The $800 Trillion Scandal: How Banks' LIBOR Lies Affected You
July 09, 2012
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My latest on LIBOR is an AOL feature:
http://www.dailyfinance.com/2012/07/09/the-800-trillion-scandal-how-banks-libor-lies-affected-you/
Excerpts:
Combining the penalties assessed by a trio of U.S. and British regulators, and the roughly $155 million that Barclays spent during the multiyear investigation, this one bank alone has incurred more than $600 million in charges. The bank's CEO, Bob Diamond, has resigned in disgrace, and the familiar Barclays name has been significantly tarnished.
By messing with the LIBOR benchmark rates that are tied to an estimated $800 trillion of securities, the offending banks essentially played with matches in the middle of the world's largest house of leveraged cards. The combined gross domestic product of all the nations of the world is only about $70 trillion, so the towering mountain of LIBOR-connected securities out there climbs into the realm of leveraged derivatives like those that nearly brought the global financial system to its knees at the height of the 2008 credit crisis. First by building that leveraged house of cards in the first place on a completely obscene scale, and then by shaking its very foundation by manipulating the interest rates on which all that paper is based, the rate-rigging banks took unthinkable risks with the fate of the entire global financial system.
I am utterly convinced, for example, that gold and silver prices have been routinely manipulated by certain banks to deflect attention from the weak condition of the major paper currencies. We know that a subsidiary of JPMorgan Chase is under investigation for alleged energy-market manipulation. And a slew of banks have been implicated in a municipal bond-rigging scandal that, in the words of Rolling Stone reporter Matt Taibbi, reveals "the astonishing inner workings of the reigning American crime syndicate."
I'm quite certain that plenty of good, honest people working in the banking industry are just as outraged as we are by these sorts of revelations. But unfortunately there is but one inescapable conclusion to draw from LIBOR-gate and the vast array of 21st-century banking scandals: Where opportunity and motive coincide for banks to pursue their own agenda through secretive and unsavory means, it seems far safer to presume that they will rather than to trust that they will not.
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