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Why is Nobody Freaking Out About the LIBOR Banking Scandal?

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Why is Nobody Freaking Out About the LIBOR Banking Scandal?

POSTED: July 3, 9:04 AM ET

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Barclays bank

Oli Scarff/Getty Images

The LIBOR manipulation story has exploded into a major scandal overseas. The CEO of Barclays, Bob Diamond, has resigned in disgrace; his was the first of what will undoubtedly be many major banks to walk the regulatory plank for fixing the interbank exchange rate. The Labor party is demanding a sweeping criminal investigation. Mervyn King, Governor of the Bank of England, responded the way a real public official should (i.e. not like Ben Bernanke), blasting the banks:

It is time to do something about the banking system…Many people in the banking industry are hardworking and feel badly let down by some of their colleagues and leaders. It goes to the culture and the structure of banks: the excessive compensation, the shoddy treatment of customers, the deceitful manipulation of a key interest rate, and today, news of yet another mis-selling scandal.

The furor is over revelations that Barclays, the Royal Bank of Scotland, and other banks were monkeying with at least $10 trillion in loans (The Wall Street Journal is calculating that that LIBOR affects $800 trillion worth of contracts).

The banks gamed LIBOR for two semi-overlapping reasons. As noted here last week, there were instances of Barclays traders badgering the LIBOR submitters to "push down" rates in order to fatten their immediate bottom lines, depending on what they were trading or holding that day. They also apparently rigged LIBOR downward in order to produce a general appearance of better health, essentially tweaking their credit scores a few ticks upward.

Most intriguingly, or perhaps disturbingly, there were revelations last week that Bank of England deputy Governor Paul Tucker had a conversation with Diamond at the peak of the crisis in 2008. The conversation reportedly left Diamond, and subsequently his traders, with the impression that the bank had carte blanche to rig LIBOR downward in order to help allay spiraling public fears about the banks’ poor financial health.

British officials, and Tucker individually, deny that Tucker gave Diamond permission to rig rates. But a report by British regulators did conclude that the two were talking about Barclays LIBOR submissions on October 29, 2008, and that as a result of that conversation, Diamond came away with a “misunderstanding.” The Daily Mail quotes the Financial Services Authority report:

However, as the substance of the telephone conversation was relayed down the chain of command at Barclays, a misunderstanding or miscommunication occurred.

This meant that Barclays’ submitters believed mistakenly that they were operating under an instruction from the Bank of England (as conveyed by senior management) to reduce Barclays’ Libor submissions.

That is explosive stuff. Members of Parliament will be grilling Tucker tomorrow about those events in what is sure to be a far more combative and entertaining legislative inquiry than the Jamie Dimon dog-and-pony show we just went through here in the states in recent weeks.

The implications of that part of the story should be particularly chilling to Americans, who in recent years have been party to a number of revelations about strange and seemingly inappropriate contacts between senior regulatory officials and big bankers during the heat of the crisis.

We know that American officials in 2008-2009 were extremely concerned about the appearance of weakness in the financial markets, so much so that they may have resisted pursuing criminal prosecutions against big banks, and we also know that they spent a lot of time commiserating with Wall Street figures before and during the crisis.

If Bob Diamond and Paul Tucker were having these talks about LIBOR, is it fair to wonder what else Hank Paulson and Lloyd Blankfein were talking about in the 24 discussions they had in the six days following the AIG disaster? When Paulson had a secret meeting with the entire board of Goldman Sachs in, of all places, his hotel suite in Moscow, in June of 2008? Or what other material nonpublic information was exchanged when Paulson met with a gang of hedge fund chiefs at the offices of Eton Park management in July 2008, and laid out for them a possible scenario for putting Fannie and Freddie into receivership?

Anyway, the LIBOR story is leading the front pages of most of Britain’s dailies, it’s on TV, and it’s producing blistering editorials and howls of outrage amongst politicians and activists. But as compadre Yves Smith at Naked Capitalism put it, where’s the outrage here in America?

The big story on our shores in the last few weeks has been the health care ruling, which makes sense, but then after that… what? The heat? Tom and Katie? (There’s actually a story about how Katie can wear heels again, now that she’s not married to a short person). Joe Sandusky? Nightline’s big story tonight, which is already being hyped on the net, is about how fat Chris Christie is and why the hell he hasn’t done the bypass surgery yet:

New Jersey Gov. Chris Christie opened up about his weight problem in an interview with ABC News and stressed he is "trying" to lose weight, a battle he's waged for 30 years, but said he's never considered gastric bypass surgery because it's "too risky."

"I mean, see, listen, I think there's a fundamental misunderstanding among people regarding weight and regarding all those things that go into, to people being overweight," Christie said in an interview that will air Tuesday on "Nightline."

Glad to be informed! The New York Times, meanwhile, did chime in with a house editorial yesterday, and it was appropriately somber. And there has been some coverage in the financial press.

But to me what’s missing from all of this is the “Holy ???? crap!” factor. This story is so outrageous that it shocks even the most cynical Wall Street observers. I have a friend who works on Wall Street who for years has been trolling through the stream of financial corruption stories with bemusement, darkly enjoying the spectacle as though the whole post-crisis news arc has been like one long, beautifully-acted, intensely believable sequel to Goodfellas. But even he is just stunned to the point of near-speechlessness by the LIBOR thing. “It’s like finding out that the whole world is on quicksand,” he says.

So as far as the stateside press goes, I’ve got to assume the cavalry is coming soon. But when?

Read more: http://www.rollingst...3#ixzz1zlxYoXpP

Bob Diamond: banks across the world were fixing interest rates in run-up to the financial crisis

LIBOR Banking Scandal Deepens; Barclays Releases Damning Email, Implicates British Government

This Libor-manipulation story grows crazier with each passing minute. We have officially disappeared now down the rabbit-hole of the international financial oligarchy.

Former Barclays CEO Bob Diamond is testifying before parliament in London today, and that's sure to bring some shocking moments. But there's already been one huge stunner. In advance of that testimony, Barclays released an email from October 29, 2008, written by Diamond to then-Chairman John Varley and COO Jerry del Messier (who also stepped down yesterday). The email from the CEO to the other two senior Barclays execs purports to detail the content of the conversation Diamond had with Bank of England deputy governor Paul Tucker that same day.

In the email, Diamond essentially tells the other two execs that he has been given permission by Tucker – encouraged, actually – to rig Libor rates downward. What’s even worse is that Diamond’s email suggests that Tucker was only following orders, i.e. that Tucker had received phone calls from "a number of senior figures within Whitehall" – that is, the British government – expressing concern about Barclays' high Libor rates. Tucker in this version of events was acting as a middleman for the British government, telling Diamond to fake his borrowing rates in order to preserve the appearance of financial stability, for the good of Queen and country as it were.

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Another Domino Falls in the LIBOR Banking Scam: Royal Bank of Scotland

Another one bites the dust. The Royal Bank of Scotland is about to be fined $233 million (£150 million pounds) for its role in the Libor-rigging scandal. It joins Barclays as the first banks to walk the plank in what should be, but so far is not, the most sensational financial corruption story since the crash of 2008.

Many of the banks implicated in the Libor mess have also been targeted in the various municipal bond bid-rigging investigations, and RBS is no different – its subsidiary Natwest is also a defendant in the major civil lawsuit in the bid-rigging case. The cases aren't related, except in the sense that they both involve manipulation and anticompetitive cooperation. It's going to be harder and harder to make the case that the major banks do not routinely cooperate at the expense of the public when it serves their purposes to do so.

The news that RBS is involved comes with a perverse twist. This is from the Times UK:

The bank, which is 82 per cent owned by the taxpayer, is preparing for a political firestorm over the affair because it believes that it has no power to claw back bonuses from the traders responsible. Instead, the expected fines would be borne by the shareholders — largely the Government.

Libor manipulation is a crime that already robs the public to create bonuses for bankers. By artificially lowering interest rates, the banks caused cities, towns, countries, and other public entities to receive smaller returns on their variable-rate investment holdings. If it turns out that taxpayers end up paying the fine for RBS's crime of robbing taxpayers, how perfect would that be?

Timeline: Barclays' widening Libor-fixing scandal

Continue reading the main story

Libor scandal

Libor, the London inter-bank lending rate, is considered to be one of the most crucial interest rates in finance.

It underpins trillions of pounds worth of loans and financial contracts.

So, when Barclays was fined £290m last week after some of its derivatives traders were found to have attempted to rig this key rate, public confidence in banks was shattered.

The scandal has forced Barclays chief executive Bob Diamond to resign, while chairman Marcus Agius also announced his resignation but will take over as executive chairman until a successor can be found.

Here are some of the key dates in the scandal:

2005

As early as 2005 there was evidence Barclays had tried to manipulate dollar Libor and Euribor (the euro equivalent of Libor) rates at the request of its derivatives traders and other banks.

Misconduct was widespread, involving staff in New York, London and Tokyo as well as external traders.

One Barclays trader told a trader from another bank in relation to three-month dollar Libor: "duuuude... what's up with ur guys 34.5 3m fix... tell him to get it up!"

Between January 2005 and June 2009, Barclays derivatives traders made a total of 257 requests to fix Libor and Euribor rates, according to areport by the Financial Services Authority (FSA).

2007

At the onset of the financial crisis in September 2007 with the collapse of Northern Rock, liquidity concerns drew public scrutiny towards Libor. Barclays manipulated Libor submissions to give a healthier picture of the bank's credit quality and its ability to raise funds. A lower submission would deflect concerns it had liquidity problems.

Barclays' Libor submissions were at the higher end of the range of contributing banks, and prompted media speculation about the true picture of the bank's risk and credit profile.

Senior treasury managers instructed submitters to reduce Libor to avoid negative publicity, saying Barclays should not "stick its head above the parapet".

On 28 November, a senior submitter wrote in an internal email that: "Libors are not reflecting the true cost of money."

A Barclays compliance officer contacted the UK banking lobby group British Bankers' Association (BBA) and the FSA and described "problematic actions" by other banks, saying they appeared to be understating their Libor submissions.

During the financial crisis Barclays was in daily contact with the FSA but failed to discuss its own false submissions, instead commenting about liquidity generally. It told the regulator its submissions were within a reasonable range.

In an email in late December, one submitter expressed his discomfort at the rate manipulation: "My worry is that [both Barclays and the contributor bank panel] are being seen to be contributing patently false rates," he said.

"We are therefore being dishonest by definition and are at risk of damaging our reputation in the market and with the regulators."

2008

A string of media reports questioned the integrity of Libor.

Around 16 April, a senior Barclays treasury manager informed the BBA in a phone call that Barclays had not been reporting accurately. But he defended the bank, saying it was not the worst offender: "We're clean, but we're dirty-clean, rather than clean-clean."

"No one's clean-clean," the BBA representative responded.

Barclays received communications from the BBA expressing concern about the accuracy of its Libor submissions. The BBA said if the media reports were true, it was unacceptable.

On 17 April, a manager made comments in a call to the FSA that Barclays had been understating its Libor submissions: "We did stick our head above the parapet last year, got it shot off, and put it back down again. So, to the extent that, um, the Libors have been understated, are we guilty of being part of the pack? You could say we are... Um, so I would, I would sort of express us maybe as not clean clean, but clean in principle."

On 29 May Barclays agreed internally to tell the media that the bank had always quoted accurate and fair Libors and had acted "in defiance of the market" rather than submitting incorrect rates.

On 10 June, the BBA published a consultation paper seeking comments about proposals to modify Libor. "The BBA proposes to explore options for avoiding the stigma whilst maintaining transparency," it said. Barclays contributed comments but avoided mentioning its own rate submissions.

On 5 August the BBA published a feedback statement on its consultation paper, and concluded that the existing process for submissions would be retained.

In September, following the collapse of Lehman Brothers, the Bank of England had a conversation with a senior Barclays official, in which it raised questions about the bank's liquidity position and its relatively high Libor submissions.

In late October, following the discussion with the Bank of England, Barclays instructed Libor submitters to lower the rate to be "within the pack".

On 17 November the BBA issued a draft document about how Libor rates should be set and required banks to have their rate submission procedures audited as part of compliance. The final paper would be circulated on 16 July 2009.

2009

On 2 November the BBA circulated guidelines for all contributor banks on setting Libor rates in the same manner. Barclays made no changes to its systems to take account of the BBA guidelines.

In December Barclays started to improve its systems and controls but ignored the BBA's guidelines. Until 2009 the bank did not have a formal Chinese wall between the derivatives team and the submitters.

2010

In June, Barclays circulated an email to submitters that set out "fundamental rules" that required them, for example, to report to compliance any attempts to influence Libor submissions either externally or internally. It also prohibited communication with external traders "that could be be seen as an attempt to agree on or impact Libor levels".

2011

In late 2011, Royal Bank of Scotland sacked four people for their alleged roles in the Libor-fixing scandal.

2012

June

On 27 June Barclays admitted to misconduct. The UK's FSA imposed a £59.5m penalty. The US Department of Justice and the Commodity Futures Trading Commission (CFTC) imposed fines worth £102m and £128m respectively, forcing Barclays to pay a total of around £290m.

One day later, Barclays' share price plunged 15%.

Chief executive Bob Diamond said he would attend a Commons Treasury Committee and that the bank would cooperate with authorities. In a letterto the committee chairman Andrew Tyrie, he wrote: "Even taking account of the abnormal market conditions at the height of the financial crisis, and that the motivation was to protect the bank, not to influence the ultimate rate, I accept that the decision to lower submissions was wrong." However, he said he would not resign.

On 29 June Prime Minister David Cameron urged regulators to use "all the powers at their disposal" to pursue Barclays. "This is a scandal. It is extremely serious. They've had a very large fine and quite rightly. But frankly the Barclays management team have some big questions to answer," he said.

The same day, Bank of England Governor Sir Mervyn King called for a "cultural change", adding: "The future calculation of Libor on 'my word is my Libor' is now dead." He said implementing the Vickers banking reforms was the most important first step, but ruled out a Leveson-style enquiry into the banks.

July

On 2 July:

  • Barclays chairman Marcus Agius resigned and also tendered his resignation as chairman of the BBA and Mr Diamond said in a letter to staff that he would "get to the bottom" of what happened

  • The Serious Fraud Office (SFO) considered whether to bring criminal charges against bankers who tried to manipulate the inter-bank lending rate.

  • Prime Minister Cameron announced a parliamentary review of the banking sector, to be headed by the chairman of the Treasury Committee, Andrew Tyrie. The review should ensure that the UK had the "toughest and most transparent rules of any major financial sector", Mr Cameron said.

On 3 July Barclays chief executive Bob Diamond resigned, saying that the external pressure on the bank risked "damaging the franchise".

Later, Barclays chief operating officer Jerry del Missier also resigned.

The same day, Barclays released notes taken by Mr Diamond of a conversation he had in 2008 with the Bank of England's Paul Tucker. According to the notes, Mr Tucker indicated that "senior figures within Whitehall" had inquired about why Barclays was setting its Libor rate higher than some other banks.

While the bank said Mr Diamond did not view his conversation with Mr Tucker as an instruction to change its rates, when the message was passed down to Mr del Missier, he concluded that an instruction had been given by the Bank of England not to keep Libor so high.

"He therefore passed down a direction to that effect to the [traders]," Barclays said.

On 4 July, Mr Diamond faced a three-hour grilling from MPs over the scandal, during which he described the behaviour of those responsible as "reprehensible" and said it had made him physically ill.

"I'm sorry, disappointed and angry," he added.

However, a number of MPs expressed surprise at his evidence, with Andrew Tyrie, chairman of the Treasury Committee, describing some of what the banker said as "implausible".

On 5 July, credit rating agency Moody's lowered its rating outlook on Barclays from stable to negative.

The agency said shareholder and political pressure was creating uncertainty about the bank's future.

http://www.bbc.co.uk...siness-18671255

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why is nobody freaking out? probably because life to short to freak out about everything like some sort of extreme political activist. also, probably because most people were unaffected.

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YEY! NPR reference! and only 12 posts in; excellent job.

of course the LIBOR's been rigged. it's arbitrarily assigned based off of an arbitrary opinion of 18 bankers. interest rates are arbitrary in their concept, and are not measurable entities. there is no real interest rate, it's all assigned based off of what some guys thinks he should ask for when lending out money and what he thinks he can get. the "invisible hand" is supposed to correct the rate if it's too high or too low, but that's another arbitrary concept that economists use to explain why something happens when you can't actually explain why it happens. supply&demand, max-profits, etc. all play a hand, but it's never perfect.

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The effects of "scandals" like this may be far reaching but to answer the headline question why aren't people freaking out is pretty simple from where I stand.

The general public is disillusioned and apathetic when it comes to stories like this. For one it's not a simple idea and concept to wrap your mind around, and it's a story, which evidenced by posters here, makes people feel powerless to do anything. Add to that we live in a culture of fear, scandals and corruption so these stories seem to pop up on a reoccurring basis - which one are people supposed to be outraged about and stand up and doing something?

Even if they were to stand up and do something they don't believe they can do something. Vote out the politicians of the day, complain to their MP, start a petition online, etc. have all been tried and met with varying results but mostly have resulted in no long lasting change. Voter turnout in most Western countries is abysmal because people are disillusioned about what they see, are cynical about real change, or they just don't care.

The internet has revolutionized the way we live, through it we could unite behind one cause, and evoke a lot of change. But people would rather bicker and attack other people's beliefs. People need to stand beside people who they disagree with on some issues to get meaningful change passed. All the baby boomers who protested the Vietnam War didn't agree on every single issue but they were able to get behind one message "PEACE". Whether that was successful in the long run can be debated but they made their voice heard and it ended up having an effect.

I really think people need to do what they did then today and stand just for the message of "anti-corruption". Corruption and the power of money has become too influential. It dictates what public policy our governments are pursuing, it dictates who our politicians are. This is not a system that work for the greater good of the average person. We're living in oligarchies with the facade of democracy at the moment.

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YEY! NPR reference! and only 12 posts in; excellent job.

of course the LIBOR's been rigged. it's arbitrarily assigned based off of an arbitrary opinion of 18 bankers. interest rates are arbitrary in their concept, and are not measurable entities. there is no real interest rate, it's all assigned based off of what some guys thinks he should ask for when lending out money and what he thinks he can get. the "invisible hand" is supposed to correct the rate if it's too high or too low, but that's another arbitrary concept that economists use to explain why something happens when you can't actually explain why it happens. supply&demand, max-profits, etc. all play a hand, but it's never perfect.

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I got bored about halfway through the second paragraph and gave up. But honestly i didn't even know anything was going on until i opened this thread and then realized that i really just don't care whats going on in the UK as it has no affect on me.

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I got bored about halfway through the second paragraph and gave up. But honestly i didn't even know anything was going on until i opened this thread and then realized that i really just don't care whats going on in the UK as it has no affect on me.

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