Big Banks Have Criminally Conspired Since 2005 to Rig $800 Trillion Dollar Market

… But Receive Only a Light Slap on the Wrist

We noted Friday:

Barclays and other large banks – including Citigroup, HSBC, J.P. Morgan Chase, Lloyds, Bank of America, UBS, Royal Bank of Scotland– manipulated the world’s primary interest rate (Libor) which virtually every adjustable-rate investment globally is pegged to.

***

That means they manipulated a good chunk of the world economy.

We actually understated the impact of the Libor scandal.

Specifically, according to the CIA’s World Factbook, the global economy – as measured by the world’s gross domestic product – is less than $80 trillion.

In contrast, over $800 trillion dollars worth of investments are pegged to the Libor rate.   In other words, a market more than 10 times the size of the entire real world economy is effected by Libor.

As the Wall Street Journal reports today:

More than $800 trillion in securities and loans are linked to the Libor, including $350 trillion in swaps and $10 trillion in loans.

(Click here if you don’t have a subscription to the Journal).

Remember, the derivatives market is approximately $1,200 trillion dollars.  Interest rate derivatives comprise the lion’s share of all derivatives, and could blow up and take down the entire financial system.

The largest interest rate derivatives sellers include Barclays, Deutsche Bank, Goldman and JP Morgan … many of which are being exposed for manipulating Libor.

They have been manipulating Libor on virtually a daily basis since 2005.

They are still part of the group of banks which sets Libor every day, and none have been criminally prosecuted.

They have received a light slap on the wrist from regulators, which – as nobel economist Joe Stiglitz points out – is just the cost of doing business when fraud is the business model.

Indeed – as Bloomberg notes – they’re probably still manipulating the rate:

The U.K. bankers and regulators charged with reviewing Libor in the wake of regulatory probes are resisting calls to overhaul the rate because structural changes risk invalidating trillions of dollars of contracts.

The group, established by the British Bankers’ Association in March after probes into allegations that traders rigged the London interbank offered rate … won’t propose structural changes such as basing the rate on actual trades or taking away oversight of the benchmark from the BBA, the people said.

Libor is determined by a daily poll that asks banks to estimate how much it would cost them to borrow from each other for different timeframes and in different currencies. Because banks’ submissions aren’t based on real trades, academics and lawyers say they are open to manipulation by traders. At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate, the benchmark for $350 trillion of securities.

“I don’t see a significant enhancement to the reputation of Libor without basing it on actual transactions,” said Rosa Abrantes-Metz, an economist with Global Economics Group, a New York-based consultancy, an associate professor with New York University’s Stern School of Business and the co-author of a 2008 paper entitled “Libor Manipulation?” [the manipulation was well-known in England in 2007,  Shah Gilani  warned of Libor manipulation in 2008, and Tyler Durden, Max Keiser and others started sounding the alarm at or around the same time.]

“It would only be disruptive if current quotes are inaccurate,” so resistance “is suspicious,” she said.

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Traders interviewed by Bloomberg in March at three firms said they were given no guidance on how Libor should be set and there were no so-called Chinese walls preventing contact between the treasury staff charged with submitting the rate and traders who stood to profit on where Libor was set each day. They regularly discussed where Libor would be set with their colleagues and their counterparts at other firms, they said.

“Sadly the response looks to be very consistent with the response of policy makers to the banking disasters we’ve seen over the last four years — cosmetic changes, but nothing substantial happens,” said Richard Werner, a finance professor at the University of Southampton. “It’s insufficient and doesn’t really go to the heart of the problem.”

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  • mmckinl

    Excellent post …

    Just another example of how banksters defraud and embezzle the system at the expense of business, the public and government.

    And which is why we need sovereign money and public banking. The prerogative and profit based on the full faith of the government there fore its citizens belongs to the common good …

  • http://realfreemarket.org FSK

    Actually, interest rates are manipulated by the Federal Reserve and other central banks. The other banks borrow from the Federal Reserve at 0%, and use that money to manipulate interest rates.

    Also, with “quantitative easing” and “twist”, the Federal Reserve is now manipulating the entire yield curve.

  • gozounlimited

    I remember the first time I had to toil through the turgid definitions and legal boilerplate constituting the LIBOR provisions of a typical syndicated loan agreement. I remember saying to myself I hope I never have to look at this shit again.

    But it was not to be.

    During the course of my career I had to read the same whiteshoe goobldygook over and over, including when I took out my last mortgage. Why? Because it is ubiquitous in modern finance. Interest rate clauses are one of the basic foundations of debt.

    There are three things you can say about every TBTF CEO: 1. They are grossly incentivized to push the envelope as far as possible, 2. They all claim there is too much regulatory oversight and 3. They all say they are unable to monitor the reckless and criminal activities of their far flung operations.

    The answer: Bust them up and start throwing the culprits in the big house you sack of useless good for nothing political/regulatory porn turds!

    read more: http://www.zerohedge.com/contributed/2012-06-30/libor-4-1-9
    ***********
    Financial Services Chair Bachus: “This Is How the System Is Supposed to Work” [Is This Man on Bath Salts?]

    Spencer Bachus is the Chairman of the powerful House Financial Services Committee. On June 19, 2012, Bachus issued a press release that carried his opening remarks for the hearing on JPMorgan’s $2 billion (and growing) losses. The final sentence of that prepared text read as follows:

    “Before closing, once again I want to re-emphasize the point that JPMorgan and its shareholders – not the bank’s clients, and more importantly, not the taxpayers – are the ones paying for the bank’s mistakes. This is how the system is supposed to work.”

    This is how the system is supposed to work? Maybe for the Russian Mafia or in some dystopian universe where only descendants of the Koch brothers are permitted to live. But here in America, those who have not yet had a Fox News lobotomy, believe this is exactly how the system is not meant to work.

    read more: http://wallstreetonparade.com/2012/07/financial-services-chair-bachus-%E2%80%9Cthis-is-how-the-system-is-supposed-to-work%E2%80%9D-is-this-man-on-bath-salts/
    ***********
    The hearing, entitled “Fractional Reserve Banking and the Federal Reserve: The Economic Consequences of High-Powered Money,” was held on Thursday, June 28, 2012.

    “Fractional reserve banking underpins the entire banking system, yet its effects on society are completely ignored. Our financial system consists of vast amounts of credit pyramided on top of very small amounts of real savings– all backstopped by explicit and implicit government guarantees. This poses significant risks to the stability of the economy and monetary system, which ought to give pause to any serious observer of financial markets. Hopefully this hearing will create a greater understanding among the American people about the nature of the banking system, and begin the movement towards serious systematic reform. The American people deserve a financial system that is stable and efficient; one that operates without taxpayer subsidies and bailouts.” – Congressman Ron Paul

    see video: http://www.youtube.com/watch?v=jVm3Yzjq8zE&feature=player_embedded#!

    • gozounlimited

      Speaking of Mortgages…… Quelle Surprise! State Legislatures Aren’t Buying Bogus Mortgage Settlement – 07/02/2012 – Yves Smith

      The Obama Administration’s full-bore effort to push a bank-favoring mortgage “settlement” over the line earlier this year has led to a rearguard action that appears to have caught the mortgage industrial complex and its allies flatfooted.

      The amusing bit in the current bank v. states row is the way Kamala Harris, attorney general for California, appears to have played the Administration. Her cooperation was critical to getting the mortgage settlement over the line. She used that to extract more financial concessions for her state (note they were grossly inadequate, given the damage done to homeowners, but they made for nice headlines). Now look what she is trying to foist on the banks.

      read more: http://www.nakedcapitalism.com/2012/07/quelle-surprise-state-legislatures-arent-buying-bogus-mortgage-settlement.html

  • SnakeEater

    The quadrillion digits now siting inside millions of bank accounts spending on luxury housing, food, lifestyles and even the main tools in creating inflation or reduce wages value directly.

    These digits allows them to acquire and write off easily like Microsoft, pay 3$Billion fine by single transactions, these digits are fraud but being used everyday unfairly in our daily life.

    The worst thing now is the systems is now replicate to China where operations continues and business as usual.

  • Westie

    Forget the Banksters get the head of the snake, the Federal Reserve and the corrupt Governments.

  • shineOn

    Forget Occupy Wall Street. That’s so last year. Instead, let’s up the ante: PROSECUTE WALLSTREET!

  • Blake

    This makes me want to Vomit–But I can’t afford to eat

 

 

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