Manipulation And Abuse Confirmed In $350 Trillion Market

Tyler Durden's picture

Just over three years ago, Zero Hedge first pointed out some dramatically meaningless inconsistencies in one of the world's most important numbers (which also happens to be "self-reported" and without any checks and balances) - the London Interbank Offered Rate, better known as LIBOR, which is the reference rate of a rather large market. Following that, we made a stronger case that the Libor, should really be abbreviated to LiEbor in "On the Uselessness of Libor" from June 2009, which alleged that this number is essentially manipulated, potentially with malicious intent. That alone got us a very unhappy retort from the British Banker Association (BBA) which is the banker-owned entity set to "determine" what the daily Libor fixing is based on how banks themselves tell us their liquidity conditions are. Well, as has been getting more and more obvious over the past two years, our allegations were 100% correct, and have now manifested in a series of articles digging through the dirt, manipulation and outright crime behind this completely fabricated number. And yet this should be the most aggravated offence in the capital markets, because LIBOR just so happens is the primary driver in determining implicit risk as a reference rate for $350 trillion worth of financial products. That's right - that one little number, now thoroughly discredited, has downtstream effects on $350,000,000,000,000.00 worth of notional assets. That's a lot. And while we are confident that nobody will ever go to prison for LIBOR fraud, which has explicitly been leading investors and speculators alike to believe that risk is far lower than where it truly is, what one should ask if the LIBOR rate is manipulated, and with is the entire floating and interest rate derivative market, not to mention CDS which are also driven off a Libor benchmark, what is there to say about the minuscule in comparison global equity market? In other words, does anyone honestly think that with the entire fixed income market pushed around by individuals with ulterior motives, that stocks are ... safe for manipulation?

Here is the mainstream media explains it:

Nine separate enforcement agencies in the US, Europe and Japan have been probing whether US and European banks manipulated the London Interbank Offered Rate or Libor, the benchmark reference rate for $350tn worth of financial products, and other interbank lending rates.


So far, only Japan’s Financial Services Agency has formally sanctioned banks in connection with the probe. In December, regulators found that two former Citigroup employees in Tokyo attempted to pressure colleagues and employees at other banks involved in the rate-setting process for the Tokyo Interbank Offered Rate, or Tibor.


While the regulator did not publicly name the traders involved, people familiar with the case identified them as Thomas Hayes, a trader of yen-related products, and Christopher Cecere, his former boss.


According to those people, the alleged attempts to influence Tibor were uncovered after another Citi employee in London reported the activity. Citi took a $50m loss when it unwound the traders’ positions and reported the matter to regulators, according to people familiar with the case. However, other Citi sources suggested the losses were significantly in excess of that amount. The investigation into possible manipulation of global interbank lending rates has accelerated in recent weeks, with more than a dozen traders at banks including Royal Bank of Scotland, Deutsche Bank, UBS and JPMorgan Chase fired, suspended or placed on administrative leave.

And some more:

When the news first broke in March 2011 that big US and European banks were being investigated over whether they manipulated a crucial global lending rate, regulators appeared to be focusing on one of the most persistent rumours of the financial crisis.


For years, analysts, academics and bankers have believed that, as fears of an impending banking collapse escalated in late 2007 and into 2008, some of the weakest institutions tried to conceal the fact that they were having to pay more to borrow from other lenders.


US regulators and prosecutors wanted to know whether banks were lowballing their daily submissions to the panels that set the benchmark interest rate that banks charge to lend money to each other, known as the London Interbank Offered rate – “Libor”. The Libor setting process is public and closely watched, so a bank that put in relatively high rate estimates could spark investor concern about its strength.


Critics have long claimed that the rate-setting process lacks transparency and could be subject to abuse if banks tried to co-ordinate their submissions.


“This is just another example of the slow drip of sleaze across the industry,” said one senior industry figure. “How much more can it take?

Much more, sir. Much, much more. Because the fate of the entire status quo and its $100 trillion or so in fake wealth is at stake.

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Flakmeister's picture

Tyler, shame on you.... did you really think that the Master of the Universe would not pervert and corrupt everything that they touch?

Biggvs's picture

The Libor setting process is public and closely watched

Pesky problem, those damned public eyes. Surprised the whole thing isn't conducted in the dark with all figures submitted in invisible ink just to be sure.

Badabing's picture

More fake numbers?

And they wonder why no one wants to participate in the market.

TruthInSunshine's picture

ZH homework for the weekend that explains how such a large market can be so easily manipulatd (non ZH members can study this, too, for extra credit):


"I Am Fishead"
VanillAnalyst's picture

LIBOR manipulated!? Next thing I know you'll be telling me that Rf rate isn't Zero!!! Baloney!

SillySalesmanQuestion's picture


I'l bite...

P.S. I could not agree more with your link...

Milestones's picture

Thanks for the post on "fishead" Thoughtful.         Milestones

tired1's picture

Love that word: "sanctioned". Like so many words - it means nothing.

LongSoupLine's picture



Ok Tyler, now that you've been right for years regarding do you and we as loyal ZH'ers get this data mainstream.  THAT is the x-factor to true change.

Hmmm, perhaps we hire Clint Eastwood?...he's getting more airtime on CNBS than even Mandy's that's winning.

swani's picture

Maybe instead of attempting to take real news to the mainstream media, people should be getting off the mainstream media. 

falak pema's picture

Oh wow a long number account. And it could double overnight. Notions are like visions they can multiply when hallucination captures the mind. Jack and the bean stalk could feed that hallucination, like Loch Draghi, by opening wide the spigots. 

As a corollary to this article and its past antecedents which honour ZH : How can ZH now pretend that the Eurobashing in its columns based on so called market instruments and actors so thoroghly corrupt and unreliable, over  such a long period of time, used blatantly to hang the people of EUroland via market shenanigans has any validity. All manipulated in CDS/mega spreads scams, fabricated by these entities themselves, on both sides of the trade, in dark places unregulated called OTC transactions. Such a circular and corrupt construct; how could it have any TRUE justification in defining SPREADS, DETRIMENTAL TO NATIONAL SOVEREIGNS, as its totally  deregulated, arbitrary or coercive product of scam market played by scum bag players in closed, opaque loop. Its been a robber plan of huge magnitude to enrichen the same scum bags, who inspite of these spread pilferings, still continue to drown in debt and drag the whole market to foggy bottom. Could anything be more Faustian, self fulfilling and devil's disciple than that?

As these swaggering towers of shit-fiat-construct, now as always, walk the streets of finance as ISDA members and lead players of WS who determine the fate of the world! ....

Tyler Durden's picture

You mean Europe did not leverage itself into oblivion?

falak pema's picture

They were part of it. But who called the shots on the consequences? And Why is UK not being sanctioned and why are US bonds negative? The masters are in WS/CIty. They decide who goes down. And its all fake play.

This selective financial bashing was totally manipulated. A gulf of Tonking dictat on the financial front. And Merkozy are not Ho Chi Minh and Giap; whence the fall out on Eurozone. My analogy is brutal but IMO not as exageration. 

As members of the fourth estate, the free press, an appreciation of priorities is necessary. It was missing on this issue. I have pointed it out incessantly as others. I don't condone the Euro construct, but forced rape is forced rape. And the press should go to the bottom of THAT.

You do a great job, better than most. But there are some blind spots. Just a fact, alas, to my way of thinking.

GeneMarchbanks's picture

Whoa falak!

Do not under any circumstance attack the NY/City complex as it might lead to the actual source of the problem and genuine introspection for the Anglo-sphere. BWIs, corporate media, monopolistic capitalism are not enemies, it's socialism. Fuckin' Greeks and their... um... 42/hr work weeks and sunny beaches haven't done anything productive like ever meanwhile the IMF is the voice of reason and can't deal with these criminals. The debtors are to blamed, nevermind the fraudulent nature of the loans. Debtors must pay, what? you can't pay? Out with your kidneys!!!

Glad to set things back on course. Track them kidney futures that's the future right there. All hail technocrats.

LetThemEatRand's picture

It is the fault of the public unions. And too much regulation.  

oldman's picture

Dear Falak,
This is a good site, but your expectations in today's world are a bit naive, it seems to me; more appropriate for an oldman or an oldwoman.
Fourth estate, free press, and appreciation of priorities are words that are only used to market things; they are no longer even used in propaganda.
Z H does have bills to pay because guys like me won't help out with the costs of being a non-commercial blog.
It seems to me, unless it is simply propaganda, that the euro bashing is just more Anglo hysteria and paranoia due to ignorance, plus a lack of respect for any other way of being in the world. I still do not understand what the Europeans have to do to demonstrate their sincerity in maintaining their commercial union and its its medium of exchange.
The whole market trip is so false and is known as such to all participants that there is a natural assumption of complicity by the players. It is a virtual reality without any basis for being believed by any one of us----completely made up!

Thanks for your post and calling ZH out om

GeneMarchbanks's picture

Can't speak for falak but I'm certainly not calling ZH out on anything. If they can't spot the absolute tunneling and steering of the masses by MSM then it only goes to show that they're becoming in-the-box with what they track and think is relevant. Don't think that is the case.

falak pema's picture

Hey, I don't criticise ZH and TD, I laud them, but....I expect perfection from them! That MY SIN. I plead guilty in all humility. Thats what passionate love of ethics means. I plead guilty. 

StychoKiller's picture

Even God is NOT perfect, His/Her creations keep dying!

Milestones's picture

"After a momentary silence, one did spake,

A vessel of a more ungainly make,'

They sneer at me for leaning all awray'

What! did then the hand of the potter shake?

Quatrain from the "Rubaiyat" of Omar Khayyam





earleflorida's picture

the healtiest discourse regarding progressive cognitive reality is an objective POV, that solidify's the authors thesis with his audience as to flatten/ iron the wrinkles of both sides subjective biases - unbeknownst to both - but made visibly apparent with amicable empirical knowledge

thanks ZH

loving it    

falak pema's picture

dear oldman,

being old is not a question of age; its a question of losing the thread of things essential and it can happen at any age. So I don't worry about innuendo, I look at logic. I don't find it in your talk. Sorry.

In what is collectively recognised as a collective "meltdown" both of values, and of wealth, of an unparalleled magnitude in first world, I don't know why questioning first principles are deemed "Naive"? Explain that to me; unless your reality, like your avatar, have made you impervious to critical reasoning and to logic; to the point where you can't care or can't be bothered about the basic foundations of our social construct, which is common to both America and Europe. Fourth estate: yes it means a lot to me. Expectations in basic tenets of society is what is lacking in modern USA; I asume you are American. We are not talking about being soft on European decadence, that is the message in your spiel. We are talking about being hard on American decadence. The uber-alles Empire. That pulls the strings on which dance all the puppets around the world. That is the message in my appeal. Cause and effect. It is clear as a dynamite trail. And ZH recognises it in this very thread. That is the irony of it. Cause without effect, is like rape without responsibility, to not acknowledge consequences as responsible beings. That is not being naive, that is being mentally senile at best and callous at worst. 

Now the dividing line is a bit like the Vietnam War. If you can't remember who was right or wrong in that confrontation, then you cannot be expected to understand what the average European feels about financial imperialism exerted by bankers here in Europe. I am making it very simple. My analogy cannot be more evocative than that.

Thank you for taking the time to comment my post. I stand by it. With all due respect. And I don't condone the Euro politicians and Euro banks, servile executors, impotent servants of PAx Americana. 

oldman's picture

You are correct; I only visit the human context because logic is not all there is in this universe----
If I could break my conditioning as a 'righteous christian brother', I wouldn't even be here to comment, but I am stuck.
'Naive' is not a bad word in my book; I have chosen it as a path rather than be suspicious and paranoid. It is, coming from me, a tongue in cheek compliment to you, and that part of me that cannot completely live in this narrow context where everything seems to rest on the whims of a single species.
'Cause and effect' is great, even the buddha tried to make a case for it, but things are as unconnected as they are connected and so I have less faith in C & E than you or he. Aside from that, it is not so interesting to be so deep in thought so much of the time, for me.
The dividing that you see is somewhat different than mine. I see the dividing line as one that humans will not cross in order to join the rest of the species in our common habitat and notice that man has never existed on this planet without wilderness. These wars and robberies and rapes of which you write are big deals and can sort of be lumped together under 'the human condition', but this is but a small part of of the all------------
Sorry, Falak---I'll end here---I am the one who is naive and that is probably why I used the word in addressing you---By the way, did you know that 'naive' used to be spelled 'naiive'?

Completely out of context---thanks for straightening me out om

falak pema's picture

Naiive.. has a sense about it like a string made taut from has a beautiful, fragile, intense feeling. Thanks for sharing your emotions and thoughts with me on this thread. ZH has something very precious : it informs us, it allows us to fight passionately and then to share. Its like life, love of sharing, what more can one ask for! 

Spigot's picture

A well placed, well constructed string of expletives helps at times ... :)

falak pema's picture

by the rivers of babylon, you can hear my song and its not for sale, so don't inhale,

I can sing it, I can shout it, I can spout it out loud and clear.


PMakoi's picture

OM & Falak, thank you for your integrity and thoughts.  This was the best part of my day.  You are both appreciated.

DrunkenMonkey's picture

Yes, a bold and frank exchange of views without the seemingly obligatory (for ZH) 'gold, bitchez'.


Archduke's picture

Having worked in pricing FixedIncome products for the past year, I can concur that the

OTC bond market is one of the most corrupt and arbitrary mechanisms in our system.


whenever you have to grease sales guys to go on road shows and pitch your products,

you can bet there is information asymmetry.  This said, these middlemen structures

requiring the agency of brokers, dealers, and salesmen evolved because we previously

had little information on relatively illiquid markets.  technology has long since fixed this

in equities.  why can't bonds go on exchanges?  we need to cut out the middlemen and

make this transparent. it's the nebulous and opaque nature of these proprietary ECM

single-dealer platforms that encourage traders to price-fix interest rates.


The weird thing is there is already a working basis for exchange-trade fixed-income:

standard IRS swaps, eurodollar futures should serve as a pretty good reference for

pricing rates.  why there is so much resistance in inter-bank is beyond me.  the only

answer, as ZH puts it, is that all players are engaged in a long game of Indian Poker.


(One area where it's hard to price these beasts is fungibility with respect to credit

worthiness, but that can be solved with open ratings markets, cds, and collateral.

The other area, of course, is that rates based on treasuries are inherently political.

It used to be the bond market brought politics back into line. Nowaways it seems

like this has flipped and politics manipulate rates, thereby destroying the market).


But I digress.  Nevermind the bonds: if the base rates (LIBOR, EURIBOR, TIBOR) are

prone to fixing then we seriously need to re-examine the system and figure out a better

way to price this.  Perhaps the answer lies in exposing rates pricing to end consumers,

which may bring in volumes sufficicent to keep the bankers honest.  after all, current

savings rates are shite.


For the cynical, it's important to note that the story broke into mainstream via Bloomberg,

who just so happens to be the major monopoly ECM bond dealing platform middleman that

our cited bank perpeprators are vying desperately to undercut with their prop ECM networks.

Which doesn't mean that this sort of price-fixing doesn't happen via BBG, because it does.



aleph0's picture



.. and Gold not even mentioned once in the article ?

Chicken & Egg : LIBOR & Gold


Alienated Serf's picture

Wait until it comes out that Central Banks ordred banks to report low LIBOR to BBA.

Actually, that prob won't come out.

lolmao500's picture

CDS should be made illegal. Or at least, you can't have more CDS than you have assets.

cossack55's picture

Or maybe even that there cannot exist more notional risk in CDS's than cash exists on the closest 12 planets.

JPM Hater001's picture

Stop regulating.  Please...I beg you.

Let dumb people lose to make them smarter and let buyer beware mean something again.  We will need solid confidence in a free market to get to the otherside ...well, more of us to the other side.

Some still won't make it.

dracos_ghost's picture

Except the "elitists" are the dumbasses here and there ain't no way the blue bloods are going to take a hit. It seems to me that the LIBOR the single point of failure AND the single point of control for the status quo.

LowProfile's picture

"Except the "elitists" are the dumbasses here and there ain't no way the blue bloods are going to take a hit."

(Whistles past graveyard)

earleflorida's picture

ummm,... rehypothetication - brought to the board's attention by Tyler

12/10/11   ___    13:10 - 0500 / archive TD            

DoChenRollingBearing's picture

Each day it becomes clearer and clearer: Gold is the answer!  Everyone should have AT LEAST 5% - 10% in gold.  And more if you can afford it.

Boston's picture

And a splash of Platinum.

jimmytorpedo's picture

and bullets, whiskey and tobacco seed

StychoKiller's picture

and food and a good Woman/Man by yer side...

Quintus's picture

Question is though, why is this being prosecuted now?

The authorities, if not actually complicit in this fraud were, presumably, aware of it.  Why are they now turning publicly on the perpetrators who are 'Insiders' themselves?

When can we expect the CFTC to be overcome by a similar fit of righteousness and turn on JPM and their co-conspirators in the commodities and metals markets?


Bansters-in-my- feces's picture

U.S. enforcement agency...???

Too funny.

Thats for the poor people.

Rainman's picture

Hahaha.... must have been fake LIBOR that led Blackrock's Fink to make that 100% equity call to investors yesterday. Now flip-flopping.

francis_sawyer's picture

"I'm shocked to find out that there is gambling going on in here!"

Your WINNINGS sir...

apberusdisvet's picture

Just goes to show that the propagandists have been succesful in leading the uniformed sheeple to the slaughter about to unfold. The elites are scared, folks; witness the lies becoming more egregious with every passing day and the need for distractions (war).