http://www.zerohedge.com/contributed/2012-07-15/libor-perp-walks-election-no-perp-walks-rate-manipulation-central-banks
Libor Perp Walks Before the Election, but No Perp Walks for Rate Manipulation by Central Banks
- Bank of America
- Bank of America
- Bank of England
- Barclays
- Bob Diamond
- BOE
- British Bankers' Association
- Capital Markets
- Central Banks
- Citigroup
- Credit Suisse
- Department of Justice
- Deutsche Bank
- Equity Markets
- ETC
- fixed
- Goldman Sachs
- goldman sachs
- Gross Domestic Product
- JPMorgan Chase
- LIBOR
- Lloyds
- Mervyn King
- New York Fed
- RBS
- Richmond Fed
- Timothy Geithner
- Warren Buffett
Wolf Richter www.testosteronepit.com
I’m shocked and appalled that the Libor fiasco could even occur in our modern, highly ethical, and transparent financial sector. Banks misreporting anything.... unheard of. Nevertheless, it occurred. Not just once, but from get-go. And everyone and his dog, even Treasury Secretary Timothy Geithner, back in 2008 when he was still President of the New York Fed, knew about it.
And it’s not just some theoretical thing. Libor, or the London interbank offered rate, is figured daily in London when banks submit their estimated costs of borrowing from other banks—not actual costs, by design so that they could submit whatever. It is used to set interest rates on $800trillion (not billion) worth of financial instruments, from student loans to interest rate derivatives (by comparison, US GDP is about $15 trillion). As Libor gets manipulated, so does the cost of loans, interest income of lenders, the outcome of all sorts of trades, and the apparent health of banks that are judged by it.
The world’s largest banks—among them Barclays, HSBC, RBS, Lloyds, Credit Suisse, UBS, Deutsche Bank, Rabobank, Dexia, Citigroup, Bank of America, JPMorgan Chase, Goldman Sachs, Royal Bank of Canada, and Mitsubishi Bank—are under investigation or have been named in lawsuits alleging that they’d rigged Libor, and the list will likely get longer. In June, Barclays agreed to pay $453 million (not billion) in fines. Peanuts, given the magnitude and duration of the scam. Bob Diamond, Barclay’s CEO, and some other folks at the bank, lost their jobs. The US Department of Justice is expected to filecriminal charges against a number of banks and bankers later this year—with perp walks perhaps before the election in November.
“You know, Libor is being set too low anyway,” a banker at Barclays told an analyst at the NY Fed on December 17, 2007, according to a transcript in the NY Fed’s data dump on Friday. “We know that we’re not posting um, an honest Libor,” another banker at Barclays told a Fed analyst on April 11, 2008.
Geithner, as President of the NY Fed, was informed—as must have been just about everyone at the Fed. So, according to emails in the data dump, he hounded the Bank of England to do something about it. Well, not exactly hounded. In June 2008, he sent an email with recommendations on how to preserve Libor’s credibility to BoE Governor Mervyn King, who passed it on to the British Bankers Association (BBA)—the banking group in charge of Libor—but obviously not much has been fixed since then.
Bankers regulating bankers—who would have thought that it could lead the industry astray? Just shocking and appalling.
“The revelations broadly are another episode that is damaging to people’s confidence in the financial services industry and that’s a shame,” Richmond Fed President Jeffrey Lacker admitted in an interview.
Because “confidence” is what this really is all about ... a con game ... and people have started to open their eyes a bit and don’t buy it anymore, not lock, stock, and barrel like they used to before the financial crisis and before the multi-trillion-dollar bailouts that were bestowed upon banks and other central-bank cronies around the world, including companies like GE and our very favorite Uncle Warren Buffett.
Maybe they (the Fed, the BoE, the BBA, etc.) didn’t know how to replace Libor, which clearly was beyond repair, but they could have let some sunshine hit the process, by announcing, for example, that the rate was rigged, and that people shouldn’t rely on it. But sunshine is anathema in banking as it destroys “confidence” and brings banks to the brink of collapse, where they’re bailed out again—a nasty distraction from the game.
But collusion and interest rate manipulation, the very misdeeds that the Libor players are being accused of, are standard practice and, in fact, public policy with central banks. Driving rates to absurd lows, and into the negative even—a form of confiscation where investors are made to lend money to governments at a guaranteed loss—is often the stated goal of all major central banks, as is printing money and buying up debt to control and manipulate the credit markets.
The consequences of these actions are far deeper and broader than Libor manipulation. They destroy the functioning of the capital markets, contaminate price discovery, lead to massive misallocation of capital, and undermine a large segment of market participants. They create this silly notion of a policy put in both credit and equity markets. And they allow elected officials to believe that they can run up deficits ad infinitum. But it’s unlikely that central bankers will ever be held to account for these activities—and perp walks are even more unlikely. Those will be reserved for a few sacrificial lambs in the Libor scam.
and....
http://www.zerohedge.com/news/deutsche-bank-turns-sides-becomes-rat-liebor-prosecution
Deutsche Bank Turns Sides, Becomes Rat For The Liebor Prosecution
Escalation. The inevitable collapse of the Prisoner's Dilemma that kept the LIBOR contributors together is occurring rapidly. After Barclays' forced admission and initial fine, the 'he-who-defects-first-wins' strategy has been trumped by Deutsche Bank as they turn all 'Donnie Brasco' on their oligopolistic peers. As Reuters reports this morning "The bank last year obtained the status of being a witness for the prosecution in the EU and in Switzerland," and "as a result of that, the bank could get a lighter penalty if a punishment is imposed," though of course this does not mean they are admitting guilt (sigh). Under the leniency programs of the EU, companies may get total immunity from fines or a reduction of fines which the anti-trust authorities would have otherwise imposed on them if they hand over evidence on anti-competitive agreements or those involved in a concerted practice. How quickly the worm turns when trust leaves the system - the warning the rest of the Liebor contributors - be afraid, be very afraid.
http://www.zerohedge.com/news/33-minimum-probability-criminal-charges-against-jp-morgan-lieborgate
A 33% Minimum Probability Of Criminal Charges Against JP Morgan In Lieborgate?
On Friday morning, Jamie Dimon as head of the bank many (well, some: Zero Hedge) expect will be the first casualty when the Liebor scandal finally breaks on US soil, which it will within 2-3 weeks, faced several questions on his Q2 conference call trying to extract more information from the bank as to where it may stand in the Liebor scandal.
This is what he said:
Unidentified AnalystHi, two very quick follow-ups. One I just want to make sure on the LIBOR issue. I understand all the things that you can’t talk about mid investigation, but I’m assuming this has been gone on for a while that you’ve had three, six, maybe more months of internal investigations. Is there anything you can tell us and comment on?Jamie DimonNo....John E. McDonald – Sanford C. Bernstein & Co.
But I guess just one more slide that’s on the LIBOR, do you have any sense of how long the issue will overhang on the industry and whether we’ll get some kind of clarity about the investigations over the summer or is it something that could drag on for long time? Any insight in that and when we’re going to get more information on it?
Jamie DimonWe had no special insight again....Matt O'Connor – Deutsche Bank Securities...LIBOR obviously has been in the news quite a bit. If there is anything that you can say or even when will we know what we don't know instead of time-to-time or…
Jamie Dimon
All I can say is like all of these things, there are a lot of people doing exams, we’ll be open total openings regulators and investigators. And the other thing I’d be a little patient if I were you and not every thing is the same, it’s going to take a while and not all companies are in the same position....Brennan Hawken – UBS Investment BankI don’t know if you can comment on this, but it would be helpful to
know, do you guys have specific controls that separate communications
between derivative traders and the LIBOR rate submission employees?
Michael J. CavanaghWe are not going to comment anything right there right now.
It appears Jamie was not only not very talkative, but refused to answer questions why by default should have had an answer - i.e., internal controls, which after the discovery 10 minutes prior to the earnigs release that the bank had found a material internal controls weakness vis-a-vis CDS marks, is probably rather critical. Of course, the market being as headline drive as it is, took the lack of further Libor clarity as an "all clear" and send the stock up 6%. That may well have been rather premature. Because as the NYT reports, criminal charges are coming, which may explain JPM's reticence to say much if anything while it is the subject of a multi-year long criminal investigation which is about to break.
As regulators ramp up their global investigation into the manipulation of interest rates, the Justice Department has identified potential criminal wrongdoing by big banks and individuals at the center of the scandal.The department’s criminal division is building cases against several financial institutions and their employees, including traders at Barclays, the British bank, according to government officials close to the case who spoke on the condition of anonymity because the investigation is continuing. The authorities expect to file charges against at least one bank later this year, one of the officials said.
The prospect of criminal cases is expected to rattle the banking world and provide a new impetus for financial institutions to settle with the authorities. The Justice Department investigation comes on top of private investor lawsuits and a sweeping regulatory inquiry led by the Commodity Futures Trading Commission. Collectively, the civil and criminal actions could cost the banking industry tens of billions of dollars.
The multiyear investigation has ensnared more than 10 big banks in the United States and abroad. With the prospects of criminal action, several firms, including at least two European institutions, are scrambling to arrange deals, according to lawyers close to the case. In part, they are trying to avoid the public outcry that stemmed from the Barclays case, which prompted the resignation of top executives.
[T]he Libor case presents a potential opportunity for prosecutors. Given the scope of the problems and the number of institutions involved, the rate-rigging investigation could provide a signature moment to hold big banks accountable for their activities during the financial crisis.“It’s hard to imagine a bigger case than Libor,” said one of the government officials involved in the case.
Now here is the punchline: as the Fed itself reported, at the time of alleged manipulation, there were 16 USD libor Panel banks.
And here one can bet good money, that the Justice Department, long seen as the most corrupt and coopted executive arm (thank you Eric Holder) and about as useless as the SEC, will focus on the US banks members of the USD Libor Panel.
There are three of them:
- Bank of America
- Citibank
- and... JP Morgan
In other words, there is roughly a 33% minimum probability that JPM will soon be ensnared in one of the biggest, more comprehensive cases of collusive and manipulative bank fraud in the history of the banking. And remember: the Fed will throw anyone under the bus simply to redirect attention and anger from where it truly lies: with the academics who cogitate daily in the Marriner Eccles building, where they believe they are more efficient than the entire market when it comes to setting the price of money.
Even JP Morgan.
* * *
Off topic: on the JPM conference call someone who ordinarily would never be allowed to ask a question, did just that. Here is what he said:Maybe from the perspective of the buy side, a long suffering shareholder and my clients, I’d like to follow-up on Mike Mayo’s question and also reference to KBW report that looked at the potential of splitting off the Chase Consumer Bank with RON credit and having a standalone JPMorgan Commercial bank, investment bank trust and TSS.And the point being much as the tipping point or actual diseconomies of scale, and even if there are economies of scale, the stock market refuses to acknowledge it in terms of the multiple continuum to come down. And I look at the track record over the past year, so and notwithstanding a great performance relative to a pretty low VaR. but it's still a good performance. But we've had the mortgage servicing issues, mortgage foreclosure issues, and military veteran issues, energy, commodities, sales practices, now that’s inexcusable, just unbelievable CIO debacle, and now potentially LIBOR. And I think about, what has to happen for either you as a management team or you as a board to finally say, we are a great institution and we own a lot of great businesses, but we have reached that point where we are too big to manage, and in the interest of our shareholders there’s a different corporate structure that would better serve your owners. Thank you.
Someone gets it. But not Jamie Dimon. His response why he is perfectly happy being a TBTF bank with great economies of scale, and even greater embedded fragility.
Jamie Dimon: Right, I would respectively say that, yeah certainly the cross-sell is very obvious, and that's why we’re not look at separating into numerous companies, but I'm just wondering at what point it does become more apparent that there are diseconomies and is it potential that, is it possible to have CIO in part of a smaller institution, it would have gotten the management look that it required....You could have argued the other way, there is a huge source of strength that helps growing this company, do all these norms and do best during the involvement, do all these wonderful things, CIO was a mistake, and we’re sorry.
Yes, and the next time JPM blows up, we will all be sorry.
and....
http://www.zerohedge.com/news/lieborgate-escalates-barclays-implicates-rest
Lieborgate Escalates As Barclays Implicates 'Rest'
In a memo released to Barclays staff, outgoing Chairman Marcus Agius appeared to throw the rest of his Liebor-fixing cohort banks under the bus, noting that "As other banks settle with authorities, and their details become public, and various governments' inquiries shed more light,our situation will eventually be put in perspective" by the fines handed out to other international banks. As Sky Newsreports, it appears 90 million emails and 1 million voicemails will be made available to the independent body spearheading the Liebor probe - the details of which are being finalized this weekend. While the rest of the memo focused on the restoration of Barclays' reputation and the "trust that has been so badly damaged", they quite clearly hinted at its rivals were likely to be hit with even harder fines that the GBP290 million imposed on Barclays. They add, as if we did not need reminding that "the macro-environment remains febrile, especially in Europe. We have to remain vigilant on balance sheet exposures and risk management. In short, our focus must remain on capital, funding and liquidity; improving returns; and driving income growth." But we can't help but feel a Citi's Chuck Prince-esque defense coming here that 'everyone was doing it' and while the music still played, we kept 'dancing'.
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