On Lie-borgate: "Everyone Knew, And Everyone Was Doing It"

Tyler Durden's picture




 

"I wish I could say that this was an isolated case... You will hear more on this in due course" is how the UK FSE's Director of enforcement described Lie-borgate to Reuters this weekend. It seems incredibly that the US regulators and investing public alike are shunning this interest rate rigging scandal as the UK goes to DEFCON 1 with more than a dozen other banks being investigated in the long-running global probe. The Barclays Chairman quit over the weekend (and we assume will not be the last casualty) as The Telegraph notes the 'dislocation of libor from itself' - since banks could not be seen borrowing at higher rates for fear of liquidity repercussions, as widespread. According to the trader the BBA asked for a rate submission but there were no checks and "everyone knew" and "everyone was doing it". What is incredible is the level of nonchalance that this illegal act had taken on with entire teams of people well aware as open discussion occurred (not clandestine blue-horseshoe-likes-low-libor-style). Indeed this widespread and well-known action of dislocating libor from itself (since in a trader's words "everyone knew we couldn't borrow at Libor, you only needed to look at CDS to see that... with real Libor rates 3 to 4 per cent higher than the BBA's submitted Lie-bor") has now led George Osbourne, as per the FT, to launch a 'Leveson-style' probe into standards in the banking industry - a full, public independent inquiry into the $504 Trillion market's underlying integrity. Libor had dislocated with itself for a very good reason – to hide the true issues within the bank.

 

The Telegraph: Libor scandal: How I manipulated the bank borrowing rate

According to the trader, "everyone knew" and "everyone was doing it". There was no implication of illegality. After all, there were 20 to 30 people in the room – from management to economists, structuring teams to salespeople – and more on the teleconference dial-in from across the country.

 

The discussion was so open the behaviour seemed above board. In no sense was this a clandestine gathering.

 

The main business of the day was to deal with the deepening crisis. And questions were raised about what we, in one of the bank's sales teams, could be doing to earn our wages.

 

The answer was fire-fighting. Helping the corporate bank with clients – predominantly explaining why the customer's loan was being moved from base rate to Libor and why their interest margin was increasing sharply. It wasn't easy for the corporate bankers. They were under orders from the credit committee, and powers at the top, to change a client's borrowing rate to Libor and increase the margin if any covenant was breached, no matter how small.

 

We accompanied the relationship managers to meetings to explain what was happening in the economy – why base rate lending could not be sustained, why margins had to increase, and of course to explain the general economic backdrop.

 

As part of that, we had to explain the "dislocation of Libor from itself". As the trader put it, everyone knew that we couldn't borrow at Libor, you only needed to look at the price of our credit default swaps – effectively survival insurance for the bank – to see that.

 

What that meant was that even though Libor may have been, for example 2pc, the real Libor rate the bank was paying was more like 5pc or 6pc. So in fact, we needed to be lending money at Libor plus 3pc or 4pc just to break even. That is what we were telling clients.

 

Looking back, I now feel ashamed by my naivety. Had I realised what was going on, I would have blown the whistle. But the openness alone suggested no collusion or secrecy. Management had been in the meeting, and so many areas of the Treasury division of the bank represented, that this was clearly no surprise or secret.

 

Libor had dislocated with itself for a very good reason – to hide the true issues within the bank.

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Mon, 07/02/2012 - 08:56 | 2580279 SheepDog-One
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It's OK....EVERYONE was doin it, see?

Mon, 07/02/2012 - 08:58 | 2580288 SeverinSlade
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Just like QE.  Forget about inflation, EVERYONE IS DOING IT.

Mon, 07/02/2012 - 09:29 | 2580384 Stoploss
Stoploss's picture

So, how many politicians were doing it??

Also claiming "we didn't know" won't cut it either. since the admission by itself would indicate the law makers are just as oblivious as the bank CEO's.

Eh, Jaime?

When all of the creators of this fiasco no longer have a clue, and are now making it up as they go along, is a pretty good indicator we are completely fucked..

Mon, 07/02/2012 - 10:15 | 2580505 Oh regional Indian
Oh regional Indian's picture

The surprise is that thsi is a surprise.

Fox, guards hen-house, chicken population is manipulated. 

Shocking I say, old chap, shocking.... really? It's like the Gold Pool or wherever Oil "prices" are "Fixed".

Fixed. See? The fix is in!

ori

war-of-the-worlds

Mon, 07/02/2012 - 11:01 | 2580664 Joshua Falken
Joshua Falken's picture

Everyone knew

The Chairman of the UK regulator at the time was an ex-Barclays CEO and is now a non-executive board member of HM Treasury.  The CEO of the UK regulator at the time was an ex DLJ banker.

This is a global problem and goes way beyond LIBOR fixing

The investigation needs to cover current market abuses that need investigation are co-location, HFT and algo trading, rehypothecation, insider trading, dark pools, shadow banking repo's, ETF's, money market funds, MBS, CDS's, CDO's, asset backed securities, commercial paper, securities lending and wilful manipulation of official statistics and indicators.

 

Unfortunately, by uncovering and investigating this abuse, the UK and the City of London will be vilified by all foreign central bankers and regulators as corrupt and evil English villains (just like Hollywood), whilst defending the integrity and honesty of their domestic institutions.

This is going to get messy and it has only just started.

Mon, 07/02/2012 - 09:05 | 2580307 ArkansasAngie
ArkansasAngie's picture

Banksters are above the law ... so long as they have the law in their pockets

Maybe we should go after the minnons who facilitate the banksters' law breaking as our means to the banksters' end.

Mon, 07/02/2012 - 09:43 | 2580414 fnordfnordfnord
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It was for all of our collective good. That's why it was okay.

Mon, 07/02/2012 - 10:29 | 2580555 Oh regional Indian
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Unfortunately, a ready slave-pool with willing, pliant sheep seems available to do the master's bidding.

Baa...

ori

Mon, 07/02/2012 - 09:05 | 2580312 d edwards
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About a week ago didn't someone predict a coming "Lehman moment?" This could be it, on a global scale.

Mon, 07/02/2012 - 09:07 | 2580318 SeverinSlade
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We can only hope.  Difficult to make predictions in bizarro world where bad econ numbers are good and good econ numbers are good.

Mon, 07/02/2012 - 09:18 | 2580346 Buckaroo Banzai
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But but but...the global financial system is built on a foundation of lies???

Of course it is...we all knew that already. I'm more interested in who blew the whistle on this particular aspect, and why. And why NOW?

Mon, 07/02/2012 - 09:37 | 2580397 kraschenbern
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Can't help but think of a bunch of guys at the top of the food chain, all looking for their next meal... IMO, this will make a decent distraction while the political machinations for a European fiscal pact move forward.

Mon, 07/02/2012 - 09:15 | 2580336 d edwards
d edwards's picture

The difference between the posted libor of 2% and the actual 4-6%-wouldn't the MOB call that the "vig"?

Mon, 07/02/2012 - 09:43 | 2580416 azzhatter
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pigmen doing what pigmen do. and govt's doing what govt's do

Mon, 07/02/2012 - 09:53 | 2580442 philipat
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I agree that manipulation of anything is bad. But I must be missing something here. If Barclays and other Banks were artificially manipulating LIBOR lower to appear to be "Him big and strong", wouldn't that also result in lower rates for the muppets borrowing against LIBOR?

Confused.

Mon, 07/02/2012 - 10:40 | 2580601 Kayman
Kayman's picture

"But I must be missing something here."

1. Savers are getting ripped off.

2.Many Corporate bonds throughout the world are set to Libor

3. The truth would prove that ZIRP is a thumb in a sandy dike.

Mon, 07/02/2012 - 11:39 | 2580757 Winston Churchill
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Its the credit rate swaps.

Those were hundreds of trillions in liability,the interest lost was peanuts

in comparison.

Mon, 07/02/2012 - 10:36 | 2580577 William113
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How come all these scumbags have the same common denominator as Jerry Sandusky ?

Mon, 07/02/2012 - 08:56 | 2580284 Ivanovich
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Does anyone have any real faith that this will amount to anything significant?  I'm guessing the banks make it go away just like everything else.

Mon, 07/02/2012 - 08:57 | 2580286 LawsofPhysics
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Another Monday morning "same as it ever was" report.

Prosecute the fucking fraud and restore the rule of laws and contracts nothing changes until then, that is all.

Mon, 07/02/2012 - 08:59 | 2580292 SheepDog-One
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And yet they keep wondering why the retail investor will no longer touch any of it with a 10 foot pole.

Mon, 07/02/2012 - 11:22 | 2580719 MachoMan
MachoMan's picture

that and the retail investor is a turnip...  having been bled dry ages ago...  and now having no viable mechanism in which to generate new blood.

they killed the golden goose.

Mon, 07/02/2012 - 09:20 | 2580350 Al Capowned
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@ LawsofPhysics  + 10000000

Mon, 07/02/2012 - 08:58 | 2580287 Lost Wages
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If everyone jumped off a bridge into a rocky canyon... oh never mind.

Mon, 07/02/2012 - 08:58 | 2580291 Oquities
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i have owned LIBOR-adjusted bonds for years - who will make me whole?

Mon, 07/02/2012 - 09:19 | 2580347 Buckaroo Banzai
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That's easy! Nobody.

Mon, 07/02/2012 - 09:37 | 2580398 falak pema
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an unlibored bond maiden with uninhibited, unrehypothecated, nonsiliconed, upward looking, rosy teinted, red cherry blossomed tits.

Hows that for a purty picture to get you bright eyed and bushy tailed? 

The cherry blossom girl

Mon, 07/02/2012 - 09:00 | 2580298 Cursive
Cursive's picture

All roads of the global financial corruption lead back to The City.  Break the ring fence and bust 'em in the chops.

Mon, 07/02/2012 - 09:03 | 2580302 Everybodys All ...
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Prepare for a slap on the wrist for all. While charges under Rico would be more appropriate. Meanwhile what happens in the US markets that have become more or less a total fraud with HFT?

Mon, 07/02/2012 - 09:05 | 2580314 SheepDog-One
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Well the way I see it the time for the spotlight to swing back to depression USA and her totaly fraudulent markets is about when Romney pulls cleanly ahead of ObaMao....it will all be STAGED of course, but then the banksters will have cover to pull the rug out from the markets and leave everyone in a panic for the next phase of criminality.

Mon, 07/02/2012 - 09:03 | 2580304 LULZBank
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"everyone knew" and "everyone was doing it"

Sounds like an honest scam to me.

Mon, 07/02/2012 - 09:21 | 2580352 Buckaroo Banzai
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When it's everybody's fault, it's nobody's fault.

That's the criminal logic of our financial system.

Mon, 07/02/2012 - 09:23 | 2580360 Everybodys All ...
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that is an admission of an organized crime and should be prosecuted under RICO.

Can't wait for Holder to go after them </sarc>

Mon, 07/02/2012 - 09:06 | 2580306 BBullionaire
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the Missus banks with Barclays should she change banks?

 

http://bulletsbeansandbullion.blogspot.co.uk/

Mon, 07/02/2012 - 09:05 | 2580308 world_debt_slave
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everyone's finger is in the pie,

Mon, 07/02/2012 - 09:05 | 2580309 q99x2
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Wish it to the cornfield.

Mon, 07/02/2012 - 09:25 | 2580368 Vince Clortho
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One of my favorite Twilight zone episodes.  Well done.

If young Anthony were here today, the financial parasites would have a whole nuther thing to worry about.

Mon, 07/02/2012 - 10:07 | 2580474 Citxmech
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Was little Ronney Howard in that episode as the Malachi character?

Mon, 07/02/2012 - 09:05 | 2580313 LetThemEatRand
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"It seems incredibly that the US regulators and investing public alike are shunning this interest rate rigging scandal..."

Not really.  We have a president who is bought and paid for by the bankers, a challenger who is a banker, and a Congress that either doesn't know what Libor is or who defer to their banker contributors that it's really no big deal to manipulate rates for the benefit of the banks so they can do God's work.  The vast majority of the public isn't paying any attention at all, or they are willing to look the other way so long as Greenspan keeps propping up their 401K balance.

Mon, 07/02/2012 - 09:07 | 2580317 SheepDog-One
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'The investing public'? I'm not at all convinced there even is one. 

Mon, 07/02/2012 - 09:21 | 2580354 GMadScientist
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Note the lack of the word 'voluntary'.

Mon, 07/02/2012 - 09:23 | 2580361 Vince Clortho
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Investing Public = Working people trapped in their retirement pension plans and 401-Ks.

Mon, 07/02/2012 - 09:16 | 2580340 unununium
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At least Americans are used to trying to rationalize the disconnection of the Consumer Price Index from itself.

Mon, 07/02/2012 - 09:06 | 2580315 writingsonthewall
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This is true - and yet the BBA were "SHOCKED" at this news.

 

Those who continue to play in the markets are fools - this is the worst effort at deception yet - they're not even trying anymore - that's how little respect is left!

 

The banks are getting away with it and nobody is going to stop them because the world is full of loud mouthed pussies who won't do anything until it's far too late.

Mon, 07/02/2012 - 09:16 | 2580339 scatterbrains
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Joe Stack would beg to differ with you.. but I get your point.

Mon, 07/02/2012 - 09:23 | 2580363 Bansters-in-my-...
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One up for Joe Stack....

He was the man........

a good man.

Mon, 07/02/2012 - 09:06 | 2580316 i-dog
i-dog's picture

 

"Had I realised what was going on, I would have blown the whistle."

Riiiiiiiight.....

Mon, 07/02/2012 - 09:08 | 2580322 SheepDog-One
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Lot of rear-view tough guys around. 

Mon, 07/02/2012 - 09:21 | 2580355 Vince Clortho
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Are they like internet thugs?

Mon, 07/02/2012 - 09:09 | 2580324 knukles
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(California Vallry Girl voice)

Oh my God, like what is with everyone?
I mean, like it is called London anyway.
Which is in Oregon, isn't it?.

Whatever.

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