Libor Scandal Tip of Iceberg?

Bernie Sanders for President



Libor: The Largest Insider Trading Scandal Ever

Submitted by George Washington on 07/08/2012 01:21 -0400

• Alan Greenspan
  
• Bank of America
  
• Bank of America
  
• Bernie Sanders
  
• Bulgaria
  
• China
  
• Czech
  
• Federal Reserve
  
• General Electric
  
• Hungary
  
• Insider Trading
  
• Lehman
  
• Lehman Brothers
  
• LIBOR
  
• Monetary Policy
  
• Poland
  
• Regional Banks
  
• Robert Reich
• Romania

Among other things, the Libor scandal is the largest insider trading scandal of all time.
It also shows that the big banks are literally rotten to the core. And see this.
UC Berkeley economics professor and former Secretary of Labor – Robert Reich – explains today:

What’s the most basic service banks provide? Borrow money and lend it out. You put your savings in a bank to hold in trust, and the bank agrees to pay you interest on it. Or you borrow money from the bank and you agree to pay the bank interest.

How is this interest rate determined? We trust that the banking system is setting today’s rate based on its best guess about the future worth of the money. And we assume that guess is based, in turn, on the cumulative market predictions of countless lenders and borrowers all over the world about the future supply and demand for the dough.

But suppose our assumption is wrong. Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them – bets that will pay off big for them because they have inside information on what the market is really predicting, which they’re not sharing with you.

That would be a mammoth violation of public trust. And it would amount to a rip-off of almost cosmic proportion – trillions of dollars that you and I and other average people would otherwise have received or saved on our lending and borrowing that have been going instead to the bankers. It would make the other abuses of trust we’ve witnessed look like child’s play by comparison.

Sad to say, there’s reason to believe this has been going on, or something very much like it. This is what the emerging scandal over “Libor” (short for “London interbank offered rate”) is all about.

***

This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us – whose money they’ve used for to make their bets – losers and chumps.

The fact that the big banks have committed insider trading on their core function – setting rates based upon market demand for loans – is particularly damning given that traditional deposits and loans have become such a small part of their business. As we noted last week:

• The big banks no longer do very much traditional banking. Most of their business is from financial speculation. For example, less than 10% of Bank of America’s assets come from traditional banking deposits. Instead, they are mainly engaged in financial speculation and derivatives. (and see this)

• The big banks have slashed lending since they were bailed out by taxpayers … while smaller banks have increased lending. See this, this and this

• A huge portion of the banks’ profits comes from taxpayer bailouts. For example, 77% of JP Morgan’s net income comes from taxpayer subsidies

And Libor isn’t the only way in which the banks trade on inside information. As
Robert D. Auerbach – an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and nowy Professor of Public Affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin – provided points out:

Billions of dollars can be made from inside information leaks from the Fed’s monetary policy operations. One necessary step to stop leaks is to severely limit inside information on future Fed policy to a few Fed employees.

This has not happened. Congress received information in 1997 that non-Federal Reserve employees attended Federal Reserve meetings where inside information was discussed. Banking Committee Chairman/Ranking Member Henry B. Gonzalez (D, Texas) and Congressmen Maurice Hinchey (D, New York) asked Fed Chairman Alan Greenspan about the apparent leak of discount rate information.Greenspan admitted that non-Fed people including “central bankers from Bulgaria, China, the Czech Republic, Hungary, Poland, Romania and Russia” had attended Federal Reserve meetings where the Fed’s future interest rate policy was discussed. Greenspan’s letter (4/25/1997) contained a 23-page enclosure listing hundreds of employees at the Board of Governors in Washington, D.C. and in the Federal Reserve Banks around the country who have access to at least some inside Fed policy information.

Senator Sanders also noted last October:

A new audit of the Federal Reserve released today detailed widespread conflicts of interest involving directors of its regional banks.

“The most powerful entity in the United States is riddled with conflicts of interest,” Sen. Bernie Sanders (I-Vt.) said after reviewing the Government Accountability Office report. The study required by a Sanders Amendment to last year’s Wall Street reform law examined Fed practices never before subjected to such independent, expert scrutiny.

The GAO detailed instance after instance of top executives of corporations and financial institutions using their influence as Federal Reserve directors to financially benefit their firms, and, in at least one instance, themselves. “Clearly it is unacceptable for so few people to wield so much unchecked power,” Sanders said. “Not only do they run the banks, they run the institutions that regulate the banks.”

***

The corporate affiliations of Fed directors from such banking and industry giants as General Electric, JP Morgan Chase, and Lehman Brothers pose “reputational risks” to the Federal Reserve System, the report said. Giving the banking industry the power to both elect and serve as Fed directors creates “an appearance of a conflict of interest,” the report added.
The 108-page report found that at least 18 specific current and former Fed board members were affiliated with banks and
companies that received emergency loans from the Federal Reserve during the financial crisis.

[T]here are no restrictions in Fed rules on directors communicating concerns about their respective banks to the staff of the Federal Reserve. It also said many directors own stock or work directly for banks that are supervised and regulated by the Federal Reserve. The rules, which the Fed has kept secret, let directors tied to banks participate in decisions involving how much interest to charge financial institutions and how much credit to provide healthy banks and institutions in “hazardous” condition. Even when situations arise that run afoul of Fed’s conflict rules and waivers are granted, the GAO said the waivers are kept hidden from the public.

Whether you want to call it crony capitalism, socialism or fascism, one thing is for sure … this ain’t capitalism.
Postscript: Reich says that the only solution is to break up the big banks and reinstate the laws which separate traditional banking from speculation.

I thought the GOP solution is less regulation?

But, but, but the article can't be correct. Reich worked for Clinton and Sanders is a socialist! (gasp)

This could be an opportunity for Obama to win the election right now if he would just do what the vast majority of Americans want - take on Wall Street. What better time than immediately after the revelation of a financial scandal of epic proportions? He has the chance to redeem himself for his failure to do anything after he came into office. Surely he must realize that kowtowing to Wall Street has not bought him any political advantage; despite his acquiescence they still strongly oppose him.

i guess this is a big deal but in all honesty its hard to really get angry about banks ripping off other banks

The main reason England did not join the euro was not becuase they foresaw the current problems, they did not, it was because they would have had to rein in their bankers and this they would not do. Much of the 2008 fraud went thru England. This just proves their game is rigged, with the assisstance of politicians, which is how they want to keep it. It just makes England look really bad.

He already knows he will win without doing any of that. All he has to do is push the Euro crisis collpase past the election date. Why reduce his speaking engagement tour/fees after he retires when he does not have to?

they would have had to give up sovereignty of the banking laws, yes but reign them in? i dont know about that....were irish,german,etc.. banks really "reigned in "

Apparently even the loose Euro laws were too strict for the English banks. If I am not mistaken, euro banks are not allowed to re-use as their own collateral, collateral posted by one of their clients whereas in London they do. This has attracted alot on international banking to London.

He will probably win, but it is not a sure thing. He does not have control of the Euro crisis and the Fed/Wall Street could crash the economy any time they choose.

President of the United States is the highest office that any politician can aspire to; the only further personal ambition that makes sense is to build a historical legacy. Does he want to be remembered as a Herbert Hoover or a Franklin Roosevelt? Hopefully he is smart enough to realize the choice before him. His speaking fees will be substantial regardless of what he does.

You are expecting a backbone from someone who has none. Zero.

Rien a faire. Rien. Faut pas penser. Faut accepter.

rich are trying to get richer nothing shocking to me

my crime is lighting up a joint and they destroy 1000s of familys but i will do more time then them if i get busted

I'm not expecting, I'm dreaming.

Let's the games begin

Quick question for you, numb-nuts. Who passed the 'Financial Services Modernization Act' in 1999 that repealed part of the Glass-Steagall Act of 1933, spurring banks to consolidate and get 'too big to fail' and started the ball rolling toward the financial melt-down in 2007? It was Slick Willie Clinton. What, does your butt hurt now?

So the guy who knew about all the LIBOR manipulation during the financial meltdown, Tim Geithner, did nothing about it and ends up getting a promotion? Even you beloved Huffington Post thinks he's in some deep shit, and if you thing Obama wants to use this issue in his re-election campaign, I'm guessing he wants to avoid it like the plague. Does your butt hurt much?

"As president of the New York Federal Reserve before and during the financial crisis, Treasury Secretary Timothy Geithner met repeatedly with Barclays officials, according to documents released by the bank and the New York Fed.
Though the subject of those discussions is unknown, they came at a time when Barclays was also talking to New York Fed officials about problems with an interest rate known as Libor, some five years before the bank agreed to pay $450 million to settle charges that it manipulated that interest rate.

The meetings raise questions about just how much Geithner, now the U.S. Treasury secretary, knew about the alleged manipulation of Libor, a critical interest rate that affects borrowing costs throughout the economy -- questions he'll have to answer at a Senate hearing later this month. They could also renew criticisms of Geithner as being too chummy with the banking sector he was charged with regulating in his role at the Fed."

http://www.huffingtonpost.com/2012/07/10/timothy-geithner-barclays-libor_n_1662389.html?1341951367

I thought about writing a serious response, then I decided to stand by my principle of not engaging with people who show an unwanted interest in my anus.

Nice deflection. A serious response to something that pins Geithner to the wall would be to admit he's in some deep shit. Anything else would be hypocritical.