Federal Reserve Admits It Knew Of Barclays Libor "Problems" In 2007 And 2008

Tyler Durden's picture

Last Tuesday we suggested that "Now The Fed Gets Dragged Into LiEborgate" when we observed that "Barclays also cited subsequent research by the New York Federal Reserve staff members that, according to the lender, concluded that banks’ Libor quotes were systematically below their borrowing rates by 39 basis points after the Lehman bankruptcy. “Barclays own submissions for tenors of 1 month to 1 year Libor were higher than actual Barclays trades on 97% of the occasions when Barclays had actual trades during the financial crisis,” the lender said." It seems that unlike the BOE, which had no idea of any Barclays problems and was merely calling up Diamond now and then to make sure the bank's money market risk mechanisms were operational and to chit chat about the weather (as per the BOE at least), the Fed has decided to take the high road and openly admit it was well aware of Barclays' LIBOR "problems." And like that the Senatorial circus just got exciting, while that popping noise is bottles of Bollinger going off at every class action lawsuit legal firm.

From Bloomberg:

The Federal Reserve Bank of New York was aware of potential issues involving Barclays Plc and the London interbank offered rate after the financial crisis began in 2007, according to a statement from the district bank.


“In the context of our market monitoring following the onset of the financial crisis in late 2007, involving thousands of calls and e-mails with market participants over a period of many months, we received occasional anecdotal reports from Barclays of problems with Libor,” New York Fed spokeswoman Andrea Priest said in an e-mailed statement.


In the spring of 2008, following the failure of Bear Stearns and shortly before the first media report on the subject, we made further inquiry of Barclays as to how Libor submissions were being conducted,” the statement said. “We subsequently shared our analysis and suggestions for reform of Libor with the relevant authorities in the U.K.”


Representative Randy Neugebauer, a Texas Republican who serves on the House Financial Services committee, sent a letter to New York Fed President William C. Dudley dated yesterday requesting transcripts of communications between the district bank and Barclays relating to setting interbank offered rates from August 2007 to November 2009. Neugebauer asked for the documents by July 13.


The Senate Banking Committee has begun to schedule briefings “with relevant parties to learn more about these allegations and related enforcement actions,” Senator Tim Johnson, a South Dakota Democrat who chairs the Senate Banking Committee, said in a statement.


Johnson also said that he is asking Treasury Secretary Timothy F. Geithner and Fed Chairman Ben S. Bernanke to “be prepared to answer Senators’ questions on this matter” at upcoming hearings.

It knew, and did nothing, or rather, it knew, and advised nobody who relies on LIBOR spreads to fixed income products (that would be everyone by the way, and certainly those who had Adjustable Rate Mortgages and virtually every municipality locking in rates courtesy of JPM's swaps) that Libor was manipulated. And more importantly, the Fed never shared any of this with the BOE or any of Barclays' regulators?

But guess whose favorite's tax expert just got dragged under the bus? Via Reuters:

According to the calendar of then New York Fed President, Timothy Geithner, who is now U.S. Treasury Secretary, it even held a "Fixing LIBOR" meeting between 2:30-3:00 pm on April 28, 2008. At least eight senior Fed staffers were invited.


It is unclear precisely what was discussed at this meeting or who attended. Among those invited, along with Geithner, was William Dudley, who was then head of the Markets Group at the New York Fed and who succeeded Geithner as its president in January 2009. Also invited was James McAndrews, a Fed economist who published a report three months later that questioned whether Libor was manipulated.


"A problem of focusing on the Libor is that the banks in the Libor panel are suspected to under-report the borrowing costs during the period of recent credit crunch," said that report in July 2008 that examined whether a government liquidity facility was helping ease pressure in the interbank lending market.


When asked for comment, McAndrews directed questions to a New York Fed spokeswoman. Dudley could not be immediately reached for comment.

Good times. And yes, we are looking forward to Maxine Waters' questioning of Tim Geithner over Lieborgate.

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SilverTree's picture

My spider sense is tingling today.

fx's picture

All those ARM-payers got a free lunch due to this.  So what to complain about? And yeah, it's those 30-odd basis points that brought American counties and municipalities to their knees, financially. If it weren't so funny, it could be serious indeed.

Joe Davola's picture

I'm totally sure Scranton could have kept wages at $7.35

JailBank's picture

Well of course they knew. When you are a willing participant in a crime you tend to know what is happening.

Stoploss's picture

See? The FED really can create job's.


For lawyers..

hedgeless_horseman's picture



...and virtually every municipality locking in rates courtesy of JPM's swaps)

It is probable that JPM, GS, and others knew LIBOR and the Federal Funds Rate would be manipulated down, while they sold the fear that rates would rise to stupid and trusting municipalities in the form of interest rate swaps.  Good rate arbitrage work..if you can get it.

sumo's picture

Yeah, they knew.

Now that cities and states are going BK, Wall St parasites need new hosts. A juicy FCM with a shaky margin position, anyone? Have some. Plenty more on the grill.

eatthebanksters's picture

The guns are being taken out of storage and oiled up....it's only a matter of time...

GeneMarchbanks's picture

It is probable that JPM, GS, and others knew LIBOR and the Federal Funds Rate would be manipulated down, while they sold the fear that rates would rise to stupid and trusting municipalities in the form of interest rate swaps.

Psssst! Hey, is it, like possible, that they did the same but worse to Greece?

Just curious or must we get back to the Lazy Greeks meme that everyone loves for its simplicity.

ShorTed's picture

It's for your own good...It's in your best interests.  Keep quiet and enjoy this glass of Kool-Aid.

Zero Debt's picture

  ** Party At The Fed **
   ~~ Drinks List ~~

Teetering On The Brink $7.00
Bailout Orgasm         $6.50
Bloody Firewall        $8.80
Isolated Incident      $6.50
Subprime Slingshot     $9.30
Chairman's Delight     $15.50

   ~~ Food List ~~

Triple Tranche Sandwich $4.80
Mezzanine Chicken Wings $3.50
Pork Derivative         $2.90 

"Every FOMC day is happy hour day"

azzhatter's picture

and you know Maxine hates that skinny little white boy

Stuart's picture

shocked I am, shocked.  Alot of busy work but nothing is gong to come from this... nobody of significance is going to go down.  Why, because it would expose and implicate those very same officials that would bring forward fraud charges.   It's a credibility trap....  alot of verbiage but in the end..."whatcha gonna do about it punk".    


LawsofPhysics's picture

The master of rate manipulation speaks...

Do you really want free markets to return?

End the fucking Fed, Audit the fucking Fed, and then prosecute the fucking owners and executives of the Fed accordingly.  I suggest we have a guillotine at the ready for a speedy trial.

NIRP and ZIRP is fucking theft as there will always be a very real cost for captial creation (no matter what a nobel prize winner tells you), especially when nothing of real fucking value is created as a result.

Hold tightly on to those physical assets folks (especially those that generate revenue) the facists/socialist fucks are coming for the rest of your wealth.  They "know better" than you ignorant peasants.

eclectic syncretist's picture

In times past when the banksters have went too far they took so much of the peoples money that in the end they ended up with the homes and land of many, while the ordinary hard working people lost their homes and land.  Look for the game plan to be no different this time.  Pay off your debts.  Have no money in the too big to fail banking system.  Buy land and other non-perishable commodities to prevent them from stealing your savings.

CreativeDestructor's picture

Tell me who the fuck didn't know about the Liebor bullshit

Jim B's picture

It is a club, bankers and central bankers or parasites on the real economy!  The system has become totally corrupt! 

JohnG's picture

And.....per George Carlin: "You ain't in it!"

yogibear's picture

The Federal Reserve Ponzi master doesn't want to stop a good scam. It can warn to cover itself. That's about it. The federal Reserve also helped to keep the Libor scam going.

Mr_Wonderful's picture

Cute Mob pump and dump today.

Kaiser Sousa's picture

"Cuff'em Dano..."

All together now.....FUCK YOU BERSTANKE!!!!

Snakeeyes's picture

No kidding! Yoiu mean The Fed doesn't have droves of economist and analysts that can look at charts of Fed policy and LIBOR????????????????????????????????///


sumo's picture

"Good times. And yes, we are looking forward to Maxine Waters' questioning of Tim Geithner over Lieborgate."

Man, I would pay in gold and silver to see Ann Barnhardt question Tim Geithner.

dcb's picture

As I have said the only reason to appoint geither and bernanke with their record of failure is to maintain a cover up!!!

Duke of Con Dao's picture

now for a little Libor theatre... 

here's Barclays Bob on the hot seat:

YouTube - Rare Footage of Banker on Hot Seat - MP Asks Barclay's Diamond: Are you Complicit or Incompetent

followed by Paul Tucker on the spit turned lustily by Labor MP Mann:

YouTube - Squirm Worm, Squirm! Chairman Paul Tucker roasted by Parliament Inquiry over LIBOR Manipulations

... outside of jail it doesn't get much better than this... Duke


Venerability's picture

Even if you're not that mad about GATA - I'm not - read this extended Le Metropole Cafe post from last night: 



Be sure to read the bits and pieces - from Fleet Street, not Bill Murphy - on Hillary Clinton's blind trust and how her Gold and Silver Shorts paid for her zillion dollar Westchester estate.

So nice that all the rest of us were bleeped for such a good cause. 

sumo's picture

THis would definitely be Hillary "Cattle Futures" Clinton's style, to trade on inside info.

search's picture

My God, such an incestuous cluster fuck could not be dream't by the most fertile imagination. At least the taxpayers are there to take one for the team : )

FranSix's picture

Did anyone check the relationship between Libor and Gold lease rates?  Lease rates are Libor minus the Gold Forwards Rate.  Has the gold forwards rate been determined by LIBOR, or is the GOFO the result of sales of leases into the  market irrespective of price, thus affecting LIBOR?

Sounds like a chicken and egg theory, but there would have to be a strict relationship between the two. 

Cursive's picture

I can understand the POV of those who would say, "Big fucking deal, you know the Fed rigs all of their markets - that's why they exist."  I agree with that, but the difference is that the Fed has run a successful PR campaign that they are a wonderfully "objective" and "independent" organization that serves the public good, i.e. our benevolent money masters who make our lives all the more wonderful.  That PR facade is crumbling.  Slowly.

Temporalist's picture


JPMorgan Silence on Risk Model Spurs Calls for Disclosure

"The U.S. Securities and Exchange Commission is probing JPMorgan’s belated May 10 disclosure that a change to its mathematical model for gauging trading risk helped fuel the loss in its chief investment office."



Shizzmoney's picture

You gotta be fuckin' kidding me!

boiltherich's picture

The daily outrage from the FIRE sector of the economy....ho hum, nobody will ever again pass or enforce a law or rule regarding banksters, they bought and paid for our government. And just to add a little salt into the wounds here is what the CNBS headline paragraph has to say about it...

"The Federal Reserve Bank of New York may have known as early as August 2007 that the setting of global benchmark interest rates was flawed."

FLAWED. Get it? Implying LIBOR is inherently subject to mispricing credit. No human interaction, no greedy conspiracy to rob the public, just a FLAW we have to learn to put up with. And if LIBORgate is simply a flaw then front running algos are what? A rounding error? Derivatives are nothing but a nuisance without economic impact? No need for tedious congressional investigations. No need for the SEC to wake from it's perma-nap. Don't go getting all excited about reforming and regulating the industry because we all know how badly that worked out after the First Great Depression.


Sandmann's picture

Just pretend the Fed Reserve NYC was meeting in Afghanistan with Saddam Hussein pulling the strings. Now you can bomb Iraq and Afghanistan to deal with the threat to America and hunt down Saddam and Taliban foes who seduced the NY Fed.........

east paris trader's picture

You have to admire the slims ability to paint the tape.   By executive order, they must kill gold by at least $15 when the Ben comes before Congress.   So what to do?  I know!  Let's run it up to 1600 then attack -- pain the fail.  As our Greek friend would say, "Gene-yous, Gene-yous"!  Thiefs.

El's picture

Come on, folks. Isn't it time to end the Fed already? What is it going to take?

Getting Old Sucks's picture

We're still only peeking behind the curtain.  It's still early but eventually, it will open wide and then BOOM, everyone's broke.

falak pema's picture

The embarassement of the Economist; paragon of free market libertarianism since three decades, staunch supporter of Thatcherist Big Bang, now caught with its pants down on its anti-statist rants as it admits that the scions of Brtish private enterprise are in cahoots with those very same people who are supposed to regulate them, in the name of the people. Shocking!

Ain't The Economist rolling in dirty sheets; like the WSJ.

The Bank of England and the LIBOR scandal: Absolutely not | The Economist

What is libertarian ideology coming to ; when "free big banging" rhymes with "central manipulation"!  Who is paving the road to serfdom? 

Words and theory have no sense there where acts and hands behind curtain become all too visible. What becomes of  de Tocqueville's main thesis now turned upside down :

The phrase tyranny of the majority, used in discussing systems of democracy and majority rule, is a criticism of the scenario in which decisions made by a majority under that system would place that majority's interests so far above a dissenting individual's interest that that individual would be actively oppressed. The phrase also refers to tyrants and despots whose behavior causes similar oppression.

The idea goes back at least as far as Plato's Republic, while the phrase itself originated with Alexis de Tocqueville in his Democracy in America (1835, 1840)[3] and was further popularized by John Stuart Mill, who cites de Tocqueville, in On Liberty (1859); the Federalist Papers frequently refer to the concept, though usually under the name of "the violence of majority faction," particularly in Federalist 10.

...These were the underlying ideas that fanned Hayek's book and economic theory that both Maggie and Ronny espoused. Now look what  happens when you give a free hand without restraint, in fact in total cahoots and greedy collusion, to those who are the torch bearers of Big Bang revolution in FIRE mode!...

....We need some violence of the majority faction here! To turn the tables on the Oligarchs who own those republican corrupt representatives in Senate and Government!...

Real events dictate the solutons required and the methodology to be applied; not ideology!...  


GeneMarchbanks's picture

  Who is paving the road to serfdom?

US citizens.

Damn, it's like a jingle you can't get out of your head.

falak pema's picture

I'm embarrassed at embarassed! 

Sandmann's picture

The Economist has been a joke for years selling more in the USA than in Europe and tailoring its message to Americans. It is staffed with Old Etonians and such ilke and is basically an upmarket comic rather than a serious periodical. It is a Time Magazine for people who own dictionaries but hardly a serious periodical

Meesohaawnee's picture

they are manipulating the global equity market as we speak. ie the "stealth  short ban" ,, come on. Were not shocked

eatthebanksters's picture

How much more evidence do we need to prove Geithner is a lying and corrupt crook working for the biggest crime boss in the world?