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Libor Scandal Reflects a Cesspool of Financial Fraud

by Stephen Lendman Sunday, Jul. 08, 2012 at 4:19 AM


Libor Scandal Reflects A Cesspool of Financial Fraud

by Stephen Lendman

At issue is a bad barrel, not a few rotten apples. Western banking is rife with fraud. The business model of major banks is grand theft.

UK-based Barclays bank was caught in a Libor rigging scandal. Other major banks are involved. Expect more to come out. How much and who's named remains to be seen. More on that below.

Libor and Euribor are mechanisms used to set interest rates.

Euribor stands for the Euro Interbank Offered Rate. It's one of the reference rates for interbank lending.

Libor is the acronym for London Interbank Offered Rate. It's a fundamental rate-setting benchmark. It's set daily between UK banks for overnight to 12 month durations.

It's produced for ten currencies with 15 maturities. It represents the London market's lowest cost of unsecured funding. It's the primary global short-term rate benchmark.

Since the 1980s, it expanded exponentially in importance. London's status grew as an international financial center. It's the world's largest.

Over 20% of all international bank lending occurs there and more than 30% of all foreign exchange transactions.

Over 240 of the world's largest banks operate key parts of their international business there. It's the world's "cowboy finance capital," says economist Jack Rasmus.

In the 1980s, libor began growing in importance. Demand grew for an accurate measure of the real rate at which banks and other financial institutions could borrow from each other.

It affects the price and availability of capital. The higher Libor goes, the greater the borrowing cost for business, individuals, real estate and other loans.

Libor anchors contracts for multi-trillions of dollars. One analyst said it's like plumbing. When working well, it isn't noticed. When not, all hell breaks loose.

It's a vital factor in the interest rate swaps market. These contracts let one bank or other organization pay a fixed rate of interest on a given amount of money from another financial institution.

In turn, it pays a floating rate like Libor. The global swaps market approaches 0 trillion.

According to the Bank for International Settlements:

"(I)nterest rate swaps are the largest component of the global OTC derivatives market."  

"The notional amount outstanding as of June 2009 in OTC interest rate swaps was 2 trillion, up from 0 trillion in Dec 2007."  

"The gross market value was .9 trillion in June 2009, up from .2 trillion in Dec 2007."

In theory, it lets lenders and borrowers minimize the risk of interest rate changes. It doesn't always work that way.

Nonetheless, without a mechanism in place, banks might not lend at fixed rates. They pay depositors floating ones. If rates rise, so do costs. If they exceed revenues, crises follow.

Predatory Capitalism Failed

Rodney Shakespeare is Professor of Binary Economics at Trisakti University, Britain. He's a financial expert. He's a regular on the Progressive Radio News Hour.

He said Libor rigging affects "a thousand trillion dollars" in contracts of one sort or other globally. It exceeds global GDP 15 or 20-fold.

Barclays reflects a corrupt system. Other major banks operate the same way. Western politicians permit it. "They uphold the doctrine that whatever banks do is right."

They're failing. They're zombie banks. The entire system is corrupt. It's crumbling. Barlays is in the center of the UK storm, but watch out. Expect more globally, much more. It's coming.

The seriousness of what's known is that a system portrayed as just and sound is failing. At issue is rampant speculation at the expense of stimulating real economic growth.

Casino capitalism doesn't work. Economies suffer. So do ordinary people. The entire banking system risks collapse. Buying time alone is possible. Barclays is part of a far greater unresolved problem.

John McMurtry calls it the cancer system. The longer it goes unaddressed, the worst things get. "Organic, social and ecological life" harm grows.

Life-system collapses define the problem. Societies are consumed. Humanity suffers.

The system is too corrupt to fix. At issue is clearing it out and replacing it with an entirely new paradigm.

Central bankers and complicit politicians bear full responsibility for what's happening. They're heading economies for a worse disaster than the Great Depression.

As stated above, Western banking is rife with fraud. One scandal follows another. The latest involves Libor rigging. It's not new.

Last February, the Wall Street Journal headlined "Traders Manipulated Key Rate, Bank say," saying:

According to an Ottawa court filing, "Canada's Competition Bureau said a bank it didn't identify has told the agency's investigators that people involved in the alleged scheme 'were able to move' interest rates."

"People familiar with the (scheme) said the 'cooperating party' is (Switzerland-based) UBS AG."

An investigation affected banks and traders in North America, Europe and Asia. No one was charged with wrongdoing.

At issue was Libor rigging.

Documents said regulators were also examining "alleged attempts to fix the prices of certain derivative financial products linked to Libor."

Parties involved "entered into agreements to submit artificially high or artificially low" quotes.

Traders "used emails and instant messages to tell each other whether they wanted 'to see a higher or lower yen Libor (rate) to aid their trading position(s),' according to court documents."

Traders "would then 'communicate internally' with the person at their bank who was responsible for submitting the Libor quote, before letting each other know if this attempt to influence the quote had worked."

The Canadian watchdog said six banks were involved: Citigroup, Deutsche Bank, HSBC, JP Morgan Chase, Royal Bank of Scotland, and UBS.

All major banks commit grand theft. It's standard practice. Corrupt politicians turn a blind eye. So do regulators. Western banking is rife with fraud.

All markets are manipulated up or down for profit. Enormous amounts are made. Governments and banks collude. High volume program trading drives prices either way. Nothing gets reported unless scandals erupt.

None the wiser ordinary investors get trampled. Financial history includes many examples of major financial institutions getting a free lunch at the public's expense.

Methods include market manipulation, insider trading, front-running, theft and conspiracy, misrepresentation, Ponzi schemes, false accounting, embezzling, appointing industry favorites as regulators, tax frauds, profiting from loans that fail, creating phony financial products, and assuring world financial capitals are banker occupied territories.

Barclays is the tip of the current scandal. Traders in London, New York and Tokyo colluded to manipulate Libor. Top executives and traders are involved.

They bear full responsibility for the 2008 financial crisis and what followed. They're up to their ears in fraud today. Media scoundrels report an illusion of stability. Government probes are toothless.

A City of Baltimore/Charles Schwab et al class action lawsuit names Barclays, RBS, HSBC, Bank of America, Citigroup, JPMorgan Chase, UBS and Deutsche Bank.

Perhaps future suits will charge Goldman Sachs, Wells Fargo, and major European banks not named above. They're all in it together. CEOs and other top executives conspire with each other and traders to commit fraud. Why not when corrupt politicians wink and nod and let them do it.

Bill Black says manipulating Libor is easy. What's coming out reflects "the largest rigging of prices in the history of the world by many orders of magnitude."

Top executives are directly involved. They have to be because they set policy and stand to gain hugely from fraud-driven profits.

The US Commodity Futures Trading Commission (CTFC) says:

"US dollar Libor is the basis for the settlement of the three-month Eurodollar futures contracts traded on the Chicago Mercantile Exchange, which had a traded volume in 2011 with a notional value exceeding 4 trillion."

The Wall Street Journal estimates 0 trillion. These type numbers are unfathomable.

The Financial Times headlined "Barclays boss discussed Libor with BoE," saying:

"The bank admitted that it lowballed estimates of its borrowing costs from late 2007 to May 2009 because it wanted to reassure investors of its strength during the financial crisis and it believed other banks were doing the same."

"It also admitted that its traders improperly influenced the rate submissions from 2005 to 2008 to make money on derivatives."

On the one hand, said Barclays, rogue traders committed fraud. On the other, bank executives submitted lower daily Libor rates than true costs to assure higher profits.

In the wake of the scandal, Chairman Marcus Agius and CEO Bob Diamond resigned. They and other banking crooks should be prosecuted and imprisoned.

Since banker caused crisis conditions erupted in fall 2007, no senior executive faced charges. Expect none now to be held criminally liable. At most complicit banks are assessed hand-slap fines. They're then free to steal again. It's standard practice.

On June 30, London Guardian writer Will Hutton headlined "Let's end this rotten culture that only rewards rogues," saying:

"The Barclays rate-rigging scandal has once again exposed a world where men and women with little skill and no moral compass can become very rich very fast."

"Investment banking is an organised scam masquerading as a business. It is defined by endemic conflicts of interest, systemic amoral behaviour and extreme avarice."

"Many of its senior figures should be serving prison sentences or disgraced – and would have been if British regulators had been weaned off the doctrine of 'light touch' regulation earlier and if the Serious Fraud Office’s budget had not been emasculated by Mr. Osborne (UK Chancellor of the Exchequer)."

"It is a tax on wealth generation and an enemy of honest endeavour – the beast that is devouring British capitalism."

It's far more than Britain, of course. It's global, unchecked, and hugely destructive. Regulatory oversight is absent. Mary Schapiro heads America's SEC.

She turns a blind eye to fraud and abuse. She protects Wall Street, not investors. She lets banks self-regulate, and why not. She's a consummate insider.

As former head of the Financial Industry Regulatory Authority (FINRA), she promoted self regulation. She also ran the the National Association of Securities Dealers' (NASD) and Commodity Futures Trading Commission. She's an expert at quashing fraud investigations.

So are UK Financial Services Authority (FSA) officials. Instead of regulating, they collude. Political leaders from major parties are involved. Duopoly power runs Britain and America.

Tories, New Labor, Republicans and Democrats prioritize what serves bankers. The economies of both countries are financialized. Casino capitalism runs them. Whatever bankers want they get. Stealing is legitimized without saying so.

Whitehall and Washington operate the same way. They facilitate fraud. It's institutionalized.

Politicians profit hugely from generous campaign contributions and high-paying jobs when leave government. Central bankers know what's going on and fuel it with bailouts and easy money.

On July 1, the London Telegraph headlined "Libor scandal: How I manipulated the bank borrowing rate," saying:

"An anonymous insider from one of Britain's biggest lenders – aside from Barclays – explains how he and his colleagues helped manipulate the UK's bank borrowing rate. Neither the insider nor the bank can be identified for legal reasons."

He gave presentations. He explained how Libor was rigged. It's easy, he said. No checks exist. Penalties for getting caught hardly matter.

"(E)veryone" knows what's going on and "everyone" does it. Fraud is part of the system.

A Final Comment

Ellen Brown describes a "Wall Street Protection Racket of Covert Derivatives....Prop(ing) Up US Debt," saying:

"Interest rate swaps are now over 80 percent of the massive derivatives market." Wall Street giants operate a "protection racket of a covert derivatives trade in interest rate swaps."

"The derivatives casino itself is just a last-ditch attempt to prop up a private pyramid scheme in fractional-reserve money creation, one that has progressed over several centuries through a series of “reserves”—from gold, to Fed-created “base money,” to mortgage-backed securities, to sovereign debt ostensibly protected with derivatives."

Libor is a vital factor in the swaps market. The cost of money affects them all. Privately created money at whatever interest rate bankers set "is the granddaddy of all pyramid schemes."

Despite "a quadrillion dollar derivatives edifice propping it up," eventually it'll collapse. Money power in public hands could prevent it. It's "ready to replace the old system when it comes crashing down," says Brown.

Corrupt politicians won't return money control to public hands where it belongs ahead of time to avoid it.

They benefit handsomely by standing pat. Why mess up a good thing by becoming honest.

Stephen Lendman lives in Chicago and can be reached at

His new book is titled "How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War"

Visit his blog site at and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

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