Guest Post: Banking's Tobacco Moment – LIBORious Speculation?

Tyler Durden's picture

Submitted by Markov Processes blog,

With bank exec heads rolling, investigations hotting up globally, politicians fuming and investors exercising caution in bank shares, the LIBOR scandal is fueling massive speculation about the long-term ramifications for the industry.

Indeed, after all that the banking industry has faced in the wake of the bursting of the housing bubble, an anonymously quoted bank CEO in a recent Economist story proclaimed “This is the banking industry’s tobacco moment.”

While there are more reasons not to draw parallels between the banking industry now and the tobacco industry of the mid-1990’s than there are similarities, we thought it would be interesting to review the impact on Tobacco during its “moment”, and beyond.

Over three years since the markets plumbed their nadir, today’s already beleaguered banking industry has reclaimed less than half the market value lost between 2007 and 2009, with some banks still trading at prices well below book value.  There are many more embedded factors weighing on bank stocks than the LIBOR scandal, and the banking industry is inextricably linked to others in a way that tobacco is not. But the comparison is in some ways a good one, in particular with public and political outrage, and momentum for reform gathering, respectively.

So we took a look at what bank stocks might be in for if elements of history do repeat.

Cumulative Performance

A. The state of Mississippi files suit against the big 4 tobacco companies in May 1994. Every other state followed suit over the next several years.

B. Global agreement reached with a $368 billion settlement in June 1997, but Congressional approval required. No obvious effect other than increased volatility.

C. Mississippi, Texas, Florida & Minnesota accept settlements between July 1997 and January 1998.

D. June 1998 Congress rejects the proposed settlement, also second hand smoke “wrongly declared carcinogen.” Big spike up.

E. Final settlement agreement of $206 billion over 25 years with the remaining 46 states including industry reforms, leading to a -63% drawdown from Nov 1998 and March 2000.

In the case of the tobacco industry, markets did not price in the costs to the industry until after the settlement was reached and reforms were in the process of being implemented.

And while it is only LIBORious speculation for the banking sector, we thought it worth looking over the longer term to ask, “what has happened to Tobacco since its ‘moment’?”

Cumulative Performance

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Widowmaker's picture

Banking is dead.

All that is left is a systemic abortion of franchised leverage and government/law that together try to masquerade as anything but the crony-fraud-syndicate it is.

The market is in the punishment.  Sound banking is the reward.

LawsofPhysics's picture

If you would be so kind as to direct us all to that "sound bank", it would be greatly appreciated.  Got Physical?

Beam Me Up Scotty's picture

The sound bank is the coffee can buried in my back yard.  Lake bottoms make great repositories as well.

NotApplicable's picture

I just found this place, the Free Lakota Bank ( ) from a post over at Economic Policy Journal about Peter Schiff's new hard money bank.

I wonder, will Obummer have "Homeland Security" take out this system that can undermine their monetary hegemony? Or is it just another metal trap, to be raided by the IRS?

Popo's picture







This concludes my all-caps rant.    My apologies for shouting.

zhandax's picture

In that case, this is properly identified as a scandal, as you and I both know no one is going to jail, giving up any gains, or suffering anything other than minor inconvenience.  Agree with you in sentiment, though.

Cognitive Dissonance's picture

Agreed. Word usage is important.

BTW how did you know about my wife's younger sister?

Papasmurf's picture

Learn how to use the caps unlock button.

Widowmaker's picture

Want sound banking?  Thow out the mob entrenched in DC and enforce the fucking law.



onelight's picture

Alternative view: why are they airing dirty banking laundry (UK, etc) NOW? at this very time? Possibility: the technocrats inthe EU (and their helpers elsewhere) are exhausted from summitting and jaw-boning the markets from day to day and week to week, trying to hold the technical map together (yes they see the screens, and help manage the patterns), and Soros has said they have until September to get their act together. They need to get control of the sovereign bond markets or the EU will split apart. If they get control, they can buy time - and acquire more control over the economy. If the ECB becomes a market-maker of last resort like the Fed, with a 30-50 year portfolio time horizon, then they can keep it all together, although free enterprise gets sacrificed. What's in the way? The banks that mediate the pressure trade on sovereign bonds (UK banks and UK law bonds, with other global banks and players taking a warning as they watch the latter get whacked). Who else feels this motivation? The US administration needs a fixed EU -- at least for a few months. Conclusion: discredit the UK banks in a populist anger-echoed backlash. And get some breathing room, at least until winter. 

The above is not a defense of the banks, just a theory on why NOW..

falak pema's picture

Theory is fine if it does not hide the magnitude of the real corruption in the financial world. An alternative-alternative view could be that the politicians and bankers are now in disarray as the sleight of hand required to paper over the galloping chasm of debt servicing required both to save banks and insolvent governments makes the thieves fall out amongst themselves, in their abiity to STAY on the SAME page. Its more and more every man for himself in this inevitable downwardly spiralling dynamic. Now is when the paper front gets tattered as it will every day further down the road.

You seem out of touch with the fact we ARE on the financial Titanic! 

onelight's picture

Hey falak, it's just a theory...not a wish nor a firmly held point of view -- your theory is worth considering too - thanks

falak pema's picture

Just saying, the dogfight is not between Euro and Anglo groups on Standard charters, its an intra anglo feud between US regulators and City.

But further down the road Eurobanking will require that City shenanigans be reigned in to protect its banking structures from excessive speculation from Anglos.

This writing is on the wall, and Cameron is considering pulling the UK out of EU  if this squabble gets ugly; as it will. 

Uk has to decide where they stand relative to EU integration. The Euro may not survive in current form. But once this crisis gets to resolution in five years time the Euro project will entail further integration. That is a given; nation states who centralise fiscal/monetary  and banking systems continent wide, under independent regulatory institutions. With China rising, Europe has to consolidate its continental model; even if its two tiered, north and south economically, it has to be integrated politically under nation state control for local politics and cultural reasons. 

Sandmann's picture

Falak pema, as often an interesting assessment. Cameron will never pull the UK out of the EU, on the other hand Cameron will be out of office in 2013. The Corporation of The City of London is out of control and for people brought up with disaster movies like The China Syndrome and The Bedford Incident seem strangely inert when the disaster is not nuclear war or nuclear power but Financial Armageddon.

We were told it would be Armageddon during Y2K in 1999-2000 so Credit flooded the Banking System and set off the latest Credit Super Cycle. So is the Doomsday Game simply advertising hype by a Corporate Media/Movie Empire run by Money Men ?

There has to be a move towards some form of Work-Based Wealth and that means millions of people will see Debt-Fuelled and Welfare-Supported Lifestyles collapse and not just at the lower end of the income distribution. The World Bank figures on Bank Credit Cycles are interesting

onelight's picture

falak - thanks, you make some v good pts -- locating the different aspects of the conflict matters -- the NY regulators took action that the Fed/Treasury disavowed the next day, making me wonder if someone else in US was their sponsor (White House?) -- I simply wondered if, since the US has been using soft-power tactics geopolitically, if this was not one of them, regarding the incumbent administration looking for a way to help Europe without looking bad before the US public during an election season -- in that case, would choosing "this moment" to go after StanChart be part of that? -- pure speculation on my part, but the timing correlation with EU v UK/London City squabbles had me wondering, that is all -- conspiracy theory, yes, but sometimes they are true -- your observation that City banking exploits are viewed as a threat by EU is spot-on, and putting myself in Angela/Hollande/Monti's shoes for the moment, tired from the market-managing game, really not looking forward to another season of it, and thinking the key question is: how to relieve pressure on EU bond markets, the UK banks and UK bond law (often discussed here on ZH) just seemed like a suitable target, an attack upon which might sync with populist posturing by US interests might support -- even so, as you point out the NY regulators have their own beef with StanChart -- so it is the "why now?" aspect of it that got me thinking -- thanks for your insights

OpenThePodBayDoorHAL's picture

US using "soft power geopolitically"?  Um I think not. US pursues the hardest of hard power approaches. Boots on the ground; Drones in the air; everyone divided into Enemy or Friend; any nation attempting to resist US domination is declared "illegitimate" and suitable for pre-emptive destruction. But it's not working; and it's bankrupting the host. Show me ONE success story from this approach: Iraq? Egypt? Afghanistan? Pakistan? Venezuela? OK maybe Turkey. StanChart standing up to the World's Apex Bully, saying "FU" is a pretty major crack in the facade. US can win the "short" game on this, print to pay the bills, print to pay the troops, but they will lose the long game. It's OK though, the elite will already have their stash offshore.

"Soft power" example would be China. Friends with N Korea; friends with S Korea. Trading with Israel; trading with Iran. No bitter bitches giving lectures about human rights or democracy or global warming, just money on the barrelhead. Get the good stuff: land, crops, ore, timber, fish, oil. It's a long game for them.

Dingleberry's picture

Did you guys see this shit? Seems the folks in Vegas are feeling bankster pain.

Beam Me Up Scotty's picture

Thats old news.  Almost as old as cave drawings.

NotApplicable's picture

Over 86,400,000 milliseconds, to be precise.

Buzzworthy's picture

The analogy would be valid if Big Tobacco had the backing of the Federal Government.  It didn't.  The TBTF banks, on the other hand, do the bidding of the USFG (read - Exchange Stabilization Fund) so if the banks go down so does the FG.  Therefore, it will not happen.  Jon Corzine is a case in point.  Get used to the criminality.  It's not going anywhere soon.


NotApplicable's picture

He may still even make Treasury Secretary!

Cognitive Dissonance's picture broom.

Rug meet broom

After a few scapegoats have been beheaded and some promises have been made the Ponzi will return to normal operation because............................because they can.

What....are you going to stop them?

The fact is that the vast majority of "us" do not wish to see a financial collapse. And this alone is how they are able to extort and extract every last ounce of wealth out of the system before letting go.

Time to give up so we can get on.

Cognitive Dissonance's picture

I've always suspected Mrs. Cog entices the ants in with bread crumbs just to torture me.

Little did I know she was sweeping last night's Cheez-It orgy under the rug.

Unholy Dalliance's picture


After a few scapegoats have been beheaded and some promises have been made the Ponzi will return to normal operation because............................because they can.

What....are you going to stop them?

No it won't because a) when the collapse happens, it will be total and devasting and b) passive resistance as advocated and practiced by Gandhi brings about changes which those who believe they wield the most complete power the world has ever seen know (even if most who read ZH believe in that power, too) that their power is illusory and has now almost entirely 'dissapated'.

Most of us (count me out) hold on to the illusion and that is what they rely on. Although it's a bit of a tired, worn-out cliché, the man behind the green curtain in L. Frank Baum's The Wondeful Wizard of Oz (Oz for gold ounce (oz.), by the way)  is an accurate allegory. All control elements are breaking down, the media, education, retail spending, entertainment (i.e. indoctrination) and politics, all are failing and becoming unmanageable as more and more of Humanity awakes from its long slumber. Have no doubt, Humanity is awakening and the pace of awaking is quickening. The Lilliputians by dint of being many, though to them he was 100s of feet high, tied Gulliver down. Daniel Defoe was writing a political satire ont the ills and corruption of his own time (early 18th century) and today is no different. In fact, anyone who writes what this fellow above writes is an apologist for all that he claims to oppose by not suggesting ANYTHING by which it can a) be ameliorated and then b) eradicated. Silent opposition is collusion. Collusion means you are no better than those you say you despise.




Cognitive Dissonance's picture


I am talking about withdrawing, not collusion. Get a grip. You might want to go back and read some of my articles before you wield that large paint brush.

The system is designed to very effectively destroy all those who directly oppose the system. Remove its life support and it will die. Oppose it directly and it will flourish.

Unholy Dalliance's picture

You might want to read what I said: I mean really read it so that it sinks in, 'DUDE'. Passive resistance isn't direct opposition. In fact, it is the reverse and that is why it was so effective in India - the Salt strikes - and that is why it led to India's independence WITHOUT BLOODSHED. That came afterwards as Hindus struggled against Muslims for control of the country. And it's not a question of merely withdrawing its life support (it is dying anyway, though few have noticed) but to IGNORE it altogether. Can you get your silly head round that concept (I bet you and your ego can't). Yes! Ignore it completely. It's irrelevant nonsense and doesn't even deserve your, my, anyone's attention. Ignoring it is another way of practicing passive resistance. It's illusory power. Why give it substance by commenting on it.


And my greater point is that Humanity in toto is awaking from a deep slumber and Humanity has a power that makes them tremble and tremble mightily for Humanity (We) are many and they are but a handful of naked men (and women).


And I think you and your ego need a serious 'heart-to-heart'.


Cognitive Dissonance's picture

I would love to know how one ignores what one is in denial of, dependent upon and addicted to.

Row Well Number 41's picture

The only time passive resistance works is when the government in question lacks the resources or the will to crush it.  Ask the Tibetens or the Hungarians to name just a couple.


cougar_w's picture

I can see small white labels affixed to the doors of banks now. You know, consumer warnings, like cigarette packages have to carry in the US:

"WARNING: Fractional reserve banking is known to cause budget deficits."

"WARNING: Exposure to second-hand interest rate manipulation can reduce savings and increase the risk of heart attack."

"WARNING: Buying sovereign debt while pregnant can lead to low earnings, bankruptcy and consuming insanity."

Cognitive Dissonance's picture

Too funny cougar.

"WARNING: Exposure to second-hand interest rate manipulation can reduce savings and increase the risk of heart fiat attack."

Fixed it for ya. :)

"WARNING: Buying sovereign debt while pregnant can lead to low earnings, bankruptcy and consuming insanity."

But not necessarily in that order.......right? :)

crawldaddy's picture

what old is new again.  You cant trust banks was often a creed recited by many back in the last few centuries.  We seem to have forgotten that it seems only to be reminded by the greed and fraud.


Now if we only gte back to punishing usury by death will be on the road to recovery.

l1b3rty's picture

I am not so convinced that the banks care so much about "market value" in the neo-soviet model...

SwingForce's picture

Bravo! At least somebody is paying attention. Add to that the dividends that these guys pay, and now you have the greatest performing stocks for the past 30 years- Hilip Morris beats coca-Cola or any other Buffett stock by a mile. Hey, way before the lawsuits of the '90's they were forbidden to advertise on TV, how much money did THAT save them??? it's been a well kept secret.

extendedorder's picture

Pretty naive to think that baks will falter because of some corruptiion. They never will for various reasons but the most important ist that banking is a department of the government.

Fishhawk's picture

Isn't that the whole concept of cognitive dissonance, CD?


Cognitive Dissonance's picture

I assume you are responding to my comment above?

"I would love to know how one ignores what one is in denial of, dependent upon and addicted to."

To ignore something implies a cognitive recognition of whatever you are ignoring. Something must be acknowledged to an extent in order to consciously ignore it. Most real Cognitive Dissonance is not occurring at a conscious least not at a self aware conscious level. Our sub-conscious ego rarely lets it get that far because to do so would then bring enough of it into focus that we would have to confront it. It's so much easier to be triggered into rapid denial.

In other words, denial is not the same as ignoring. And that is where I draw the line.

kevinearick's picture

Self-Fulfilling Prophesy, Nirvana, & Armageddon

Breed for life if you want abundance. Participate in idle gossip if you want scarcity. Adjust gravity accordingly.

Capital gets what it wants, control. It resists change. It resists nature. It employs government, a delay of growing delays, to maintain its perception of the status quo.

Capital’s implementing algorithm is scarcity, AI. All it knows is that it cannot survive in a world of abundance, so government defines prosperity as Government Directed Production, and employs civil marriage as the means to its entitlement.

Everything government does is a cheap replication of what labor did yesterday. For capital, it’s always a battle, in a war against time. For labor, it’s critters being critters.

Labor employs nature, through marriage, under God. That is labor’s union, and it is a line beyond which capital may not pass. Labor employs capital to windrow its ranks, which becomes the middle class, in event horizons, like ripples.

Labor’s rights do not come from government, nor does it require government unions. If you want a job, don’t cross the line. Resisting a resistor only increases the resistance. Armageddon is a self-fulfilling prophesy, and others are welcome to it.

Populations are always choosing life and populations are always choosing death. By all means, get a mortgage on a McMansion, a BMW, and an abortion, but don’t bother preaching nirvana or Armageddon to labor, or go to war with the unknown and expect abundance any time soon. The trick to life is recognizing black holes and maintaining distance to suit.

Labor looks to nature for its input, not government. GDP has always been self-fulfilling bullsh-, paying people to be stupid, “grown-ups” playing with toys on TV as an example to their children. Labor has much better things to do.

The manufactured majority always chooses cheaper labor at inflating prices, following the company line that it can replace labor, with a computer in this iteration, and the bank is more than happy to issue the debt as credit, to be part of the global crowd. Nose to nose at its own wall of scarcity, the middle class still believes it doesn’t need labor, that it is labor. GO figure.

Capital chose to liquidate the entire global middle class rather than take its lumps in the US. California is a derivative of the gold rush. If you bought gold as a temporary transmission mechanism, you are in good shape. If you bought it as a solution to the problem, you are part of the problem, being ADDRESSED by the computer. Silicon Valley was just the egg shell.

Labor gets paid, one way or the other, which makes no difference to the few, but a great deal of difference to the many. There is never a shortage of anti-Christ at any level, all competing to lead the parade, for ever greater devalued dollars. Thankfully, labor requires none but nature.

Capital is a remnant of labor from bygone eras, always and everywhere subject to decadence. Those who seek it are de-graded to maintain it. When they choose to recognize their loss makes no difference to labor.

Marriage has withstood every government in History, and the manufactured majority distorting its value has failed every time, but bet any way you like; it all ends up back on the table. Gossip, raising the level of stupidity, doesn’t work in the real world, so it always finds its way back home.

The empire’s primary mission is to filter your genes out, by discontinued use or viral replication. When you calculate NPV, which would you prefer, $1M X 1, $50k X 3, $20k X 7, or $150k X 49? Employ the black hole of war accordingly.

The emperor’s position is always open. If you cross the line, expect labor to stand aside when capital eventually cuts off your oxygen, which it must do, to preserve itself.

Labor lives on omelets, Caesars, and tobacco, exercising its prerogative at will. Enter any town short on cash. Pull out tobacco, pot, and pills. See what you get in barter. Choose your vices accordingly, be up with the sun, and get lots of exercise. Travel as needed.

If you are not where your children can find you, you are not the tip of the spear. Whether they choose to find you is up to them. Liquidate the casino once in a while, just to remind them, that work is play and play is work.

Talent is priceless, precisely, because it is timeless. Accordingly, it has no use for Harvard.

“The federal government is withholding money from a rapidly growing number of Social Security recipients who have fallen behind on federal student loans.”

fnordfnordfnord's picture

Heads rolling? More like a couple guys feigned seppuku.