Li(e)bor: The Cartel Emerges

Huge.  Zero Hedge.  Excerpts:

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 now 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.
And:

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.

The vast inter-connectedness of these institutions presents a huge problem for regulators and investigators(Think thousands of strings of Christmas lights tangled together), but the main players are known, and those players have got to be freaking out.  Who will be branded "The First Example?"

Couple thoughts:  The public will never understand this scandal until the media finds a way to explain it clearly and succinctly.  But the media first must start actually covering this scandal.

What a glorious time to be an honest, independent Auditor!  Welcome to your Golden Age, nerds!

Libor Manipulation Well Known in London by 1991

Of course it was..  Again, any of this "we had no idea" crap is just that.  How much bigger can the scale of corruption get?  Naked Capitalism:


A comment in today’s Financial Times is by a former Morgan Stanley trader, Douglas Keenan, confirms a passing comment in the Economist, that Libor manipulation goes back for more than 15 years. In fact, this piece makes it clear that is the time frame exceeds 20 years. From the Financial Times:

In 1991, I had live trading screens that showed the Libor rates. In September of that year, on the third Wednesday, at 11 o’clock, I watched those screens to see where the futures contract [on three month Libor] should settle. Shortly afterwards, Liffe announced the contract settlement rate. Its rate was different from what had been shown on my screens, by a few hundredths of a per cent.


As a result, I lost money. The amount was insignificant for me, but I believed that I had been defrauded and I complained to Liffe [ London International Financial Futures Exchange, which is where the contract traded]. Liffe explained that the settlement rate was not determined by what rates were actually in the market. Instead, the British Banker’s Association polled banks, asking them what the rates were. The highest and lowest quoted rates were discarded and the rest were averaged, giving the settlement rate. Liffe explained that, in doing this, they were adhering to the terms of the contract.


I talked with some of my more experienced colleagues about this. They told me banks misreported the Libor rates in a way that would generally bring them profits. I had been unaware of that, as I was relatively new to financial trading. My naivety seemed to be humorous to my colleagues.

So consider what this tells us:

1. Libor manipulation was already recognized by market participants in 1991 as a common phenomenon. That implies it had been going on at least a few years before that


2. The manipulation appears to have more than occasionally been more than a single basis point (Keenan says here the effect was “several” basis points, which I take to be three or more)

Oh, an an additional tidbit: Bob Diamond was in Morgan Stanley London as of then, in charge of interest rate trading, which means his claim that he had found out about Libor manipulation at Barclays mere weeks before his Treasury Select testimony was bollocks.

Visualizing the daily, business-as-usual LIBOR corruption of all things financial is like standing on the beach of a small island, turning 360 degrees, and seeing nothing but water.  It.  Is.  Everywhere.

Top Barclays exec claims boss told him to rig rates

Eventually, they'll all turn on each other.  In the meantime, you might want to try some flavored butter with your popcorn..  Stay tuned; It's gonna be a grrrrrrreat show!  Raw Story:

A top Barclays executive who quit over the bank’s rigging scandal told British lawmakers Monday that he was instructed by his former boss Bob Diamond to manipulate key inter-bank lending rates.



Jerry del Missier resigned two weeks ago over the scandal, which has also claimed the jobs of Diamond and Barclays chairman Marcus Agius and rocked the City of London, one of the world’s top financial hubs.

It had emerged that del Missier told Barclays traders to manipulate the bank’s submissions for the Libor and Euribor rates in a bid to make it seem as if other banks were more willing to lend to Barclays than they actually were.
Diamond has said that del Missier did this after “misinterpreting” a phone conversation between Diamond and Bank of England (BoE) deputy governor Paul Tucker in October 2008.


But asked by the British parliament’s Treasury Select Committee on Monday whether the phone call was “an instruction” from Diamond to cut the submissions, del Missier replied: “Yes, it was.”
Diamond, who stepped down as Barclays chief executive hours before del Missier on July 3, previously told the committee he had not instructed del Missier to manipulate the rates.


According to Diamond’s account of the phone call, Tucker had told him that Barclays’ Libor submissions did not always need to be so high.


Diamond said Tucker told him that, against the backdrop of the global financial crisis, British officials were interpreting Barclays’ relatively high Libor submissions as a sign that the bank was struggling.


Diamond told the committee that he had not interpreted the conversation as an instruction from the central bank to rig the rates, but del Missier had.


On Monday, del Missier said: “What was communicated to me by Mr Diamond was that there was political pressure … regarding Barclays’ health and that we should get our Libor rates down.”



Del Missier said he relayed the conversation to the head of the money markets desk and “fully expected that the Bank of England’s views would be incorporated in the Libor submissions.”


He added: “I would have expected that taking that into account would have resulted in lower submissions.”


However, asked by one of the panel if he had been told outright by Diamond to invent submissions, the Canadian replied: “No sir, that’s not what Mr Diamond said.”


Del Missier said that in the context of the events that were shaking the financial world at the time, “it didn’t seem a significant event.”


Asked if he knew that manipulating the Libor rate was illegal, del Missier said: “No, it did not seem an inappropriate action given that this was coming from the Bank of England.”


Barclays was fined £290 million ($452 million, 360 million euros) after admitting attempting to manipulate the Libor and Euribor rates between 2005 and 2009.


Libor (London Interbank Offered Rate) is a flagship London instrument used as an interest benchmark throughout the world, while Euribor is the eurozone equivalent.


The rates play a key role in global markets, affecting what banks, businesses and individuals pay to borrow money.

More to follow:  More testimony, more daggers, more bloodletting.  How's that popcorn?  Delicious?

BoE's Tucker Preparing To Self-Immolate... And Take Others Down

Oh shit!  I think the dominoes already started falling!  We could be watching a HUGE scandal accompanying total global financial collapse.  But really, when you think of it, why wouldn't there be a HUGE scandal accompanying said global financial collapse?  Zero Hedge:

Paul Tucker, the Bank of England executive at the center of the Barclays/Diamond trigger-conversation, has issued a statement requesting a Treasury hearing to show his "keenness to clarify the position with regard to the events" of that hanging chad of a phone-call. What is most troublesome (for every major banker and politician) is his apparent willingness to take more down with him. As the M.A.D. escalates, MNI reports that minutes from 2007 show Tucker (who was/is in line as we noted yesterday for the top-job once King leaves next year) was fully aware from the early days of the financial crisis that market participants believed Libor was rigged. The Group’s November 2007 minutes, from a Tucker-chaired meeting, state “Several group members thought that Libor fixings had been lower than actual traded interbank rates through the period of stress.” The minutes show that not only was the issue raised back in November 2007 but that the BOE went to great lengths as the crisis deepened the following year to keep its finger on the money markets’ pulse. It seems that instead of mounting the 'plead-da-fif' defense Tucker is coming all-guns-blazing and is willing to drag more names into this miasma as a suicide-bomb of a hearing where the truth is realized could well bring every high ranking banking official to admit the continued unreality of Libor rates.



If this scandal blows up this week, financial news network viewers will see some epic freakouts:  Some meltdowns will be from guests, others will be from on-air personalities.   Maybe not, though.  This might not be the actual chaos trigger.  That might happen a few weeks or months still down the road.  But whenever it does, when LIBOR and Derivatives actually collapse, you will know.  You won't help but know!

Barclays boss under pressure as bank inquiry launched

The first derivatives domino is rocking back and forth.  Can Barclay's "stabilize"(sweep under the rug/publicly ignore) the situation before events get out of hand?  Reuters.  Excerpts:

Pressure grew on Barclays Plc Chief Executive Bob Diamond to quit as Britain launched an inquiry on Monday into a market-rigging scandal, saying a "culture that flourished in the age of irresponsibility" among bankers had to end.
Barclays Chairman Marcus Agius resigned on Monday, saying "the buck stops with me" as the scandal over manipulating Libor interest rates claimed its first major scalp.
But his departure did not take the heat off Diamond, who ran Barclays' investment banking arm when the rate rigging took place, drawing a record fine for the lender last week in a scandal likely to involve many more banks.
"The buck in Barclays stops with Bob Diamond, and it is Bob Diamond who must accept responsibility," said John Mann, an opposition Labor member of a parliamentary committee that later this week will question Agius and Diamond.

"He must resign. He's got to go," Mann told Sky News.



Anger with the culture of bankers in London, a world financial capital and major part of the British economy, crossed the political divide with Conservative finance minister George Osborne outlining the parliamentary inquiry.


"The behavior of some in the financial services has damaged the reputation of an industry that employs hundreds of thousands of people and is vital to the economic prosperity of the country," Osborne told parliament. "It's time to deal with the culture that flourished in the age of irresponsibility and hold those who allowed it to do so to account."


Barclays has admitted that some of its traders tried to manipulate the London Interbank Offered Rate (Libor), which is used worldwide as a benchmark for prices on about $350 trillion of derivatives and other financial products across a range of currencies and loan durations.

Well, gosh!  I ain't never heard of no derivatives!  They really couldn't kill the global economy, could they?  Yes.  Yes they could..

Global Financial House Of Cards In Peril By New Round Of Moody's Downgrades

Britain gets sucked into the mix..  British banks to be downgraded by credit ratings agency Moody’s as euro-crisis spreads  The Extinction Protocol.  Excerpts:

Royal Bank of Scotland, Lloyds Banking Group and Barclays are all in line for a downgrade by ratings agency Moody’s over fears the eurozone crisis threatens their stability. In a move that would cost financial institutions billions of pounds and could have a knock-on effect on the cost of credit to business and consumers, Moody’s is set to push some banks down two notches, sources said. Moody’s will also downgrade a number of the biggest banks around the world, it was claimed, a decision that would show how the eurozone sovereign debt crisis is hitting all areas of global finance. The cuts are part of a wider review by Moody’s of the global banking sector that Sky News said is likely to be unveiled tonight after the US market closes. The downgrades, which are expected to range in scope from one notch to three notches, will follow joint efforts by the Bank of England and Treasury to boost cash flows in Britain’s banks through a multi billion pound cheap loan scheme. The banking industry has been hit by higher funding costs as the eurozone troubles escalated and has been hoarding money for fear of another worrying phase in the crisis.

And U.S. banks aren't immune,either..  This from the L.A. Times.  Excerpts:

U.S. banks hammered with downgrades: Moody’s Investors Service lowered the credit ratings of 15 the world’s largest banks late Thursday, including Bank of America, JPMorgan Chase and Goldman Sachs, saying their long-term prospects for profitability and growth are shrinking. The ratings agency said it was especially concerned about banks with significant financial markets businesses because those markets have become so volatile.



The global effects of this round of downgrades should be a large portion CNBC's jabber-talky today, but probably not scary enough for Rick Santelli to shit his pants on-air.  Although that day is coming, it probably won't be Friday..  When that day comes, don't worry, though:  I will be posting video!