Li(e)bor: The Cartel Emerges

Tyler Durden's picture

Just when you thought the Li(e)bor scandal had jumped the shark, Germany's Spiegel brings it back front-and-center with a detailed and critical insight into the 'organized fraud' and emergence of the cartel of 'bottom of the food chain' money market traders. "The trick is that you can't do it alone" one of the 'chosen' pointed out, but regulators have noiw spoken "mechanisms are now taking effect that I only knew of from mafia films." RICO anyone? "This is a real zinger," says an insider. In the past, bank manager lapses resulted from their stupidity for having bought securities without understanding them. "Now that was bad enough. But manipulating a market rate is criminal." A portion of the industry, adds the insider, apparently doesn't realize that the writing is on the wall.

There have been plenty of banking scandals, but none quite like this: Investigators and political leaders believe that the manipulation of the Libor benchmark interest rate was the result of organized fraud. Institutions that participated could face billions in fines and penalties.

SPIEGEL: The Cartel Emerges

In 2005, a young trader with Moroccan roots came to Barclays: Philippe Moryoussef, who is now 44... Moryoussef traded in interest rate derivatives during his time at Barclays. He and his fellow traders knew exactly how much money they stood to lose or gain if the Libor or Euribor changed by only a fraction of a percentage point in one direction or the other.

And they apparently did everything they could to eliminate happenstance. Moryoussef communicated by phone or email with colleagues inside and outside the bank almost daily to steer interest rates in the right direction. To do so, they sent inquiries to the people who were responsible for inputting the Libor rates: the money market traders.

In the glitzy world of investment banking, money market traders were at the bottom of the pecking order before the financial crisis. They were not involved in major deals, and they could only dream of the kinds of bonuses stock and bond traders received. "They were always at the bottom of the food chain," says a former investment banker.

It was a conspiratorial group of underdogs who worked for various banks and met at least once a month for a beer or a mojito in New York, London or Frankfurt. By the middle of the last decade, when there seemed to be a surplus of money at the banks, they all had the same problem: They were derided or, worse yet, ignored by their colleagues in the trading rooms of major banks.

But what if it were possible to know where interest rates were headed at the end of the day, or even in the next hour? What if a few traders could manipulate the ups and downs of interest rates?

By 2005 at the latest, the traders would seem to have begun realizing just how much power they had were they able to collaborate within their small group. There was no need for formal contracts between large institutions, merely agreements among friends. A pointer here, a few traders meeting for lunch there, and soon the group had formed a global cartel that, according to investigators, reached from Japan to Europe to Canada.

"Come on over; I'll open a bottle of Bollinger," a trader, inebriated with his success, wrote to a colleague after the Libor rate had been set. Adair Turner of the British regulatory agency quotes the email as evidence of "a culture of cynical greed in the trading rooms."

The Organized Fraud

"If the rate remains unchanged, I'm a dead man," a trader emailed to a colleague who was responsible for Libor in October 2006. The traders sent at least 173 inquiries of this nature between 2005 and May 2009 for the dollar Libor alone. They were often successful.

"The trick is that you can't do it alone," he bragged to outside colleagues at HSBC, Société Générale and Deutsche Bank, who allegedly cooperated with him.

While the traders were initially out to increase their bonuses, the manipulation took on a different dimension during the crisis. When the first banks began to wobble in 2007, it became more difficult for many financial companies to borrow money -- a problem that would normally be reflected in higher Libor rates.

Now even top managers at Barclays, alarmed by media reports, were instructing the Libor men to input lower rates. In October 2008, the manipulation became a question of survival for Barclays. On Oct. 29, a concerned Paul Tucker, now the deputy governor of the Bank of England, contacted Barclays CEO Diamond. Tucker wanted to know why the bank was consistently inputting such high interest rates into the daily Libor report.

Diamond told a parliamentary committee that Tucker had suggested to report lower interest rates for the Libor, which Tucker staunchly denies. Diamond, for his part, prepared a transcript of the telephone conversation he had had with Tucker on that day, in which he had mentioned political pressure. After that, his chief operating officer spoke with the money market traders. The underdogs were suddenly being heard on the executive board, and had become the bank's potential saviors.

Barclays wasn't the only bank that was having trouble gaining access to money in the fall of 2008. UBS, Citigroup and the Royal Bank of Scotland, now prime suspects in addition to Barclays, had to be bailed out by their respective governments. Germany's WestLB, which was involved in the Libor calculation at the time, was also seen as a problem case, although this wasn't reflected in the Libor rates it was reporting.


The Failure of the Regulators

On April 11, 2008, a member of the Barclays money market team called Fabiola Ravazzolo, an employee of the Federal Reserve Bank of New York.

Barclays employee: "LIBORs do not reflect where the market is trading, which is, you know, the same as a lot of other people have said."

Ravazzolo: "Mm hmm."

A few moments later, the Barclays man, according to the transcript of the conversation released by the bank, said: "We're not posting, um, an honest Libor."

Ravazzolo: "Okay."

Barclays-Mann: "We are doing it, because, um, if we didn't do it it draws, um, unwanted attention on ourselves."

Ravazzolo: "Okay."

There was no sense of outrage, nor did Ravazzolo question the Barclays employee about the details. A similar conversation transpired with another Fed employee a few months later.

These are transcripts of failure...

Meanwhile, the US Commodities Futures Trading Commission (CFTC) had been investigating the issue since 2008, and its efforts eventually led to a worldwide investigation.

The Episode Is Blown Wide Open

"Mechanisms are now taking effect that I only knew of from mafia films," a shaken financial regulator said recently. Since investigations have gone into high gear in New York, London, Brussels and elsewhere, suspected bank executives have been coming clean.

They are under great pressure. Last year, the European Commission filed several antitrust suits against various banks. Antitrust suits are considered to be the sharpest weapons in business law because they allow Brussels to impose stiff penalties on cartel participants.

"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...

What the Banks Could Now Face

German banks must have pricked up their ears when BaFin President Elke König recently spoke about the Libor scandal. "Basically, banks must establish suitable reserves for possible losses," König concluded.

Investors, like Vienna hedge fund FTC Capital, have made it clear that they do not intend to let up. They feel obligated to their customers to file claims for damages, explains FTC executive Majcen...

There are already 20 lawsuits in the United States, some of which have been combined into class action suits. The plaintiffs range from the City of Baltimore to police and firefighter's pension funds, the City of Dania Beach, Florida, and Russian oligarch Vladimir Gusinsky.

They feel encouraged by the actions of regulators. "Both the American CFTC and the FSA have done excellent investigative work," says Majcen. Bank analysts expect that other institutions could face fines similar to the one imposed on Barclays. In fact, it ought to be in the banks' best interest to quickly settle their cases. "But they're afraid, because since Barclays, they know that it isn't just about money, but also about making heads roll," says a major shareholder of Deutsche Bank.

German attorneys are also lining up to represent potential clients. "A few institutional investors have already contacted us," says Marc Schiefer of the law firm TILP in the southern German city of Tübingen.

Years could go by before damage suits are ruled on...

Possible Libor-related liabilities would cause serious problems at WestLB, or its successor company Portigon. The once-proud state-owned bank is in the process of being liquidated, at a cost of billions to its former owners, the western German state of North Rhine-Westphalia and savings banks. The Libor scandal could further increase the burden on taxpayers.


The call for stricter regulation is also getting louder in politics once again... "cheap populism."

"This is a real zinger," says an insider. In the past, bank manager lapses resulted from their stupidity for having bought securities without understanding them. "Now that was bad enough. But manipulating a market rate is criminal." A portion of the industry, adds the insider, apparently doesn't realize that the writing is on the wall.

The parties involved, including Deutsche Bank and its new co-CEO Jain, cannot expect leniency when charges are investigated. "We can't make any allowances for high-profile names," say officials in the capital.

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selectricity's picture

London traders are single-handedly driving the latest moves in the euro

Precious's picture

Banks are hard at work catching up with securities companies on a new gereration of labor-saving technology.

-- RoboFraud

iDealMeat's picture

Which of the Primary Dealers are involved in the LIBOR fraud?

correct:  ALL OF THEM


The Cartel:  Primary Dealers of the Federal Reserve


Bank of Nova Scotia, New York Agency

BMO Capital Markets Corp.  -  Bank of Montreal

BNP Paribas Securities Corp.    -  the Group has four domestic retail banking markets in France, Italy, Belgium and Luxembourg

Barclays Capital Inc.

Cantor Fitzgerald & Co.

Citigroup Global Markets Inc.

Credit Suisse Securities (USA) LLC

Daiwa Capital Markets America Inc.

Deutsche Bank Securities Inc.

Goldman, Sachs & Co.

HSBC Securities (USA) Inc.

Jefferies & Company, Inc.

J.P. Morgan Securities LLC

Merrill Lynch, Pierce, Fenner & Smith Incorporated - References to "Merrill Lynch" "Merrill" and "ML" trademarks are references to any company in the Merrill Lynch & Co., Inc. group of companies, which are wholly-owned by Bank of America Corporation.

Mizuho Securities USA Inc.

Morgan Stanley & Co. LLC

Nomura Securities International, Inc.

RBC Capital Markets, LLC

RBS Securities Inc.

SG Americas Securities, LLC

UBS Securities LLC.

Pladizow's picture

NOTHING will come from this!

 Nothing will be allowed to interfere with the collapse - that is the goal!

illyia's picture

Hmmmm...... It does look that way, does it not?

Rather like Bushco's Iraq WOT thingy... that looked like vision of Darth V.

And was.

0z's picture

When you subsidize something, you end up with more of lesser quality. They decided to subsidize banking, hence this.

4horse's picture

TD . . .


                                     rah rah rah, raj raj ah rot




sgt_doom's picture

Excellent contribution!

And two very good articles for those who don't fully understand what's going on:

By Ellen Brown,

By Nomi Prins and Paul Craig Roberts,

sunaJ's picture

I, Pet Goat II


It is falling apart in bits and pieces to reveal the overarching corruption.  The wake-up will happen just as bankruptcy happens: first, slowly and then all at once.


sunaJ's picture

DP, sorry.  Double post, not double penetration.

Acet's picture

The way things are going with rate manipulation, market manipulation and regulator collusion, I would say that the current market raping is most certainly in DP territory.

boogerbently's picture

They keep talkng about all the $$$ on the sidelines. People will NOT return to the stock market until they know their money is "safe.
They will not feel their money is safe until the criminals involved in the fraud have been punished.
JPM, LIBOR, Corzine, GS.....
BILLION$$$ of dollar "disappear", and the companies involved pay a $5 million the govt. or lawyers. LOL
There are HUNDREDS of individuals and companies that could legitimately be found guilty for their part in various fraudulent financial activities, and there have only been a token few  tried. Our elected representatives are complicit in the cover up.
All the people involved with monetary policy for the USA are Ex GoldmanSachs execs.
We have the fox guarding the henhouse, now, don't we??
So, investors don't trust Wall St., banks, regulators, FED, Treasury, congress, OR the media that reports on them. So, knowing all this, how do you plan on getting all the $$$ "off the sidelines"???

MassDecep's picture

"People will NOT return to the stock market until they know their money is "safe."

Who needs people in the stock market? They are doing just fine inflating the market without us.

Sell your positions and buy physical.

NoTTD's picture

That should read "libor-saving".

Mongo's picture

Hang them bastards

IndicaTive's picture

Oh no sir! Much worse! They'll have to pay fines!

boogerbently's picture

Millions in fines on TRILLIONS in fraud.

Mercury's picture

As I've pointed out before, the LIBOR scandal, to the extent that there is one, has to be about individuals or small groups of individuals manipulating markets for their own/desk's/group's benefit, not a mechanism to pad aggregate mega-bank profits (with the possible exception of the low-LIBOR=survival episode of 2008).

This seems to bear that out.

pods's picture

It is ALWAYS a small group of individuals and not in the mission statement of the company.

They just so happen to work for the company.

It is called plausible deniability.


Mercury's picture

The point is, since mega-banks are both long and short huge amounts of LIBOR-based positions at any given time, bumping the rate one way hurts every other book in the firm that is leaning the other way.

LIBOR is a half-assed system that accidently became very important to the global financial plumbing.  Rounding up the crooks will not be as important as changing/dismantling this artificial choke point that has outlived its usefulness.

ParkAveFlasher's picture

If these entities are backstopped by eternal foreverandever liquidity, which they can form into whatever they wish, there is no win or lose.  They win, always and everywhere, and whoever is providing the liquidity is holding an empty bag. They win, always and everywhere, because they control the market at a price level and "win" and "lose" are to them as "left" and "right" are to us, as "up" and "down" are to us, simply statements of position in space, not the difference between "having" and "not having". 

Because, they always have, and you always don't.

Mercury's picture

Well then they hardly need to bother with manipulating LIBOR to pad their bottom lines.

I'm as disgusted with the mega-bank/mega-government oligopoly as you are but I prefer to be accurate about what the problems are.

pods's picture

If the general knowledge is that the rate is set below market, a general trend can be set that greatly outweighs the day to day stuff that is won and lost by the small fish.

The big money more than makes up for the little.

I agree that LIBOR is not needed, in fact 95% of the entire finnancial realm is needed for only 1 thing.

To keep debt expanding exponentially indefinitely.



StychoKiller's picture

Exponential expansion and indefinitely lead to only one place: ? (Infinity!)

NotAMathWhiz's picture

Perhaps true until 2008:

In October 2008, the manipulation became a question of survival for Barclays.

It speaks to a culture of corruption.  If nothing else the Libor fiasco shows just a bit more of the true depth of rot inside the majority of investment banks and their financial services organizations.

sgt_doom's picture

It speaks to a culture of corruption. 

I'm not really down with this phrase or talking point ---- do you mean that various ethnic organized crime outfits the smaller ones, not the corporate crime organizations --- like the Turkish-Bulgarian Mob, the Triads, the Russian Mob, the Bolivian Corporation, etc., DON'T HAVE A CULTURE OF CORRUPTION?????



Nobody For President's picture

Mercury, you're half right:

'Rounding up the crooks will not be as important as changing/dismantling this artificial choke point that has outlived its usefulness.'

Libor should be done, and probably will be - certainly its present incarnation will change, but it is very important to prosecute the fraud, as well. Yesterday, ZH ran a couple of riffs off of a study that GDP growth is closely correlated with the rule of law.

And Rule of Law is what we ain't got any of in current day financial markets. Thousands of pages of regulations, regulators coopted to the max, as are the congresspeople that are supposed to watch out for the people's interests (hahahahahaha - check out the top ten donators to the re-election campaigns of the senators on the Finance and Banking Committee - but I digress) 

lots of regulations, but no law. I mean, Corozine is still walking around not even indicted, for gopods sake. Kid holds up a liquor store for $17 getes 20 years, Corozine gets retirement for ripping off 2 or 4 billion and handing it to JPM before MFG goes bust.

The bank cartel needs to get busted big time - it is MORE important than re-rigging or getting rid of Li(e)bor.


rayduh4life's picture

It's never a conspiracy  to the ones involved.


"When everyone is guilty, no one is."

ATM's picture

That seems to be how it started but it is certainly not what it led to.

Manthong's picture

“the writing is on the wall”

So were the guts on St. Valentine’ Day.

pods's picture

Another brown man is going to be nailed to the wall.  I heard he was in Al CIA duh too.

Maybe he can share that cell with the Indian from Citi?

Nothing to see.  A settlement is down the road.  Of course they say they wont do it again.

Couple of low level traders, etc.

Fucking clown circus.

Burn it all to the ground.


Vincent Vega's picture

---------no one goes to jail

---------at least one person goes to jail

Agent P's picture

Rumor has it Fabrice Tourre is behind the whole thing...surely he will go to jail and the entire matter will be settled.


sgt_doom's picture

Hmmmmm....I thought it was that guy behind Sesame Street?

You know, Peter G. Peterson???

Pretorian's picture

They also do cartel on fx spot day to day. 

Josh Randall's picture

Meyer Lansky called, he wants his business model back

Never One Roach's picture

"There's never only one roach," Bill Gross said.

Do you notice how many 'roaches' have been indicted?    

Is 'Zilch' a German word?

Brother Sebastian's picture

The problem with lie-bor regulators:  there always comes a moment at work when they know they aren't going to do anything productive for the rest of the day.

rayduh4life's picture

More often than not, the problem with the "regulators" are the career advancement and political aspirations of their superiors.

world_debt_slave's picture

Suicide rates amongst criminal banksters expected to sky-rocket as the LieBor goes Rico.

The Big Ching-aso's picture



Ya, and Rico in spanish means Rich.  Get caught, get fined, stay Rich.

4horse's picture

poor favor . . .

as in Mark pardon? RICO

Mesquite's picture

>Suicide rates...

"with a little help from their friends..." ??

rosiescenario's picture

When criminals are in charge, despite any laws, crime is the result.

Acet's picture

The laws are there to use with any of the little people that get too upitty.

rayduh4life's picture

???  The trick is to write the rules in such a way as they don't apply to you.    John Corleone Corzine.

ParkAveFlasher's picture

Faceplant, India blackout, LIBOR, flash crash, subprime mortgage, subprime student loans, subprime auto, GM global channel stuffing, municipial bankruptcies, nein nein nein, riots in Athens, Stuxnet, dollar abandonment, oil/gas/grains/goods for gold, droughts, Bernanke's too perfect moustaches, Geithners rat-like cleft nose, I can go on....

The sky above looks like an Escher ink, that bountiful pattern of fat fish is subtly wavering into a massive flock of descending black swans.