Why LIBOR may be the biggest bank fraud ever and why we should be paying attention

from euronews...



matt taibbi...

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?

[...]

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.

c'mon, house of cards... fall already...

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The global financial collapse edges ever closer

breaking news from the financial times...

Moody's downgrades biggest global banks

Fifteen of the biggest global banks were downgraded by Moody’s Investors Service on Thursday, adding to pressure on their borrowing costs and triggering multi-billion dollar collateral calls.

Morgan Stanley, seen as the most vulnerable, escaped the three-notch downgrade that Moody’s had threatened but saw its rating cut from A2 to Baa1, three notches above “junk”.

Stock markets fell as anticipation of the downgrades, which came after US markets closed, added to fears over the global economy. Shares in Bank of America, Citigroup and RBS fell by more than 3 per cent by the closing bell. The S& P 500 closed down 2.2 per cent at 1,325.51.

bring it on... i've been praying for this absurd house of cards to fall for a very long time...

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Is capitalism in fact bankrupt?

from al jazeera...

With a world-wide financial crisis, towering government debt and the public outrage of the 99 per cent it is suggested that the free market is not free enough. Is capitalism in fact bankrupt?

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Common equity in Bank of America is either worthless or very close to it and now Greece could be the tipping point

from rt...

European leaders reach a deal on the debt but if politicians decide there is no "credit event" and credit default swaps don't get paid -- it could leave large US banks "naked," according to independent analyst Reggie Middleton of Boom Bust blog. It could be a tipping point for Bank of America which he believes is insolvent and seeing pressure from all sides.

yeah, well, eurozone leaders THOUGHT they had reached a deal on greek debt...

reuters...

Greece risks meltdown after bailout vote bombshell

The Greek government faced possible collapse on Tuesday as ruling party lawmakers demanded Prime Minister George Papandreou resign for throwing the nation's euro membership into jeopardy with a shock call for a referendum.

Caught unawares by his high-risk gamble, the leaders of France and Germany summoned Papandreou to crisis talks in Cannes on Wednesday to push for a quick implehttp://www.blogger.com/img/blank.gifmentation of Greece's new bailout deal ahead of a summit of the G20 major world economies.

The euro and global stocks were pummeled on financial markets after the Greek move threw into question the survival of crucial efforts to contain the euro zone's sovereign debt crisis.

how very interesting - and perhaps even democratic - that papandreou actually thinks the citizens of greece should have a say...

a commentator, writing in spiegel, agrees with papandreou...

Papandreou Is Right to Let the Greeks Decide

It must be said right at the beginning: The Greeks will, for a change, decide for themselves how they and their country will move forward.

They have had no real opportunity to do so for quite some time. For about a year and a half, this once proud country has been under foreign administration; it is de facto no longer a sovereign state. The government's most important task has been dragging the austerity programs and structural reforms though parliament and implementing them. These are dictated by the strict troika of the EU Commission, the European Central Bank (ECB) and the International Monetary Fund. Otherwise there will be no more bailout money, and the country would go bankrupt.

To no longer be the master of their own finances, to be begging for money and ready to do almost anything for it -- this is as humiliating for penniless states as it is for poor people. It injures the soul, stirs up anger and creates desperation. Knowing that the situation is also largely self-inflicted only makes things worse.

That the Greek Premier Georgios Papandreou wants to consult his people on the financial restructuring of the country seems like an act of desperation appropriate to the dramatic principle of 'committing suicide in fear of death.' The voters will decide whether to endorse the decisions made in Brussels or not.

[...]

Until the referendum in Greece, there will be an intense debate about the two alternatives: Brutal rehabilitation within the euro zone or state bankruptcy with a reintroduction of the drachma.

It will demonstrate that it is not about the choice between hell and paradise. Both paths will be difficult and grueling. Each citizen must decide for themselves what they believe to be the better choice. They will consider whether they want to risk their assets with an exit from the common currency -- savings would be worth hardly anything in a return to the drachma.

But at least every Greek gets to decide, and can no longer complain about their government bowing to international demands. And even if the Greeks ultimately say no, and in the worst case scenario the country leaves the euro zone, the consequences seem less dicey than they did a year ago.

let the chips fall where they may... at least the greeks can once again lay claim to being a sovereign state rather than a wholly-owned subsidiary of the global banksters...

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The market is toast - the stock market is finished; I go to bed dreaming of another recession

zero hedge...

In an interview on BBC News this morning that left the hosts gob-smacked (google it... it is the BBC after all), Alessio Rastani outlines in a mere three-and-a-half-minutes what we all know and most ignore. While the whole interview is worth watching, the money shot for us was "This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!". While he dreams of recessions, sees Goldman ruling the world, and urges people to prepare, it is hard to disagree with much (or actually anything) of what he says and obviously interventions and machinations means we will have days like this (in Silver for instance), there is only one endgame here and we hope there is less hopeful euphoria (and more preparedness) as we pull back the curtain further and further.

While we do not know who this trader is, one thing we can be 100% certain of is that he will never appear on CNBC.

watch it... we'll NEVER see that kind of bald-faced honesty on u.s. media...

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