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Big Banks Have Criminally Conspired Since 2005 to Rig $800 Trillion Dollar Market

George Washington's picture




 

We noted Friday:

Barclays and other large banks – including Citigroup, HSBC, J.P. Morgan Chase, Lloyds, Bank of America, UBS, Royal Bank of Scotland– manipulated the world’s primary interest rate (Libor) which virtually every adjustable-rate investment globally is pegged to.

 

***

 

That means they manipulated a good chunk of the world economy.

We actually understated the impact of the Libor scandal.

Specifically, more than $800 trillion dollars worth of investments are pegged to the Libor rate.   As the Wall Street Journal reports today:

More than $800 trillion in securities and loans are linked to the Libor, including $350 trillion in swaps and $10 trillion in loans.

(Click here if you don’t have a subscription to the Journal).

Remember, the derivatives market is approximately $1,200 trillion dollars.  Interest rate derivatives comprise the lion’s share of all derivatives, and could blow up and take down the entire financial system.

The largest interest rate derivatives sellers include Barclays, Deutsche Bank, Goldman and JP Morgan … many of which are being exposed for manipulating Libor.

They have been manipulating Libor on a daily basis since 2005.

They are still part of the group of banks which sets Libor every day, and none have been criminally prosecuted.

They have received a light slap on the wrist from regulators, which – as nobel economist Joe Stiglitz points out – is just the cost of doing business when fraud is the business model.

Indeed – as Bloomberg notes – they’re probably still manipulating the rate:

The U.K. bankers and regulators charged with reviewing Libor in the wake of regulatory probes are resisting calls to overhaul the rate because structural changes risk invalidating trillions of dollars of contracts.

 

The group, established by the British Bankers’ Association in March after probes into allegations that traders rigged the London interbank offered rate … won’t propose structural changes such as basing the rate on actual trades or taking away oversight of the benchmark from the BBA, the people said.

 

Libor is determined by a daily poll that asks banks to estimate how much it would cost them to borrow from each other for different timeframes and in different currencies. Because banks’ submissions aren’t based on real trades, academics and lawyers say they are open to manipulation by traders. At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate, the benchmark for $350 trillion of securities.

 

“I don’t see a significant enhancement to the reputation of Libor without basing it on actual transactions,” said Rosa Abrantes-Metz, an economist with Global Economics Group, a New York-based consultancy, an associate professor with New YorkUniversity’s Stern School of Business and the co-author of a 2008 paper entitled “Libor Manipulation?” [Shah Gilani also warned of Libor manipulation in 2008, and Tyler Durden, Max Keiser and others started sounding the alarm at or around the same time.]

 

“It would only be disruptive if current quotes are inaccurate,” so resistance “is suspicious,” she said.

 

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Traders interviewed by Bloomberg in March at three firms said they were given no guidance on how Libor should be set and there were no so-called Chinese walls preventing contact between the treasury staff charged with submitting the rate and traders who stood to profit on where Libor was set each day. They regularly discussed where Libor would be set with their colleagues and their counterparts at other firms, they said.

 

“Sadly the response looks to be very consistent with the response of policy makers to the banking disasters we’ve seen over the last four years — cosmetic changes, but nothing substantial happens,” said Richard Werner, a finance professor at the University of Southampton. “It’s insufficient and doesn’t really go to the heart of the problem.”

 

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Mon, 07/02/2012 - 10:06 | 2580457 Bansters-in-my-...
Bansters-in-my- feces's picture

@ proliberty.

I am going to say this as nice as I can...

..............Fuck Off.

Mon, 07/02/2012 - 08:54 | 2580272 marathonman
marathonman's picture

The Fed is at the mercy of Congress?  The Fed owns Congress.  What are you talking about?  That Congress could repeal the Federal Reserve Act?  I like organic unicorn steaks as much as the next guy, but seriously...

Mon, 07/02/2012 - 10:08 | 2580481 CustomersMan
CustomersMan's picture

 

Ever wonder why economics, fractional reserve banking, history of finance, etc,. is never taught in grades 1 - 12 in any form?

 

I'm willing to bet a teacher caught teaching these subjects (as it applies here, along with an opinion) would be dismissed.

 

Until the 'Net opened up, even finding reliable information on these subjects, on your own, took some real effort.

 

 

Mon, 07/02/2012 - 12:46 | 2580923 FEDbuster
FEDbuster's picture

"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes... Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."

- Napoleon Bonaparte, 1815

Was true then, still true now.

Sun, 07/01/2012 - 23:04 | 2579714 cdude
cdude's picture

Watching the Libor action over the past three years has elicited more WTFs from me than I care to remember. Now I KNOW WTF!

Sun, 07/01/2012 - 23:04 | 2579709 El
El's picture

Not so much as one more thin dime from me will they get. When they bring their actions against me, my counterclaims will most assuredly include JPM's naked shorting of silver and Barclay's manipulation of LIBOR, both of which have caused me damages. I don't even care what the outcome will be. I'm going to tilt at some windmills and sleep much better at night for not participating in this farce any longer.

Mon, 07/02/2012 - 02:01 | 2579922 El Oregonian
El Oregonian's picture

And when the criminal bastards finally die of bloat I'll be there to personally shove a 1 oz. Ron Paul Silver coin up their ass so far that they'll know exactly what the real value of a Silver-filled Colonoscopy can and will do for these pukes and all the while I'll be yelling "WIGGLE MORE!! WE WANT TO MANIPULATE A FEW MORE COINS UP IN THERE" So spread 'em you maggots!!!

Mon, 07/02/2012 - 10:24 | 2580537 FEDbuster
FEDbuster's picture

Why wait till they are dead?

Sun, 07/01/2012 - 22:52 | 2579688 FinalCollapse
FinalCollapse's picture

Another fraud that leads to the motherfuckers in London...

Mon, 07/02/2012 - 08:19 | 2580179 Pee Wee
Pee Wee's picture

Sorta, but organized crime needs not a location to flourish.

All paths lead to organized crime in banking -- every single one -- and as a collective.

Sun, 07/01/2012 - 22:47 | 2579679 Thunder_Downunder
Thunder_Downunder's picture

News flash, banking cartels manipulate interest rates... 

 

Wait.. thats not news.

 

What's the difference between these guys setting the interbank rate, and the Fed/BoE/BoJ/ECB etc etc... fixing their rates through swaps and QE? 

 

The whole 'government agency' argument doesn't really hold water, given that their boards are almost entirely bankers...

 

So I guess the takeway is that it's damaging and criminal for a private cartel to fix rates, but its good policy the pseudo government ones eh?

 

Mon, 07/02/2012 - 01:54 | 2579917 covsire
covsire's picture

I think foaming at the mouth in regards to the BANKS is folly.  The system itself, the very laws in which they all operate is just as corrupt as the worst of any one of them.  Fractional reserve banking?  If you had the power to turn $100 into $1000+ without breaking a sweat, we would all do it every time and you know it.  FRB is like the One Ring.  Everyone goes in with a clear head and a honest desire to do good, but nobody is meant to have that much power for very long.  Get rid of the worst offender today and someone else picks it up and is more corrupt than the last one.

Mon, 07/02/2012 - 10:44 | 2580603 krispkritter
krispkritter's picture

I don't think this grand illusion will stand forever.  Someone will pull back the curtain and drive a gold stake through the heart of who's behind it eventually. Question is, how much pain will there be for the average citizen(no matter what the country) given that the 'austerity' pain meter is being turned up every day, whether it's inflation, unemployment, deflation, etc..

"...cosmetic changes, but nothing substantial happens,” said Richard Werner, a finance professor at the University of Southampton. “It’s insufficient and doesn’t really go to the heart of the problem.”

Sooner or later we're going to have to cut our way out of the belly of the beast..

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