Is The Bank Of England About To Be Dragged Into Lie-borgate, And Which US Bank Is Next

Tyler Durden's picture

While the Lieborgate scandal gathers steam not so much because of people's comprehension of just what is at stake here (nothing less than the fair value of $350 trillion in interest-rate sensitive products as explained in February), but simply courtesy of several very vivid emails which mention expensive bottles of champagne, once again proving that when it comes to interacting with the outside world, banks see nothing but rows of clueless muppets until caught red-handed (at which point they use big words, and speak confidently), the BBC's Robert Peston brings an unexpected actor into the fray: the English Central Bank and specifically Paul Tucker, the man who, unless Goldman's-cum-Canada's Mark Carney or Goldman's Jim O'Neill step up, will replace Mervyn King as head of the BOE.

From the BBC:

In making false submissions about their borrowing costs, managers at Barclays believed they were operating under an instruction from Paul Tucker, deputy governor of the Bank of England, I have learned.


This belief was fostered after a telephone conversation in the autumn of 2008 between Mr Tucker and Bob Diamond, who at the time ran Barclays' investment bank, Barclays Capital, and is today chief executive of Barclays.


The heart of the matter is that in 2008, at the height of the credit crunch, the perception of banks' financial strength was linked to how much they had to pay to borrow. Barclays managers were very worried that the appearance of the bank paying more to borrow than other banks was damaging confidence in its health.


So Barclays so-called "submitters", the managers who gave borrowing data to the British Bankers Association's Libor-setting committees, consistently told these committees that Barclays was paying a lower interest rate to borrow than was actually the case.


And what is striking is that after their conversation took place, senior Barclays' management on October 29 2008 gave an explicit instruction to reduce Libor submissions.

We hope it comes as no surprise to anyone that central banks, already known to sell Treasury puts in order to game interest rates on global benchmark securities, would go so far as to advise BBA member (which as noted last week was shocked to find that epic manipulation was going on here) banks to do all in their power to lie and cheat to the market in order to avoid the perception of reality.

Yet here is the punchline in Peston's piece:

What is striking is that even the artificially suppressed quotes for Barclays' borrowing costs provided to the BBA committee were higher than other banks' quotes.

Which conveniently brings us once again to our piece from January 22, 2009 when the market was crashing every single day, when the world's central banks would do anything to halt the collapse in risk and asset prices, up to an including telling their host banks to lie about funding conditions, before the real QE1 was announced back in the middle of March, in which we made just this speculation.

Everyone knows there is something very screwy about LIBOR, with opinion ranging from it's way too high to the opposite. We also have been quite vocal in our opinion of the TED Spread but that's irrelevant for the time being. Lately we have been looking at the most recent BBA data for the 3 month LIBOR submission by bank and while the average is 1.122%, the range is quite wide: 1.04% at the tight end to 1.204% at the wide. What confuses us is that the banks that submitted the lowest rates are the ones that have the most governmental independence, notably BofA and JPM, while the other end of the range is represented by pseudo nationalized banks such as RBS, in which the UK government recently acquired a 70% stake, and UBS, which had all of its bad assets swept by the Swiss National Bank in exchange for a loan (read more about the Swiss model here).

The implication is that with more governmental involvement or even virtual nationalization, the cost to lend to another bank creeps higher, when compared to entities such as BofA and JPM which still, at least theoretically, carry all their bad assets on their books. This intuitively is very confusing as the cheapest LIBOR should come from the nationalized entities, that have a full governmental backstop.


So while LIBOR's moves in itself have been very puzzling lately, the components of LIBOR and their relative values provide an additional layer to the puzzle.

Three and a half years later the puzzle is no more: it was all one big epic fraud, pardon, no fraud, as the CFTC and SEC settlements never admitted or denied fraud. Let's just call it benign market manipulation of a $350 trillion market.

But what the table above brings up are some curious observations: note the banks that in the middle of January were telegraphing to the world they were the healthiest via the one metric that was actually still relevant: 3 Month USD funding costs.

We already know that Barclays has been exposed to be manipulating Libor on an epic scale. And even with all this, it still could manage to only be in the third best quartile? If they were manipulating their Libor submissions they sure sucked at it. Which of course is why even the BOE got involved.

However, it begs the question: what about the Libor submissions of the three then "healthiest" banks: Bank of America, JP Morgan and Deutsche Bank. If Barclays was manipulating and gaming Lie-bor, only to fall even below the median submission, does this mean that these three banks were all furiously coming up with totally meaningless numbers? And how long until the SEC comes up with a US scapegoat bank to mimic the FSA's bold action on Barclays?

If, and this is a big if, the SEC does for once do something proactive in its illustrious career of corrupt, incompetent complacency and co-option, not to mention pornoholic hypnosis, the next and final question becomes: will it be Bank of America, or JP Morgan... and just how will the market react to the knowledge that two of the world's biggest non-nationalized banks participated in what as many have been warning for years, the biggest market manipulation fraud in history.

Finally, if the BOE ends up getting crucified for Barclays' stunning email disclosure, will the Fed, which certainly had a role to play in all of this, be once again left untouched?

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LULZBank's picture

Bollinger-Gate Bitchezz!!!

This is how Daddys roll...

DoChenRollingBearing's picture

This is all very bullish.  Risk on, bitchez!



veyron's picture

I for one am disappointed that Taibbi doesnt show up in the Zero Hedge Reads column ...

LULZBank's picture

Forget Taibbi, wait till Farage gets a sniff of this. He will be so very upset. Cant wait to see his stiff rant on this.

And check this ass clown:

Bank shareholders must get stronger grip, Cable says

He probably meant in their circle jerk sessions.

Shareholders should know also function as SEC.

falak pema's picture

If Farage goes indignant on this it'll be the icing on the rotten Englander cake; the prime supporter of John Bull, "we are holier than thou" Eurobashing will have to knee jerk into reverse gear and go charging like Don Quichotte into Whitehall and City shenanigans. As this is a NATIONWIDE, systemic, upper-elites cover up of financial malpratices which ARE the bread and butter of BIG BANG libertarian England. "Not like those socialistic shills, we certainly aren't! Thank you very very fukking much'...has been his patriotic stance. 'England is clean and non socialist not like corrupt and socialist technocratic Eurozone.' 

I think Mutti Merkel must be splitting her sides on this Cameron's and New Labour crony club historical caper of uber WS magnitude. Even Hank Paulson must be impressed. After Abacus, after Whale, now this new-old City tour de force!

A gold medal for the UK! 

Umh's picture

The phrase "libertarian England" may be the funniset thing I have heard in decades.

Harlequin001's picture

'and just how will the market react to the knowledge that two of the world's biggest non-nationalized banks participated in what as many have been warning for years, the biggest market manipulation fraud in history.

Eventually it will dawn on most people that the'biggest market manipulation fraud in history' was actually the suppression of the gold price, which, if nobody is to lose any credit money, and our house prices and pensions are not to collapse in 'value' will soon be worth considerably more than a mere 350 trillion...

falak pema's picture

you must find Maggie funny then. Hilarious decade she ran! And New Labour prolonged it like the good little boys they were, making City the beacon of financial "liberty". 

No wonder that Abramovich and his coterie love it! What is more libertarian than a russian oligarch who got rich on asset stripping rip-off of soviet empire. Not to worry the City recycles all and sundry, white as linen, no questions asked! 

Mr Lennon Hendrix's picture

Tyler's blogroll is not the be all and end all of blogrolls.

Despite Tyler's prowess for journalism, he lacks the talent to find talent.

But hey, why not let Lizzy360 write an article about how great Mark Carney is?  Or let Mike Kreiger write another boring article about bla bla.  Or have Biderman, Rosie, or Junjah tell us stocks are going to decade lows.

ptoemmes's picture

See the parallel from the muni fraud trial?


In the end, though, the conviction of a few bit players seems like far too puny a punishment, given that the bid rigging exposed in Carollo involved an entrenched system that affected major bond issues in every state in the nation. You find yourself thinking, America's biggest banks ripped off the entire country, virtually every day, for more than a decade! A truly commensurate penalty would be something like televised stonings of the top 10 executives of every guilty bank, or maybe the forcible resettlement of every banker and broker in Lower Manhattan to some uninhabited Andean wasteland... anything to address the systemic nature of the crime.

No such luck. Instead of anything resembling real censure, a few young executives got spanked, while the offending banks got off with slap-on-the-wrist fines and were allowed to retain their pre-eminent positions in the municipal bond market. Last year, the two leading recipients of public bond business, clocking in with more than $35 billion in bond issues apiece, were Chase and Bank of America – who combined had just paid more than $365 million in fines for their role in the mass bid rigging. Get busted for welfare fraud even once in America, and good luck getting so much as a food stamp ever again. Get caught rigging interest rates in 50 states, and the government goes right on handing you billions of dollars in public contracts.


jmcadg's picture

It gets better than that DoChen. I heard on BBC news tonight that RBS fired 5 traders in January for their part in the scandal.

Frstly, so why have we not heard anything until now?

But even better, at least one is suing RBS for wrongful dismissal as he claims the manipulation was known right at the top.

This one is not going away anytime soon. I want at least Diamond and Heston's heads on sticks. You can't get more arrogant than these two, oh wait a minute, Dimon and Blankfein.

Oh Bob Diamond, you lose out again to your superior peers. Hang your head in shame, you lightweight.

And still they can't get him to go as Agius takes the blame.

Buck Johnson's picture

This is going to get bigger and bigger in Europe, because in effect they found out what everybody thought years ago.  Manipulation of the LIBOR and other entities was not only happening but encouraged.  And that email nails the BOE and if you think the US federal bank wasn't involved I have a bridge to sell you.

philipat's picture

I agree that this is all wrong but I'm mot clear about one aspect. If the Banks were UNDER-stating borrowing costs so as to appear to be "Big and Strong", doesn;t that then mean that LIBOR was artificially low, thereby benefiting the public via artificially low mortgage rates on this occasion?

bigwavedave's picture

Until the re-rack at a higher rate. Then shit hits fan.

Rogue Trooper's picture

+ QE3

Upon reading this my mouthful of beer, I could not afford Bollinger, nearly wiped out my Macbook :P

Finally, material for the eventual Black Adder #5!

Stephen Fry would obviously play Sir Mervyn "King" Melchett  - Head of the Bank of England. All fiction of course!

Xibalba's picture

in NO WAY does JPM rig the metals markets on behalf of theFed.....#yaright.

Thomas's picture

Next time somebody calls you a "conspiracy theorist" or refers to something as "conspiracy theory", tell them, "anybody who believes that trillions of dollars can roll around the markets on a daily basis but nobody will conspire to cheat the system is a complete moron." Look them in the eyes and say, "Are you such a moron?"

Thomas's picture

We need a sequel: "Silence of the Bankers"

Thomas's picture

BTW-The bankers in the last couple of years have done more harm than all the rapists and pedophiles. You folks should be hung from the neck until dead (after a fair trial). If you happen to be an honest banker, then step up and help clean up your profession because, if you don't, you are part of the problem. You are watching innocent people getting the Sandusky Rhythmic Slapping Treatment. Fuck 'em. I cannot heap enough scorn on them. Fuck 'em. Fuck 'em. Fuck 'em.

Fips_OnTheSpot's picture

Call the ... forget it.

DoChenRollingBearing's picture

They're not even there.  At home, watching movies on the Internet...

Kayman's picture

"Call the ... forget it."

Exactly.  As soon as everyone understands that the entire financial industry is a rigged game, the sooner it will collapse.

When the penalty for a financial crime is but a pittance of the take, and no one goes to jail, this will continue.

How do you say "Fuck You" in banker talk ?  "Trust me".

Amish Hacker's picture

When every second counts, the SEC can be there in a matter of hours.

Ancona's picture

When the wheel stops, it's going to be something to see. The destruction of wealth will travel the wires like a mountain wildfire destroying everything in it's path.

DoChenRollingBearing's picture

Yes, + 1

The problem is the timing.  Best be prepared, like, yesterday!

cherry picker's picture

The AXIS of Evil is often portrayed as being Iran, Iraq and North Korea.

A few decades ago it was everything related to "commie" countries.

Now I wonder if Wall Street, Washington and the Pentagon are a part of it and England is a strong ally.  Not the people of the countries so much as they really have no say, for if they vote for one thing usually they recieve something else.  It is the few that "control" it all.

Those who control, laugh and sneer at we "sheep" in derision.  How we are so easily fooled and led by the nose.

Wait till we "sheep" start feeling the fences closing in and the grass turning to dirt and see children go hungry.  Then it will be the Ram's turn.

SamAdams1234's picture

The axis of evil are the banks of England: following the collapse of the British Empire in the 20th century the banks simply expatriated to America. They are now working to expatriate to China, if the Chinese would only be cooperative ...

Kayman's picture

They weren't laughing when their severed heads fell into a wicker basket.

Humpty Dumpty is not going to be pieced together again without an ugly reset.

The "exhorbitant priviledge" as granted to all Central Banks is coming to an end.

Make the smallest footprint possible and sit back and watch the show.

DoChenRollingBearing's picture



"Make the smallest footprint possible and sit back and watch the show."

Very eloquent and quite correct.

+ 32219 !

jmcadg's picture

So basically Bob Diamond is shit at cooking the books and his American counterparts were laughing daily at his total ineptness, as BoA and JPM are shit hot at fraud.

Don't worry Bob, I'm sure your salary makes up for your complete incompetence you twat.

EscapeKey's picture

It's also a curious defense, to say the least, considering they were manipulating Liebor much earlier than 2008.

jmcadg's picture

It's one thing being laughed at by your peers, it's another being laughed at by the muppets of this world. Lol Bob.

tenpanhandle's picture

I don't believe the muppits are laughing, at least not at these bankster types.   They are too busy laughing at some non-sensical, brain deadening, propagandistic tv shit-com or unreality show.  They are laughing at the foul comments of the likes of bill mahr (I'm looking forward to his death so I have a place to piss).  They're laughing all the way to the bank to cash their welfare check.  They're laughing all right but not at what I'm laughing at.  Actually, I'm not laughing at all.  Those tears are not from laughter. 

I don't believe we the people who are reading Zero hedge and the like are muppets. Muppets are always going to be muppets. Even when ginned up into a mob, they will still be muppets.  Beware of a mob of muppits.  In all likelyhood they will be gunning for you. 


Sudden Debt's picture

mostly it's the bank not mentioned in the first shortlist that will get hammered.
so I'm missing goldman sachs and morgan stanley in that list... 2 boyscouts who would never do this but.... .....

Heroic Couplet's picture

Why does the SEC need all the elaborate and meaningless AAA and BBB-? It's meaningless. The banks are insolvent. They're F. Then we can disband the SEC; let them enjoy porn while unemployed.

Instead of four frivolous Republican lawsuits and challenges at the Supreme Court in 4 years (birth certificate X 3 and Obama Won), why doesn't the Supreme Court enforce Congress's money supply capability and then the Supreme Court can get rid of the Federal Reserve Act of 1913.

veyron's picture

It allows for lip-service downgrades (they can "downgrade" a notch and say they did something, even if they didn't)

TruthHunter's picture

"Then we can disband the SEC; let them enjoy porn while unemployed."

Then we can replace the SEC with a real Occupy Wall with guns and guillotines?

tenpanhandle's picture

Why does the SEC need all the elaborate and meaningless AAA and BBB-? It's meaningless. The banks are insolvent. They're F.



It maybe (is) pure bullshit but it is not meaningless or purposeless.   You say, and I agree, they're F.  So giving them a BBB- is still a passing grade.  It gives them some credit-bility as opposed to "FAIL". 



I am Jobe's picture

Shocking I am telling you. Time for some short ropes and tall trees.


SamAdams1234's picture

Sharp swords, pikes and guillotines.

LULZBank's picture

You guys have no imagination. That is too quick and easy.

Clever Name's picture

A "pair of pliers and a blowtorch"?

Jena's picture

Dozens of hemostats, scores of Bic lighters and about seven Xacto knives.  Plus about three rolls of Shrink wrap.

Whiner's picture

The pot of world wide bankster corruption boilith over. "Bubble, bubble. Toil and trouble. How long til the end of their bubble?" The cock roache citings are more numerous, some so oversized, they wobble brazenly out into the daylight immune, to diluted pesticides. Huge colonies breed as for decades behind the pristine mahogany walls. Down in the vaults the commingled gold seems to have diminished. Gold bugs scurry around endlessly trying to find their fellow countryman's stash. "It is not here!" "It is not here." The cockroaches snicker.

falak pema's picture

Champagne cocktail bunga bunga binge at 'Lie and then bore to pussy galore' Bank of England inn.  All fellow CBs and PDs CEOs more than welcome. Its open house if you let your bloated HFT oar-blade float and then gloat in ribonned glory at Henley's bloaters and blue blooded toaders boat race. Splendid fellows in chariots of fire all for days of auld lang syne. Its only a fare thee well, should all acquaintance be forgot...swing low, sweet chariot, comin' for to carry me home. 

LULZBank's picture

You need to cut down on your "fine wines." They are making you horny as well.

falak pema's picture

its part of their paradoxical healing capability; we don't want to die both ruined and at a loss of poetic justice in body urge. Those miltarist shills call it "the surge".

LULZBank's picture

The ascent to heaven must be easier when you're already high.

falak pema's picture

as long as it doesn't get me there via guantanamo I'm fine with unlibored wine.