- Bank of England implicated in LIBOR scandal by BBC
- “We've had some very serious pressure from the UK government and the Bank of England about pushing our Libors lower.”
- “This goes much much higher than me” -UBS' Tom Hayes
- Libor distraction as all markets are manipulated today
- Central bank's "rigging" bond markets and likely gold
- Risks of bank 'holidays', capital controls and of course bail-ins remains
The LIBOR scandal reemerged yesterday as the BBC’s Panorama uncovered a secret recording implicating the Bank of England in the interest rate manipulation saga.
According to the BBC the central bank pressured commercial banks during the 2008 financial crisis to lower their settings for LIBOR.
In a telephone recording, aired last night in the UK, a senior Barclays manager, Mark Dearlove, can be heard instructing Libor submitter Peter Johnson, to lower his rates.
Mr Johnson: "So I'll push them below a realistic level of where I think I can get money?"
Mr Dearlove: "The fact of the matter is we've got the Bank of England, all sorts of people involved in the whole thing... I am as reluctant as you are... these guys have just turned around and said just do it."
The Barclays submitter, Peter Johnson, who is featured in the phone call was jailed in 2016 after pleading guilty to accepting requests to manipulate LIBOR.
Previous assurances from the Bank of England that they were not involved in LIBOR fixing have now come under question again.
It has long been rumoured that the LIBOR fixing went higher than the banks and individuals that were originally implicated.
In 2012, a 2008 telephone note came to light which recorded a phone call between Paul Tucker, executive at the Bank of England at the time and Barclays’ boss Bob Diamond.
The note refers to what is apparently LIBOR not needing to be ‘so high’ as instructed.
The telephone note was taken on the same day that the Panorama aired phone call between Johnson and Dearlove, took place.
Despite the published telephone note, Bob Diamond told the Treasury Select Committee in 2012 that he had only recently became aware of the manipulations.
Chickens coming home to roost
Last week there were also new revelations in a newly published book by David Enrich, ‘The Spider Network’ in which Tom Hayes of UBS tells Enrich “This goes much much higher than me and a lot of what I know...”
Tom Hayes’ bosses were happy to accept his LIBOR fixing in exchange for higher commissions until the CFTC investigation came along. They promptly threw him under a bus and he rightly ended up in prison. However there was little implication for seniors at UBS and of course, the Bank of England.
It is amazing how many times junior employees seem to take the rap by themselves - as if there has been no instruction or oversight from their managers. In the banking world, the lone 'rogue trader' is a very common little beast indeed.
Hayes has repeatedly claimed that the real culprits are not the executors of the rigging but those higher up the chain who had instructions to do so.
As a result very little was done at the BOE following the fallout to LIBOR. Some staff quietly left their jobs but there were no charges brought against BOE employees.
By manipulating LIBOR, bankers (and seemingly central bankers) pushed up the cost of borrowing for ordinary people. LIBOR was not regulated in either the UK, US or anywhere else. This appears to be an almost line of defence for the Bank of England who only have to provide information on a voluntary basis to the Serious Fraud Office, as part of a new investigation.
Conclusion: Is LIBOR just a distraction?
Whoever was responsible for LIBOR, no-one is debating the fact that what went on was highly illegal and yet another example of financial institutions manipulating a market at the expense of investors and the public.
LIBOR should not have come as the surprise that it did. It took place in an environment that almost encouraged such behaviour. As we wrote back in 2012 ( LIBOR Manipulation Leads To Questions Regarding Gold Manipulation )
“A lack of transparency, a lack of enforcement of law and a compliant media which failed to ask the hard questions and do basic investigative journalism led to the price fixing continuing and the manipulation continuing unchecked on such a wide scale for so long."
However, more scandals continue today. Not only have we had LIBOR but we see gold and silver manipulation, foreign exchange rate rigging, the London Whale scandal and money laundering assistance from big banks. Just to name a few.
There are others that are carried out in full public view and with the complete sanction of the press, regulators and the uninformed general public.
Today we have record low interest-rates (of which some are actually negative) as instructed by the Bank of England and other banks and governments around the world. This, combined with quantitative easing and other money creation policies, has prompted major stock market inflation.
In countries such as the UK we see the full-effect of low-interest rates and high levels of real inflation trickle down to the public in the form of house prices which are beyond affordable for the average earner, pushing them into further debt and a lifetime of mortgage repayments.
There are also property bubble in many major cities around the world and global debt levels continue to surge to astronomical levels sowing the seeds of the next financial crisis.
Central bank's actual policies are to attempt to "rig" bond markets in order to keep bond prices high and interest rates low. This is seen in QE and how record low interest rates is supporting and arguably "rigging" or at least artificially boosting the stock market and the even more interest rate sensitive property market.
Given this policy to intervene in markets such as LIBOR and interest rate markets, is it not very likely that central banks may have been attempting to rig the gold market in recent years as alleged by the Gold Anti-Trust Action Committee (GATA)?
Banks have already been found guilty of rigging gold and silver and there is much evidence. However, the question is whether the central banks are using banks as proxies to push gold and silver prices lower.
The quotation from Eddie George of the BOE above strongly suggests this was the case and likely remains the case.
Artificially suppressing the prices of markets can work in the short term but in the long term it rarely works as the powerful forces of global supply and demand tend to overcome even the most determined interventions of central planners.
What does all this mean for those of us who are just trying to protect our wealth and own the financial insurance of gold and silver?
It underlines the continuing fragility and risks in the banking and the financial system where there is little transparency and little accountability.
It underlines the importance of fading out short term noise in markets in the form of frequent inexplicable concentrated selling of gold and silver futures prices. Market interventions that push prices lower in the short term despite no negative market news or deteriorating fundamentals.
It underlines the importance of not having all your wealth in the banking system where it may be subject to negative interest rates, bank 'holidays', capital controls and of course bail-ins.
Gold and Silver Bullion - News and Commentary
Gold Prices (LBMA AM)
11 Apr: USD 1,255.70, GBP 1,011.47 & EUR 1,183.75 per ounce
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Silver Prices (LBMA)
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03 Apr: USD 18.16, GBP 14.52 & EUR 17.05 per ounce
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