A Cartel of Big Banks Is Hurting the World Economy By Manipulating Derivatives

George Washington's picture

The Bank of England said recently that Libor is not the only market which is manipulated by the big banks.   We noted last month:


There have also been allegations that the self-certifying derivatives indicator – iSwap – has been massively manipulated.  See this and this.

Spiegel reports today:

"In our investigations, we concentrate on suspicious cartel agreements that include derivatives. This includes possible secret agreements about the determination of these lending rates," says European Competition Commissioner Joaquín Almunia. In other words, the investigators are interested in more than the manipulation of global interest rates to benefit specific parties. It's also possible that the enormous market for derivatives was manipulated.


"Derivatives traders are also believed to have agreed upon the difference between the buy and sell prices (spreads) of derivatives, thereby selling these financial instruments to customers under conditions that were not customary in the market," says the Swiss Competition Commission, which is also investigating possible cartels.


It is difficult to find clear evidence, such as a written cartel agreement. But in Brussels alone, more than 40 banks have contacted authorities to report what they know about years of manipulation.

Of course, out-of-control derivatives were largely responsible for the 2008 financial crisis ... and still pose a massive threat to the economy.

But the cartel of giant banks is preventing a fix:

The big banks are preventing derivatives from being tamed.




The derivatives “reform” legislation previously passed has probably actually weakened existing regulations, and the legislation was “probably written by JP Morgan and Goldman Sachs“.




Harold Bradley – who oversees almost $2 billion in assets as chief investment officer at the Kauffman Foundation – told the Reuters Global Exchanges and Trading Summit in New York that a cabal is preventing swap derivatives from being forced onto clearing exchanges:

There is no incentive from the moneyed interests in either Washington or New York to change it…I believe we are in a cabal. There are five or six players only who are engaged and dominant in this marketplace and apparently they own the regulatory apparatus. Everybody is afraid to regulate them.

That’s bad enough.


But Bob Litan of the Brookings Institute wrote a paper (here’s a summary) showing that – even if real derivatives legislation is ever passed – the 5 big derivatives players will still prevent any real change. James Kwak notes that Litan is no radical, but has previously written in defense in financial “innovation”.


Here’s a good summary from Rortybomb, showing that this is yet another reason to break up the too big to fails:

Litan is worried about the “Dealer’s Club” of the major derivatives players. I particularly like this paper as the best introduction to the current oligarchy that takes place in the very profitable over-the-counter derivatives trading market and credit default swap market. [Litton says]:

I have written this essay primarily to call attention to the main impediments to meaningful reform: the private actors who now control the trading of derivatives and all key elements of the infrastructure of derivatives trading, the major dealer banks. The importance of this “Derivatives Dealers’ Club” cannot be overstated. All end-users who want derivatives products, CDS in particular, must transact with dealer banks…I will argue that the major dealer banks have strong financial incentives and the ability to delay or impede changes from the status quo — even if the legislative reforms that are now being widely discussed are adopted— that would make the CDS and eventually other derivatives markets safer and more transparent for all concerned…Here, of course, I refer to the major derivatives dealers – the top 5 dealer-banks that control virtually all of the dealer-to-dealer trades in CDS, together with a few others that participate with the top 5 in other institutions important to the derivatives market. Collectively, these institutions have the ability and incentive, if not counteracted by policy intervention, to delay, distort or impede clearing, exchange trading and transparency


Market-makers make the most profit, however, as long as they can operate as much in the dark as is possible – so that customers don’t know the true going prices, only the dealers do. This opacity allows the dealers to keep spreads high…


In combination, these various market institutions – relating to standardization, clearing and pricing – have incentives not to rock the boat, and not to accelerate the kinds of changes that would make the derivatives market safer and more transparent. The common element among all of these institutions is strong participation, if not significant ownership, by the major dealers.

So Bob Litan is waving a giant red flag that the top dealer-banks that control the CDS market can more or less, through a variety of means he lays out convincingly in the paper, derail or significantly slow down CDS reform after the fact if it passes.




If you thought we’d at least get our arms around credit default swap reform from a financial reform bill, you should read this report from Litan as a giant warning flag. In case you weren’t sure if you’ve heard anyone directly lay out the case on how the market and political concentration in the United States banking sector hurts consumers and increases systemic risk through both political pressures and anticompetitive levels of control of the institutions of the market, now you have. It’s not Matt Taibbi, but it’s much further away from a “everything is actually fine and the Treasury is in control of reform” reassurance. Which should scare you, and give you yet another good reason for size caps for the major banks.


Moreover, the big banks are still dumping huge amounts of their toxic derivatives on the taxpayer. And see this.

Indeed, the U.S. has agreed to backstop potential trillions in derivatives in the U.S. ... and abroad.

If the big banks are manipulating the derivatives market, they could manipulate every other market on the planet.   Given that the size of the derivatives market dwarfs the entire global economy, and given that derivatives are - by definition - not real assets, but paper abstractions loosely based upon real assets, manipulation of derivatives can drive asset prices up or down at whim.

Of course, the big banks are doing a lot other things to move markets as well, such as:

Of course, the big banks own Washington D.C. politicians, lock stock and barrel.  See this, this, this and this.

So don't expect anything to change without a huge public outcry ... or worse (and see this).

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Bansters-in-my- feces's picture

Free Jon Corzine...!!!

Wave-Tech's picture

Wouldn’t it be nice if we could round up all the criminals, toss them in jail, and throw away the keys?


Haager's picture

Is there any valid relationship between derivatives, the Liebor and the catastrofic debt situation of several countries?

Damn, I need think I will need much more rope, and the head players will love my brand new scaffold. 

Buck Johnson's picture

I was surprised those 40 banks came forward, probably got sick and tired of losing out from the big 6 banks (we know who they are).  I think the game is about over and when it implodes it will take the western banking system with it.

flattrader's picture

Can't happen soon enough for me.

rcwhalen's picture

Tell it George

tony bonn's picture

the time bomb ticking away in jpm's basement will be the mother of all financial catastrophes....the interest rate swap story is not over - not by a long shot.

Coldfire's picture

Sunshine is the best disinfectant.

random thoughts's picture

I'm an investor and small business owner, and have read about derivatives being toxic sludge for years.  But I don't think I fully understand how obscure derivatives can get.  I understand that people who write them have an incentive to make them difficult to value, so that they can book bonuses and not mark losses to market.  But can anybody give specific examples of stupid, arcane derivatives?



illyia's picture

CDO squared.

Or I.C.E. cubed.

But, i digress...

Vuke's picture

Random, not terribly arcane, but think of GLD and SLV as examples. If anybody thinks these guys in suits are spending their days polishing bars of metal he lives in his own universe.  From these, which at least have some nominal real value, you can go on to derivatives of kited up securities and other "assets". Control the asset price and you get good leverage on their derivatives.

Tango in the Blight's picture

Why would you invest in a rigged market? It's like betting at a casino run by a mafia boss who uses roulette tables with magnets and different weight playing cards to influence the games.

Rien Ne Vas Plus. Always remember, the House always wins!

GlomarHabu's picture



So we have all this info about manipulated this and munipulated that and nothing changes.  It won't.  We're all just fodder for the wealthy elite.

agent default's picture

Big Banks are just proxies for the Central Banks.  You are attacking the straw men.

essence's picture

A poster comments

Big Banks are just proxies for the Central Banks.  You are attacking the straw men.


George responds

Wed, 08/01/2012 - 18:46 | 2670538 new George Washington

Yes ... but it works the other way as well:



My question ..... who is behind this all?

All corporations have owners. As in individuals ultimately.
I suspect for the TBTF banks and other mammoth world corporations (e.g.  oil companies, big Pharma, BIS,  etc. )  it's not funds, not PIMPCO, not CALPERS, not little old ladies clipping bond coupons that are controlling the puppet CEOs and boards.

WHO EXACTLY is behind this? 
Jamie, Lloyd Mittens timmy, obummer, Ben  (and their foreign counterparts) are merely bit players.
They can be easily replaced and the system goes on without hesitation. True, they're further up the tree, nevertheless, as we saw with Bob Diamond, they are quickly cast aside when they become a liability.

These aren't the architects.
It's the architects of the system we really should focus on and go after (and no doubt, they go to great lengths to stay anonymous and be removed from any association with current affairs).


engineertheeconomy's picture

An accurate description might go like this:

There is no single person or small handful of persons behind the pyramid of Evil. There are literally thousands and thousands of them and they are all in it together. But if you insist, follow the money, both the paper and the Gold. What I think is more important than who might be behind them is who is in front of them, protecting them. We could stop the transfer of wealth if we could print our own rather than borrow with interest from the criminals. There are criminals protecting the criminals under the guise of protecting us.

4horse's picture


An accurate description might . . . answer the fucking question








. . . like this: H8

N.M. Rothschild of London
Rothschild Bank of Berlin
Warburg Bank of Hamburg
Warburg Bank of Amsterdam
Lazard Brothers of Paris
Kuhn Loeb Bank of New York
Israel Moses Seif Bank of Italy
Goldman Sachs/JP Morgan Chase of New York

Haager's picture

They will stay in the shadows no matter what will happen, but if you take their straws -their tools- out they are helpless in that shadow. My guess is, they also will lose a lot of money/power if their banks and therefore their debt-positions flatter.

printmoremoney's picture

"Huge Public Outcry"? That is just another reason to launch LockDown2.0 courtesy of DHS and the NSA. Complain and your EBT card gets REJECTED. This is not about greed and money anymore. They already have total control of the Financial Matrix. The Occult wants to maintain complete control. You can't fix this. You have to NUKE it and start over. When I see Jamie in jail or a grave, then I will start to have hope. The SOB's upstream from him are the real prize if there is to be hope from erasing Global Facism from the human species. Even a complete reset does not guarantee anything, but at least you torch the current version of these sadist despots. The human species has been painted into a pretty tight corner at this point. Tweaking is a waste of time, IMHO. We are talking about what level of survival humans are willing to accept.

99ers are not collaterall's picture

The public has bin fluoridated into oblivion.

"Resistance is futile,You will be assimilated"

Dulcinea's picture

Huge Public Outcry

Actually, I think there is enough anger among the American public if one could find the right vehicle to harness it.  Both the Tea Party and OWS seemed to me to be symptomatic of how people are feeling.  But they were too broad and ended up being divisive.  Perhaps a narrow issue that everyone could agree on of "stop the fraud and corruption, prosecute the guilty" would resonate with just about everyone.  I don't think there will be a huge public outcry until there is a mechanism in place for public expression.

4horse's picture

Huge Public Outcry
oooo yyooouu     you


You Tell'em pmm
total control
Financial Matrix
The Occult
complete control
jamie in jail

The SOB's                                   u p s t r e a m
the real prize                                                    LEVIATHAN
Global Facism
the current version
sadist despots


every single last one of'em
now knowing to get

alfred b.'s picture


   OK thanks....Derivatives, Washington in banksters' hip pocket, manipulation:  got it...LIKE SOME 5 YEARS AGO!!



Bartanist's picture

It looks like the bankers have been up to much more naughtiness.


Finally an explanation that makes sense and that links the Batman killings and LIBOR scandal.  

4horse's picture


strong language
Robert Holmes
the exact bank accounts
the elite classes
In other words  words words
"predictive algorithm model"######s
Robert Holmes could NAME NAMES*
government and corporate corruption

could include members of Congress,Wall Street,Federal Reserve and EU executives and
could even include US Presidential candidates and the British Royal Family! 
two "Black Op" hitmen
"The Devil's Breath"




The Dark Knight Rises someone better
                                                      To Serve And
                                    *Robert Holmes
                                                       *Corbin Dates 
                                                       *Grace Powers  $%#!^@^#%$

                                                                                                         only names named here 

swmnguy's picture

Well, yeah, they're rigging derivatives.  Duh.  That's exactly why they made sure in the Commodities Modernization Act of 2000 (aren't these bill names a hoot?) that derivatives would explicitly not be supervised, and explicitly not regulated like insurance.  When of course they are, or are supposed to be, insurance.  If they weren't understood to be insurance, there wouldn't be any damn point in having them, would there be, except as an instrument to fleece people and institutions out of their money.  And why would anybody support that, other than those who think they'll come out on the right side of the fleecing?

Over the past 4 years what I had once feared only in my most paranoid moments has become unavoidably obvious and clearly true.  Not just that finance is rigged.  That I could almost actually deal with.

The part that's almost too scary for people including me to accept is the "why" of why finance is rigged.  It is becoming more clear that finance has to be rigged, or nobody can make any money at it consistently.  Why would that be?  Here's where it gets scary.  Our whole system is based on infinite and continuous expansion.  Expansion of markets, of money, of resources, of profits.  Ours is, unfortunately, not an infinite world.  We aren't going to discover new continents with riches to plunder.  Everybody who has electricity and enough money has a refrigerator now.  The only growth we see is in the only really new markets around, and pretty soon everybody who has the money and can use one will have an iPod and an iPad, and that will be that for that.

So in order to make the kinds of money that keep these insatiable people semi-satiated, or at least mildly tumescent, they have to cheat.  That's all that's left.  More than eating the seed corn, or chopping up the furniture to make a fire to eat the seed corn, or eating their babies; they're actually starting to eat each other, themselves, whomever wanders too close.

At a certain point all this cheating will lose its reward, though.  It's already happening.  That's why we see so much of it, and it's getting so brazen.  These are intensely competitive people.  If the whole system is a scam, then running a scam becomes unsatisfying.  If there aren't any consequences, there eventually aren't any rewards worth having.  Then what will they turn to?  Outright human sacrifice and cannibalism?  Would you put it past them?

illyia's picture

I completely agree. It is the simple result of playing out a game of cheating. Game Theory describes it just fine.

And, no. I would not put it past them.

engineertheeconomy's picture

Human sacrifice and cannibalism are old news for those dudes, their way past that...

bank guy in Brussels's picture

Title and theme of this article are so obvious it made me laugh

illyia's picture

Hey, Bank Guy in Brussels - I usually like your posts - but I would like to point out something to you, insider...

I have a relative who has just gotten an advanced degree in accounting (so he should know something, eh?). Three years ago I told him this story, now posted by GW (I had many other sources going back as much as ten years ago). My relative laughed. He thought I was a conspiracy theorist. But it has been obvious for years. They never taught him these things in school... wouldn't his professors have mentioned it?

These people are not stupid. They are controlled. They see or hear only what they are supposed to: a commercial for a bank or something they must buy-buy-buy for two minutes or more every fifteen minutes. They lust to be the person portrayed as "normal" on these ads. They completely buy into it. It is their paradigm. 'Sure the banks are doing complex things. But they are not out to hurt anyone...' (Unless just like anyone cornered, they are threatened themselves.)

This article puts it succinctly and completely. There is a conspiracy. It is "us" (the banksters in the know) versus "them" (the marks). The sheeple are content to believe there is a problem within their paradigm - but little more than that. The alternative means that they have been wrong all this time: they have based their lives on a lie.

I am emailing this to my sheared relatives. Chipping away at the illusion is the least I can do. Right now they are so underwater because the real estate they bought was in such demand (who caused that!) that they over paid... by hundreds of thousands... because they "believed the dream"... Turns out that is was all it was. As we (and they) will find out, shortly.

john39's picture

true... most americans... even the professionals i work with, still believe that the FED is part of the government.  they will not believe that the bank system is a ponzi until it literally blows up.  they don't go on blogs like this, and therefore never hear any details about how the banking system works, or how it was created.   the matrix in action.  baby stuff like this is a good start for some.

cartonero's picture

I usually like GW's contributions, but I feel the same as bank guy.  This should have been submitted by Rip Van Winkle, not George Washington.

engineertheeconomy's picture

Pathetic article

Name one fucking thing that Banks do that actually help the economy...

4horse's picture

Name one fucking -anybody*

okay. well. then. there's . . .

Suspicious Cartel
The Bank of England said*
                    See thisaway, thataway and highway Robbery
the big banks
Derivatives traders
cartel of giant banks
JP Morgan Chase,Bank of America,Goldman Sachs,Citigroup,Morgan Stanley . . . as close as it gets

the moneyed interests
Everybody is afraid
Major Wall Street players
global giants
“too big to fail”
“Dealer’s Club”
I particularly like...
the current oligarchy
“Derivatives Dealers’ Club”
top 5
Collectively, these institutions


paper abstractions


waving a giant red flag



*It’s not Matt Taibbi