures at Barclays ordered staff to distort Libor downward to create the impression that the bank’s finances were more sound than was the case. And Barclays bosses have claimed this manipulation had the tacit approval of the Bank of England — the UK central bank — and ministers in the then-Labour government, who wanted to shore up confidence in the economy. The current Conservative-led coalition government has gleefully launched a parliamentary inquiry into the affair.
Barclays’ involvement in the scandal emerged because they reached an agreement with regulators, admitting their guilt in return for reduced fines. Several banks are still under investigation, including UBS and Citigroup in the U.S. Lawsuits that could run into tens of billions of dollars are being prepared on behalf of individuals, companies, and institutions who have suffered losses.
At best, the scandal has revealed an appalling lack of bank regulation. At worst it suggests collusion at the highest levels between commercial banks, central bankers, and governments to manipulate interest rates for mutual benefit. It’s been suggested that the U.S. Federal Reserve could be dragged into the scandal.
This affair is set to run and run, and is likely to take all manner of twists in the coming months. But whatever the outcome, it’s clear there remain serious problems with the way big banks and financial institutions operate and are regulated. And conservatives shouldn’t be afraid to say so, because to acknowledge the problem is not remotely a concession that capitalism and free markets have failed.
The left-leaning are claiming just that — note this piece by Seumas Milne of Britain’s left-wing Guardian. Milne rightly points the finger at financial elites and their political enablers, but then writes:
It could of course have happened only in a private-dominated financial sector, and makes a nonsense of the bankrupt free-market ideology that still holds sway in public life.
This is nonsense, but sounds plausible to the casual observer and so needs to be debunked. Banks may have a passing acquaintance with capitalism to the extent that for a price they facilitate it, but today’s banking and financial behemoths do not operate in a free market. While genuine capitalists risk borrowed money or their own savings, banks gamble with other people’s money, and in recent years when things have gone wrong banks have been bailed out by governments with taxpayer cash.
The growth of too-big-to-fail banks has coincided with the growth of massive, statist government. And while nominally conservative politicians have certainly been guilty of indulging the bankers in the past, Labour in the UK and the U.S. Democrats are the primary culprits harnessing big finance to big government.
Tony Blair’s Labour government famously favored “light-touch” regulation, with one minister from that once proudly socialist party remarking that New Labour was “seriously relaxed about people getting filthy rich”. The reason Labour took such a lax attitude to bankers lining their pockets was that the City of London was providing billions of pounds in tax revenues for the government to pump into the black hole of public services, while at the same time ensuring a plentiful supply of cheap money to create a credit-fueled boom.
In the U.S., similar easy money policies enabled George W. Bush to oversee a decidedly un-conservative expansion of government and helped to fuel the housing bubble that ultimately led to the financial crisis. Many Republicans voted for the bailouts that followed, but it was Democrats, having won power thanks in no small measure to sticking the Republicans with the blame for the crisis, who fully enlisted big finance in their statist, crony capitalist project.
The banks and other financial institutions that helped bankroll Obama’s 2008 election campaign didn’t do so because they expected him to be a swashbuckling free-marketeer. They were rewarded with the Dodd-Frank bill, which effectively enshrined the notion of too big to fail and created a centrally planned banking system that discourages competition and innovation.
The American Enterprise Institute’s Peter Wallison wrote of the bill:
Crony capitalists and their government mentors will be the biggest winners. Concentrated and heavily regulated markets are fine with supporters of the Dodd-Frank Act. They are comfortable with a financial industry made up of a few large firms responsive to government direction.
Now the Libor scandal is shining a light on the cozy relationship between bankers and governments, and it could present an opportunity for real reform of the banking system. There are calls for tighter regulation — not least from the regulators and politicians who’ve brought us to this pass — but banks will always find new ways to game the system as long as the rewards are great, failure is rewarded with bailouts, and the punishment for wrongdoing amounts to a slap on the wrist. Parliamentary inquiries and Congressional hearings are not the answer. What’s required are regulators willing to enforce — and who are capable of enforcing – the existing rules, and punishments sufficient to deter wrongdoing.
With election season in full swing there’s little interest in banking reform in the U.S. now, although if the Libor scandal catches fire it could quickly become a campaign issue. However, the ideas of conservative economists such as Luigi Zingales, author of A Capitalism for the People: Recapturing the Lost Genius of American Prosperity and (profiled by the Boston Globe) are starting to attract attention.
In Britain, Conservative MPs such as Steve Baker are taking the lead with initiatives for real reform. Baker has introduced a bill that would force bank directors to take personal liability for any losses suffered under their leadership; would treat bankers’ bonus pools as capital that would be used to make good losses; and would create a mechanism to allow banks to fail in an orderly fashion without taxpayer bailouts.
Some — most prominently, Rep. Ron Paul — now argue for an end to the current system of fiat money (that is, money created out of thin air by central and commercial banks) and its replacement with a market-based system underpinned by gold and silver, or by digital systems such as Bitcoin. (See this article by economist Detlev Schlichter.)
Conservatives are acutely aware of the need to dismantle big government, but if they want to succeed they’re going to have to take apart big finance as well.
I will probably come off as a naif but it just seems to be that “too big to fail” is really to damn big to control. The lack of banking facilities in this and other countries for the smaller to medium size businesses is just to obvious. I read recently that only a handful of banks (less than 5 or 6) control somewhere near 3.5 trillion in assets here in the US. How much competition does that generate? For the top tier companies enough, I would say. But for the medium size and smaller companies I dare say none. Never mind the muffler shop on the corner or the distributor of dry goods up the block.
This is “trickle down” financing and it doesn’t seem to work very well. It certainly does not provide competition for the marketplace. It seems to be that a limit of 50 billion in assets or so could create a base of 60 to 80 banks across the country that would be more attuned to regional needs.
I am not a banker so I really don’t know. I’m sure there are sharper people out there that could refute my thinking. If so, please do. But the old saw of concentration creating economies of scale is just not on. While I’m on my rant, can ANYBODY provide an answer for the rescinding of the Glas-Steagal Act?
I’m not any “sharper” than you, but it’s “regulations” that have created banks that are “too big to fail.”
Our “Rulers” get together with their cronies and create regulations that inhibit competition — which would keep their size smaller. (Then the “Rulers” ask the big banks for “contributions” to their campaigns.)
More “regulation” isn’t the way to go. Just let them compete freely — and let them fail when they fail — so smarter bankers with more integrity can succeed.
“Our “Rulers” get together with their cronies and create regulations that inhibit competition — which would keep their size smaller. (Then the “Rulers” ask the big banks for “contributions” to their campaigns.)”
You might want to reconsider who the true “rulers” are because its not the politicians – its the big finance sources that can afford to buy the key “lawmakers” in congress on both sides. Professional politicians soon learn how vulnerable they are to the big campaign money to achieve an/or keep their seats. They know they’re expected to “make” the laws their cronies have written for them in drafts that come in the same envelope as the campaign contributions. Politicians are simply whores in this corrupted structure. The true “rulers”are the ones who get laws on the books that they want. Right now, the rulers want as little regulation as possible, even if that leaves doors open for more fraud and upheavals to the economy. (What they worry? – they’ll be fine no matter what.)
“More “regulation” isn’t the way to go. Just let them compete freely — and let them fail when they fail — so smarter bankers with more integrity can succeed.”
Well, that would make sense if the system was truly the way its touted to be – but its Not. If it were like that then there would be no such thing as too big to fail. There is a good reason why that term is widely accepted to be true on wall street and that is simply because they are directly familiar with the facts. They’ve seen how the market can totally freeze up at the prospect of a modern financial institution like AIG failing. It affects the whole market. Nobody will want to issue credit when they dont know if it can be repayed. Economies can go into depressions.
There can be a minimal amount of smart regulations that everyone will agree on but the public isn’t going to hear those details when the political rhetoric is designed to quash that public debate — because the “rulers” dont want to risk educating the public on it. The politicians have learned to use bumper sticker terms to maintain support for they’re keeping the laws as nebulous as possible, per the “rulers” instructions. One thing you can use to guage who is “winning” (the “rulers” profits or the country) is whether one regulation was amended back to what it was when it was effectively preventing too big to fail prospects. What in the world were they thinking wouldn’t happen when they allowed creditors to increase their leveraging from 3-1 to 40-1 and more? (Answer: Socialism for wall st when they lose gambles like that – keep in mind the $7 trillion bailout they secretly got from the fed, just prior to the $800 billion bailout we heard about).
“You might want to reconsider who the true “rulers” are because its not the politicians – its the big finance sources that can afford to buy the key “lawmakers” in congress on both sides.
“Professional politicians soon learn how vulnerable they are to the big campaign money to achieve and/or keep their seats. They know they’re expected to “make” the laws their cronies have written for them in drafts that come in the same envelope as the campaign contributions.”
Well — that’s the question — the one we don’t examine fully.
There IS a difference between economic power and political power.
“Pure” economic power involves choice (whether one likes the choice or not) …
Political power is “force.”
They should be kept separate.
(When they are combined, it always leads to evil — there’s no way it can’t.)
The going accepted meme is that it’s the “corporations” — the ones with the big bucks who are the bad guys — because they’re the ones who “profit” from all this and the politicians are just their “whores” or their “victims” (who also profit).
Try looking at it another way.
As long as the politicians have the power to regulate — banks — corporations — HAVE to get in there and try to influence the politicians — or some OTHER company (their competition) WILL do it — to the disadvantage — or even failure — of any who don’t.
So the “field of competition” becomes who can “win” the politicians.
Competition becomes winning the politicans — INSTEAD of competition for the best in excellence in their business.
The current “regulatory” system warps everything.
The businessmen who engage in this buying of politicians — they are corrupt, it’s true.
And so are the politicians who betray the public trust they were given.
But …
That IS the current system —
That IS the way it’s set up to function.
On the other hand — if the politicians didn’t have any power to “regulate” … then there wouldn’t be any reason for the … banks … or whichever “evil” corporations … to buy them off. There would be no more “control” or “bribery.”
That would be the end of the issue.
To keep attacking banks and corporations as “evil” — is such a waste and is ultimately very destructive.
Criticizing the politicians/bureaucrats makes much more sense, because, after all, it’s THEY (and WE) who have given themselves the POWER to regulate — which gives them the power to “collect contributions.”
And there’s the struggle — If the Corporations withhold the money from the politicians, the politicians may not win election; — and if the politicians don’t regulate in a way that’s favorable to the Corporation — they can easily put that Corporation at a big disadvantage — even to the point of putting them out of business. That’s a lot of power.
Where is the representation and protection (by the “busy” politicians) of the ordinary citizen here — who, without all this waste of money and energy — would and should be reaping the benefits of the lowest prices and best quality goods and services that an open competitive market can provide?
Corporations should be stopped from influencing or controlling the regulators — by removing the power of the regulators to regulate! That would end the corporations from what you call “ruling.”
(Removing “regulation” does NOT mean — removing the power of the Courts to protect against outright fraud. THAT is their JOB!)
“Too big to fail” is not created by the free market — it’s created by government interference in the free market — via regulations that favor some over others — which inhibits the competition that would keep banks from becoming monstrous in size. They simply couldn’t get that “big” without government’s “help.”
What secret $7 trillion bailout are your talking about?
I always thought if something was deemed TBTF (with the implication that its failure would be catastrophic), then it should be broken up (like Ma bell way back) so that it could fail more gracefully, in that the truly toxic pieces could fail without taking the whole entity down.
I’d suggest shopping locally and using your local credit unions. My last several business loans came from outfits such as these. They actually acted like they wanted my business. They also carry deposit insurance (similar to the fdic). Shop with your feet.
You have all made some decent points, I will make some of my own.
1. I have little confidence in regulation as a solution to the Too Big To fail problem. If the regulators had been competant, they would have spotted and headed off the original housing crisis. Regulators are either too incompetant, or too captured by the big boys in their industry, to really help.
2. Dodd/Frank is a complete waste. Most of its new regs are consumer orientated anyway, and had zippo to do with fixing the original causes of the crisis. Even worse, they did zippo about 2 of the primary causes, Fannie Mae, and the community Redevelopment Act. All Dodd/Frank did was load up medium sized companies with a lot of useless regs that stifle growth.
3. Perhaps Too Big To Fail should be too big to exist in the first place, and some of these huge entities should be broken up. Very few of the smaller community banks had any problems, and the few that did posed no systemic risk.
4. If we cant break them up, another good solution would be to require that any company with over a certain amount of debt, must maintain lower debt to equity ratios, so the more debt they take on, the more equity capital they must have. This would still allow these companies to take risk, but that risk would be transfered to the stockholders, where it belongs, since they share in the rewards if the risks work. It also makes it easier for the smaller guys to compete, since they would not be hit be these borrowing restrictions.
“It’s been suggested that the U.S. Federal Reserve could be dragged into the scandal.” Imagine that.
Now which “to big to fail banks” in the US have strong connections to Barklays? Oh,and which US politicians are connected.
It is looking like more and more of this crisis was not mistakes made, but BS for those in the know to get richer.
Oh, well, nothing to see here, move along and pay,pay, pay…..
If this scandel hits US shores, it will be buried as soon as possible. It will not be allowed to be shown to the public, even if it involves Barney Frank and Chris Dodd. The media might as well be on the payroll for this Administration, as they will camouflage this unfathomable crime.
This problem goes back to at least the late 1990s when the Republicans and Democrats expanded the Community Reinvestment Act and eliminated the Glass-Steagall firewall between investment and commercial banking. That was what allowed most of this fraud to happen in the first place. In 2004, the FBI testified before Congress that it was seeing signs of systemic financial crime in the mortgage markets and of course Congress closed ranks around the financial system. Ironically, only John McCain had the guts to the stand up to them and demand (futilly) a criminal investigation.
The media will try to cover this up because Obama is complicit in two ways:
1) He continued the disastrous and treasonous Bush policy of wealth transfer to the banks (ie bailouts).
2) He has hitherto refused to carry out any sweeping investigations and prosecutions of the actors involved.
However, to blame Obama for this is just ludicrous. This cancer has been growing under three administrations and will likely take a fourth before it finally becomes too serious to ignore.
Just a question here.
Didn’t the banks pay back the bailouts w-Interest?
Wasn’t that supposed to go to pay down the debt?
Did it instead go into Obama’s slush fund?
Is that where he seems to be getting so much money to do what he wants, even when Congress refuses to allocate funds (as in three equal branches of gov’t)?
No.
No.
What slush fund?
If he wants more money, more will be printed. That is where it comes from.
“And the One said ‘Let there be moolah…’”
Your answers to aquas questions were not quite right.
I beleive the banks did indeed pay back all their bailout loans. The only loans that were not paid back were the auto bailouts, sponsored by Obama, which were not part of the original TARP.
Any paid back TARP money was supposed to go back to the treasury, but Obama used it for other stuff, so he did indeed use it a sort of a slush fund.
And while the treasury can print money to either loan money to banks, or buy US bonds, any money spent by the fed gov is supposed to be appropriated by congress, but obama has constantly circumvented that.
Reply to richard 40.
Thanks. That’s what I thought, but my memory about it was vague.
Now I recall there was some fuss about it, when a big repayment was made and the O didn’t pay down the debt with it.
The Republicans were furious, because the promise of repayment was the agreement made with them (in 08?)in order to get their signatures.
But when this came about (so deeply unscrupulous and dishonest), the Dems had control of 3 branches of the Gov, so nothing was done to stop him — and there was nothing the Republicans could do.
The story only lasted a few days in the MSM — or was it just on Fox?
It would be a very good point to bring up for the Romney campaign — or a PAC video.
Let me just clarify/make correction.
It wasn’t just the promise of repayment that got the Republicans to sign the TARP, but at the time, they were concerned that when the loan was repaid that the funds might go into an (unaccountable) slush fund. So there were heavy assurances made, and, I believe, a written promise that that wouldn’t happen. Which made the whole betrayal really disgusting. And, of course, right out in the open with no worries because the MSM Pretorian Guard was still so infatuated that they never would utter a word of criticizism of their idol.
Abysmal behavior. Outright usurpation. Like a banana republic.
Your 2) is proven by the MF Global debacle and the total absence of any charges against Jon Corzine. I suspect Jon Corzine is back to bundling for Pres 0bama.
The article, though well written, leaves out much of the story which needs to be understood so that readers can draw their own conclusions as to whether or not there is an issue here, and if so, who (i.e., banks or governments) are the problem. The first thing which readers should understand is that Libor is not a rate which is easily manipulated by any single financial institution. Each day at 11 am, 16 major financial institutions submit a figure to some folks at Thompson Reuters, a news organization. That number is supposed to represent the submitting institutions best guess of what it could borrow funds at from other large institutions for a large unsecured loan for a very brief rate of time. (That’s the rate involved here at any rate; there are other rates submitted, but this is the key one for this story.) Then Thompson Reuters tosses out the highest four and the lowest four submitted rates, so outliers are eliminated at once. The remaining 8 rates are then averaged and voila, that’s your LIBOR rate. So right away, it’s clear that a single player like Barclays can’t do much by itself. If it’s spewing out phony outlier rates, they don’t even get included in the calculation and are tossed out immediately.
The data submitted and which I’ve seen indicates that Barclay’s was actually submitting a fairly high rate. In other words, it was telling the folks at Thompson that it would cost Barclay’s a lot of money to borrow money. Which means what? That it believed that the world would hesitate to lend it money on an unsecured basis without a high potential reward (the higher interest rate.) That’s pretty honest behavior.
Enter the British government. A very clear message was delivered by said government to Barclays that the rate of interest which Barclays told the world it could borrow funds at was simply too high. In other words, the British government told Barclays to submit to Thomson Reuters a falsely low estimate of that rate Barclays would have to pay to borrow money. Assume that the British government made identical calls to all banks which submitted LIBOR quotes and the British have now gotten the LIBOR rate lowered. Which means borrowing costs will be lower than they should be.
Punch line: as between individuals who borrow money, businesses which borrow money and governments which borrow money, which of the three is the biggest borrower? And which of said borrowers would benefit the most by getting an artificially low rate on a loan? If you said that Governments are the world’s biggest borrowers and would thereby benefit the most by getting to borrow at an artificially low rate, you get the prize.
This “scandal” has of course to do with banks. But the borrowers who made out because of it were our own friendly governments. Everyone with a savings account got cheated out of interest payments because governments were and are keeping the rate at which governments can borrow money artificially low. That’s the scandal and it’s why this will be quickly buried.
Very good explanation of what went on here. One thing you forgot to mention is that many of the 16 banks that set Libor daily are at least partially owned by the government of their country. Or at the least, very tight with their government’s regulators.
The attempt to blame Barclays for this manipulation of Libor is a complete red herring. The governments of some of the largest economies in the world (US, UK, Japan, France, Germany) have manipulated Libor so as to make the world economic picture not look as bleak as it must be, as well as keep their own borrowing costs as low as possible.
The people who have paid the price for this manipulation are not the borrowers of the world, but the savers.
KO’s account is very good but doesn’t exclude collusion: If the range is only a view fractions of a point, then manipulation could occur. But so what? All central bankers wanted lots of liquidity in the system during the crises with low rates and were not only signaling same but also buying bonds on secondary markets – remember QE I&II? Governments and central banks all wanted rates to trend lower and they did. How is this a scandal?
Please understand that LIBOR is not a rate at which a bank says it will lend you money: it is the rate which a bank claims it can borrow money, unsecured, for the period of time in question. The LIBOR rate is a proxy for the amount of risk which a lender has to assume to when it lends money to the quoting bank.
And there is quite a simple answer to the question about how this is a scandal: savers and investors were cheated out of billions of dollars in interest payments which their savings and investments otherwise would have earned had the governments not instructed banks not to pay a rate truly reflective of risk (which is the result of being leaned on to not submit a realistic overnight borrowing rate number.) Those who invested in stocks or other more risky products because interest on savings were so low did so and continue to do so at much greater risk just to achieve a return that otherwise might be obtained in a savings account. Pensions, public and private, which depend on decent investment returns were cheated out of more billions for the same reason. Instead of having a savings account or retirement fund worth X dollars in the future, savers, investors and employees will have vastly fewer dollars on which to count. Such a fund won’t last as long as it should have.
The beneficiary of this manipulation by governments are politician and favored groups who continue to make Ponzi and Madoff look like amatuers. Trillions of dollars are being sucked out of investments and savings which otherwise would occur. You won’t have the money you thought you would have when you retire. You’ll have to work longer, save more, and do with less. That’s the problem with governements manipulating interest rates downward.
So who is getting that money? Well, it’s being spent now on politically favored groups, unions, causes and very large well-connected companies. It also helps you if you borrow money at a rate pegged a LIBOR number which is lower than it should be.
A simple way of looking at it might be as follows. When numerous people want something, the price should go up. When numerous people want lots and lots of that something, the price should go way the heck up. When the “thing” being sought is lent money, the price of borrowing it (the interest rate) ought to go up. When it’s being borrowed by governments in the huge quantities currently in question, it ought to go way the heck up. But it hasn’t. Interest rates have dropped. Looking at Bloomberg just now, I see that US two years are yielding ZERO point 26 percent. Ten years are yiedling ONE point 51 percent. Does anyone out there really believe that loaning money to the US government at those rates reflect the reality of risk which is present? If so, please leave a number where I can borrow funds from you.
“it is the rate which a bank claims it can borrow money, unsecured, for the period of time in question.”
Do you mean something like the amount of interest the bank pays for C.D.’s (essentially, they’re borrowing one’s money)? — Only for high rollers?
So you’re saying they should have paid a higher interest rate, because, in truth, it was a riskier investment than they claimed (claimed, that is, indicated, by the interest rate they paid — i.e. less risk therefore lower interest rate?)
Isn’t that exactly the way our Fed and therefore banks are keeping our interests rates for C.D.’s so very low? So people who are borrowing are “government favored” over people who are saving/investing?
And people are therefore “encouraged” to invest in the riskier stock market in order to try to get a better “return?” And this also helps keep the stock market higher — keeping money flowing for those who can more afford the higher risk — so they (and the investment banks) are “favored” too.
I hope the following is responsive to your questions.
1. Do I mean the rate which the bank pays for something like CD’s for high rollers? No, not at all. The 16 institutions who feed this information to Thomson Reuters are merely answering the following question at 11 a.m. each work day: “At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?” It is a statement by the institution of what it estimates it would have to pay in an arms length transaction to borrow substantial funds for the relevant time period. Barclays was apparently being more honest that the Deputy Governor of the Bank of England wanted to be the case. And I have to assume he was acting on orders from the Brits’ American “cousins.”
2. Am I saying the reporting institutions should have paid a higher rate? It’s not a matter of actually paying anything. It’s a matter of truthfully stating the reporting institution’s best estimate of the cost of credit it would have had to pay had it actually gone into the market to get funds.
3. Isn’t this what the feds are doing? Ask Bernanke what his motives are. To me, it’s fairly transparent and obvious. The US government is the largest debtor in world history. Just the interest payment on our national debt in 2011 was $230 billion. If it had to pay a higher interest rate, this payment would have been much higher and eat into other favored things. So, if you are regulating the banks (which you are if your the federal government), it’s definitely in your interest (no pun intended) to get those folks at the banks to get those pesky rates down so you can spend those precious few trillion dollars elsewhere. Like on endless personal staffing. As to who is favored, when the government is “the borrower”, who cares what the little people get on their savings account? “Saving?” What’s that? Just remember, you’ll work longer and will have less, and so will your kids and grandkids.
4. Does this “encourage” people to invest in the stock marketer? Well, the precise answer is that if savers are seeking a higher return on their savings, they have to go somewhere besides deposit accounts. You can play state lotteries (another brilliant government invention which returns one out of every three dollars to this who play it–odds that would place a casino owner in prison for life), buy hard assets (gold, rental properties), or more liquid assets like mutual funds. For the S & P 500, it has returned, year to date almost 9 percent as of today. But if you look at its return for the last 3 months only, it’s return is mine 2.57 percent. I don’t think anyone in DC gives a rat about encouraging people to do anything except to keep playing along. That’s why this story will be buried quickly by the machine.
Reply to KenO July 10 –
(There’s no reply button on your answer to me.)
Thanks for your answer. It helped me to understand somewhat better.
What’s going on now — it’s all so infuriating and irrational — and frightening.
I don’t want to disagree with you BUT that is not what Barclay’s was doing. Nor some other banks, if not all. What they were actually doing was lowballing their costs. They were declaring that their borrowing costs were LOWER for the bank to appear stronger. Their borrowing costs were actually much higher. Had everyone reported the true cost of borrowed funds NONE of them would have appeared as profitable. Their share price would have gone lower and their borrowing costs would have risen.
Hi there. I don’t mind a disagreement so you needn’t be concerned.
The facts are very clear that Barclays was in fact not “lowballing” anything, and that it was submitting LIBOR rates to Thomson Reuters which were higher than the Bank of England wanted to see it submit. On October 29, 2008–nearly four years ago, long before this hit the fan, and long before anyone can plausibly claim Bob Diamond could read tea leaves or forecast the future–Paul Tucker of the Bank of England iniated a call to Bob Diamond at Barlays. In the call that Tucker made to Diamond, Tucker “reiterated that he had received calls from a number of senior figures within Whitehall to question why Barclays was always toward the top end of the Libor pricing.” Everybody got that? Tucker, from B of E, “reiterated” that he (Tucker) “received calls from a number of senior figures within Whitehall” wanting to know “why Barclays was always toward the top end of the Libor pricing.”
That memo, written long ago clearly shows that Whitehall and the B of E was instucting Barclays to quit honestly telling Thomson Reuters its credit costs, and instead to report a false and lower rate of it to borrow funds. That was an order. The beneficiaries of that falsification were borrowers–not lenders. This order squeezed lenders’ profits by making them report a lower cost of obtaining funds that was actually the case.
This will go back to Bernanke and Obama. Which again, is why it will be buried and quickly.
Full disclosure: I have no reationship of any kind whatsoever with Barclays, Diamond or anyone else involved. I’m just looking at interest rates and can tell you that they are being surpressed by governments so they can buy today’s constituents at the cost of my retirement and at the further cost of your kids’ and grandchildren’s well-being.
LIBOR, the London Interbank Offered Rate, is the rate of interest banks pay each other for offshore money market trades, just as Fed Funds is the rate of interest paid on interbank trades here in the U.S.. The two rates parallel each other because the FF rate is closely pegged to LIBOR. It is inevitable that this scandal will wash ashore here in the U.S. I am curious to know how it will be handled. The market determines daily fed fund rates factoring the price of Libor and eurodollars.
Expect a lot of finger pointing, meaningless and confusing Congressional inquiries, and, of course, the denials. In other words… it’s business as usual from the Banking sector and both sides of the aisle in Washington.
I would refer interested readers to, “The LIBOR Scandal and the Rotten Heart of Finance” The Economist, http://www.realclearpolitics.com/2012/07/08/the_libor_scandal_and_the_rotten_heart_of_finance_284206.html
And the comment section. Insider veteran claim that fraud has been in the Libor for decades, and that the government was informed. Others say it is bigger than the $200 Bn tobacco disaster. And it is a certainty that it will metastasize to every major trading nation. There are lawyers, yet to be conceived, who will spend their career unwinding this mess.
At its root, the problem is integrity, “Thou shalt not lie.”, “Thou shalt not steal.” Only blind fools hold that only capitalists lie. Socialists also lie. Private interests lie. Public employees lie.
It should be obvious that if the government drafts libraries of regulations, intended to do good, that only a few parties, with very deep pockets, and eclectic expertise, can contend with compliance. The regulations on walking down the street are simple, and most can readily comply. Libor compliance is not for every lay person.
Our problem is creating self cleaning organizations, both public and private. It basically requires integrity, and competency at the top. Of the whips and carrots, there is a grave imbalance, in every industry. There are wealthy retirees, responsible for the Katrina disaster, the BP well blow out, the Fukashima melt down, and now Libor, who will never be sanctioned on this side of the grave. I think they should eat dog food. It should regularly be served in board rooms, and cabinet offices, as a reminder to white collar types.
Bernie Madoff stole some $60 + Bn. Surely this led to many early deaths due to abject poverty. I question why he is allowed to breath our air.
Glass-Steagall Act prevented bankers from getting into depositors pockets, without permission, so it had to go.
So the banks get fined and the money goes to… who? How much is it that the involved countries owe the same banks?
The answer is to declare the companies/ corporations (as entities) considered jailed for xxx years. There is also the issue of being trusted with certain work when the jail term completes. The entities should face the same terms as a regular felon on release from jail. No job that involves handling money.
As for LIBOR so for gold? Doesn’t the rate get set each day by a group of banks? Is anyone asking questions or investigating? I doubt it as the bank of his highness nmr is the main man.
“At best, the scandal has revealed an appalling lack of bank regulation.”
” … it’s clear there remain serious problems with the way big banks and financial institutions operate and are regulated. And conservatives shouldn’t be afraid to say so, because to acknowledge the problem is not remotely a concession that capitalism and free markets have failed.”
“They were rewarded with the Dodd-Frank bill, which effectively enshrined the notion of too big to fail and created a centrally planned banking system that discourages competition and innovation.”
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It’s very difficult for an ordinary person to understand financial systems and how they work –
But, here, I don’t know what you’re saying re regulation …
I’m not sure, but it seems …
… as though you want to solve the problem of mis-regulation with more (and better?) regulation.
Is that what you mean???
…it suggests collusion at the highest levels between commercial banks, central bankers, and governments to manipulate interest rates for mutual benefit.
Damn right it does, but it gets worse. The tampering here is inside the sanctum sanctorum, yet the rules as currently applied in both UK and US ensure that nobody is personally accountable for failure — truly a Brussels solution. The scant detail available suggests American involvement. Does it amount to collusion? Far too soon to know, but plainly the fear runs deep. If it turns out there’s a link to the Fed, brace for the worst crisis of your lifetime, one that will shake our republic to its foundations.
Put it all together from an American perspective, especially the lobbying, the crony capitalism, the campaign contributions and the ludicrous game of musical chairs for banksters who hop between public and private jobs and back again… and you’ve got a pretty good example of a totalitarian state, whether you call it fascist, socialist or communist. And it’s here today, in place and getting stronger.
Central to the problem: bankers who speculate with money extracted from or underwritten by taxpayers must, always, be personally accountable for failure — jail, ruin and public humiliation guaranteed. Advisors/enablers don’t get to walk, either. As things are right now, it looks like Diamond gets to grab a golden parachute worth about £30 million. Wonderful. Surely the time to act is now, before the mess passes into the hands of the left media. Yet those charged with the responsibility sit and blink.
Here’s a situation where a true American leader would man the ramparts, grab the bullhorn and rally the people. Instead, we’ve got the doziest Congress in history and a ‘loyal opposition’ that’s coughed up Romney — the über candidate who, we are informed, is always part of the solution and never part of the problem. Would someone explain why? If you can’t sell it here, you can be sure Rove and his midgets can’t sell it to the country.
In other words Barclays is the “Scape goat” here.God forbid an actual government take blame for banking fraud,why,its just not done in polite society.
To blame the state is to blame GOD in the mind of the high priests of state. Cannot and shall not be done. The blame shall fall to the minions for it is they who have failed in the implementation of the perfection that is the state. The minion is not worthy of our deity and shall be punished until it becomes so.
A truly black hole of massive evil seeks to devour those without the virtue and morality to resist.
Barclays is just a wayward cow destined for slaughter upon the sacrificial dais of the STATE.
Too Big Too Fail also means Too Unaccountable To Trust which inevitably becomes Too Broken Too Save.
The ONLY solution to manipulation at this level is breaking up the bank/s involved and JAIL time for the C level executives (including CEO,CFO…).
The manipulation will continue until Total Economic Collapse occurs… Change…
I pretty much dismissed the #OWS crowd as whiny losers. But after reading about this and our own municipal bond/bank criminal hi-jinks, they may have a point. See http://www.rollingstone.com/politics/news/the-scam-wall-street-learned-from-the-mafia-20120620. Can banks be too large and become a power unto themselves? Can we function without large banks to have the resources to finance very large projects?
It will be interesting to see how this mess gets tied to Romney and all the top-hat Republicans this Fall, and the Obama administration escapes unscathed.
“The Dog Can’t Drive The Car” would fit nicely on an OWSer’s piece of cardboard.
This piece is not helpful to the discussion, nor will I try and take the time to fisk it.
There are enormous issues with this, and governmental fingerprints on it are a bit like looking at the dog’s nose prints on the back windows and presuming a massive struggle has occurred.
The dog still can’t drive the car.
This is the third alteration of my reply! As I try to make sense of all this and comment in a constructive way I am left with a one liner that perhaps “will” make sence to us all.
Of all the Bankers, Politicians and Corporations of this World;
“TOO BIG TO CARE”…..for what you or I want or need.