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Do big banks need to worry about being found out over Libor?

July 8th, 2012

The eventual outcome of the global Libor rigging scandal is impossible to call at this stage.

There is a body of opinion that it might end up being a storm in a teacup (sounds familiar?), given that regulators and courts might end up stuggling to establish who got scammed and the true level of their losses. Epicurean Dealmaker is in this camp, downplaying some of the scandal’s significance. Epicurean Dealmaker, an anonymous New York-based investment banker, wrote:-

“despite the huge numbers involved and its pervasiveness throughout the global financial infrastructure, it is far from clear to me that banks’s systematic manipulation of LIBOR led to vast wealth transfers from one set of market participants to another.”

Cullen Roche of Pragmatic Capitalism is even more dismissive, arguing that the media is making a mountain out of a molehill. He writes:-

“this scandal doesn’t tell us anything we didn’t already know … no one is freaking out because there’s nothing new here that we didn’t already know.”

The rate rigging scandal has yet to ignite much enthusiasm in the US because Main Street is suffering from ennui where bank scandals and epidemics of financial crime are concerned. Even after this, Americans doubt whether the administration of President Barack Obama, which has been far too cosy with Wall Street over the past three years, the justice department and attorneys general will be jolted into taking the necessary actions. Look at the comments on Joe Nocera’s New York Times op-ed piece, Libor’s Dirty Laundry for a flavour of what I mean.

And there’s a fear that US Federal government indifference to rampant financial crime would become even more pronounced in the event that Republican candidate Mitt Romney wins the presidential elections this November. Another possible reason for US indifference is what else was happening there at the time. The day after the CFTC/DoJ/FSA’s $461m settlement with Barclays was announced (June 27th), the US Supreme Court upheld the Obama administration’s healthcare law just as the Washington elite departed for the Independence Day holiday.

As I said, many of those who are downplaying the significance of the scandal are doing so because they cannot believe anyone actually lost out financially as a result of the banks’ dishonesty, or even if they did lose out, they don’t believe the losses will be possible to quantify. In this, I believe they are wrong, but we shall see.

Once anti-trust regulators in the European Union, Switzerland, Canada, the United States and other jurisdictions have completed their probes into the alleged “international cartel” of banks including Citigroup, JP Morgan Chase, Deutsche Bank, HSBC, Royal Bank of Scotland and UBS that are alleged to have conspired to rig markets, I think the nature of the losses they inflicted on the rest of the economy will become much more fathomable.

It is relevant that, speaking on BBC Broadcasting House this morning, the UK business secretary Vince Cable urged the 82% taxpayer-owned RBS to hand over information relating to wrongdoing by its staff to the Canadian competition authorities. He told BBC Radio 4’s The World This Weekend that

“If there is an official, legal enquiry in Canada and RBS are a party to it, then obviously they must cooperate. I would have thought it was a bit of a no brainer.”

(The Wall Street Journal produced an incisive report into the part played by RBS in an alleged conspiracy to manipulate the price of money on February 17th, 2012). However, unlike UBS and Barclays the disgraced Edinburgh-based bank has been playing hardball on this for over a year, refusing to provide necessary evidence to the Canadian regulators!!

The Edinburgh-based bank’s attempts to perpetuate the cover up by scapegoating a bunch of about 10 senior traders for its alleged industrial-scale rigging of Libor to boost trading profits, including global head of delta trading at Global Banking & Markets Tan Chi Min, otherwise known as  “Jimmy” Tan, is no less sickening. But this too is unravelling fast for the Gogarburn-based institution, and it’ll unravel even faster if it loses a key court case relating to Tan’s dismissal in Singapore.

Once the anti-trust regulators have completed their inquiries, RBS and members of the alleged cartel are likely to have to brace themselves for a tidal wave of civil suits which, in countries including the United States — because the breach is one of anti-trust legislation — are likely to leave them vulnerable to paying out triple damages under the Sherman Act 1890 (there are plenty of other financial and commodities markets that similar cartels of global banks are understood to have rigged as well).

It is largely because of this, and because of the shocking abuse of trust that Libor rigging entails, that a clutch of US-based  commentators such as Kevin Drum in Mother Jones, Robert Sheer in the Nation, and Robert Reich take a more apocalyptic view of it predicting it could spell curtains for one or more global banks. Others, including Joe Nocera, take a more positive view seeing it as the moment when people’s eyes were opened to the true nature of “casino” capitalism, and therefore the catalyst for the reforms that have been so desperately needed since the collapses of 2007-08.

Stephen Lendman, author of How Wall Street Fleeces America, believes the Libor rigging scandal is big enough to bring down the entire global banking industry and collapse the global economy. In a piece titled Libor scandal reflects a cesspool of financial fraud, Lendman argues that underpinning the $800 trillion global derivatives market with fraudulent data has created “the granddaddy of pyramid schemes which is likely global banking and economic collapse”. I publish exceprts from Lendman’s blog below.

by Stephen Lendman [excerpts of “Libor scandal reflects a cesspool of financial fraud”, published July 7th, 2012]

Libor anchors contracts for multi-trillions of dollars. One analyst said it’s like plumbing. When working well, it isn’t noticed. When not, all hell breaks loose. It’s a vital factor in the interest rate swaps market. These contracts let one bank or other organization pay a fixed rate of interest on a given amount of money from another financial institution.

Barclays reflects a corrupt system. Other major banks operate the same way. Western politicians permit it. “They uphold the doctrine that whatever banks do is right.”

Casino capitalism doesn’t work. Economies suffer. So do ordinary people. The entire banking system risks collapse. Buying time alone is possible. Barclays is part of a far greater unresolved problem.

The system is too corrupt to fix. At issue is clearing it out and replacing it with an entirely new paradigm.

Central bankers and complicit politicians bear full responsibility for what’s happening. They’re heading economies for a worse disaster than the Great Depression.

Barclays is the tip of the current scandal. Traders in London, New York and Tokyo colluded to manipulate Libor. Top executives and traders are involved. They bear full responsibility for the 2008 financial crisis and what followed. They’re up to their ears in fraud today. Media scoundrels report an illusion of stability. Government probes are toothless.

Perhaps future suits will charge Goldman Sachs, Wells Fargo, and major European banks not named above. They’re all in it together. CEOs and other top executives conspire with each other and traders to commit fraud. Why not when corrupt politicians wink and nod and let them do it.

Bill Black says manipulating Libor is easy. What’s coming out reflects “the largest rigging of prices in the history of the world by many orders of magnitude.”

Top executives are directly involved. They have to be because they set policy and stand to gain hugely from fraud-driven profits.

The Financial Times headlined “Barclays boss discussed Libor with BoE,” saying:  “The bank admitted that it lowballed estimates of its borrowing costs from late 2007 to May 2009 because it wanted to reassure investors of its strength during the financial crisis and it believed other banks were doing the same. It also admitted that its traders improperly influenced the rate submissions from 2005 to 2008 to make money on derivatives.”

Since banker caused crisis conditions erupted in fall 2007, no senior executive faced charges. Expect none now to be held criminally liable. At most complicit banks are assessed hand-slap fines. They’re then free to steal again. It’s standard practice.

On June 30, London Guardian writer Will Hutton headlined “Let’s end this rotten culture that only rewards rogues,” saying:

“The Barclays rate-rigging scandal has once again exposed a world where men and women with little skill and no moral compass can become very rich very fast. Investment banking is an organised scam masquerading as a business. It is defined by endemic conflicts of interest, systemic amoral behaviour and extreme avarice.”

“Many of its senior figures should be serving prison sentences or disgraced — and would have been if British regulators had been weaned off the doctrine of ‘light touch’ regulation earlier and if the Serious Fraud Office’s budget had not been emasculated by Mr. Osborne.”

“It is a tax on wealth generation and an enemy of honest endeavour — the beast that is devouring British capitalism.”

Whitehall and Washington operate the same way. They facilitate fraud. It’s institutionalized.

Politicians profit hugely from generous campaign contributions and high-paying jobs when leave government. Central bankers know what’s going on and fuel it with bailouts and easy money.

Ellen Brown describes a “Wall Street Protection Racket of Covert Derivatives….Prop(ing) Up US Debt,” saying: “Interest rate swaps are now over 80 percent of the massive derivatives market.” Wall Street giants operate a “protection racket of a covert derivatives trade in interest rate swaps.”

“The derivatives casino itself is just a last-ditch attempt to prop up a private pyramid scheme in fractional-reserve money creation, one that has progressed over several centuries through a series of “reserves”–from gold, to Fed-created “base money,” to mortgage-backed securities, to sovereign debt ostensibly protected with derivatives.”

Libor is a vital factor in the swaps market. The cost of money affects them all. Privately created money at whatever interest rate bankers set “is the granddaddy of all pyramid schemes.”

Despite “a quadrillion dollar derivatives edifice propping it up,” eventually it’ll collapse. Money power in public hands could prevent it. It’s “ready to replace the old system when it comes crashing down,” says Brown.

Stephen Lendman’s new book is titled “How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War

Short URL: http://www.ianfraser.org/?p=7474

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