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The Real LIBOR Scandal



July 11, 2012 – Comments (2) | RELATED TICKERS: BCS , GS

Board: Macro Economics

Author: yodaorange

The REAL LIBOR scandal has NOTHING to do with what Barclay’s did IMO. With all due respect to TMFSinchiruna’s excellent article, I have an entirely different view of the situation.

Is anybody surprised that:

a) Barclay’s lied about their true interest cost (fact)
b) That Barclay’s management knew they were lying about it (fact)
c) That the Bank of England knew Barclay’s was lying about it and did NOT stop it at the time (fact)
d) Some of the other 15 banks that report their interest rates, also lied about them (alleged at this point)
e) The US Fed knew about the lying and did NOT report it (alleged at this point)

At least amongst METARites, I would expect that few would be surprised at any of these actions.

As a result of the LIBOR situation, Barclay’s Chairman, CEO and COO all “resigned.” It is not known if they were coerced to resign or if they did it on their own. The CEO, Bob Diamond, has also announced that he will forfeit his severance package.

What I do find scandalous is how the US handled similar situation(s). The most clear cut example IMO is Goldman Sachs and their Abacus mortgage backed CDO’s.

a) Goldman lied to its customers about who picked the mortgages for the CDO (John Paulson)
b) Goldman kinda forgot to tell its customers that it was shorting the Abacus CDO’s it was selling them
c) Goldman management knew about this at the time
d) Goldman got called before Congress to testify about Abacus
e) Goldman denied they had done anything wrong, contrasted with Barclay’s that did accept responsibility for its actions
f) Goldman LIED to Congress, at least in the opinion of Harvard Law School graduate Senator Carl Levin
g) The Justice department tried baseball player, Roger Clemens, two times for lying to Congress. The Justice department did NOT charge anyone from Goldman.
h) Goldman paid $550 million to settle the case, without admitting to any wrongdoing
i) NO executives resigned or were coerced to resign over this situation

YODA’s opinion is that this is SCANDALOUS. It appears that US regulators are missing testicles. It appears that British regulators have testicles.

AT A MINIMUM, Goldman’s Chairman, CEO and COO should have “resigned” IMO. If they would NOT volunteer to do this on their own, the Fed has plenty of regulatory authority to make this happen. Goldman’s lead regulator is the Federal Reserve Bank of New York. The president of the NY Fed is William Dudley,

It is simple. Bill calls up the Goldmanites and tells them they have two choices:

a) Resign effective today
b) Lose their primary dealer status and access to the discount window effective today

One small point. Bill Dudley’s previous position was Chief Economist of GOLDMAN SACHS. So if he is too shy to make the call, surely Chairman Bernanke can make the same call.

Maybe the phones were broken that day. For some reason, the call did not go through. Or maybe the carrier pigeon got lost. We are still waiting.

Brit’s should be encouraged that if their TBTF banks mess up, heads will roll at the TOP. It might not prevent another mess, but arguably it will have some deterrent effect. On the other hand, American’s can rest assured that the TBTF can abuse customers, lie to Congress yet keep their jobs and their bonuses. It encourages careers working for the US TBTF.


(I chose Goldman because it is the easiest target. Certainly, other TBTF firms performed similarly.)



2 Comments – Post Your Own

#1) On July 11, 2012 at 3:34 PM, materialsman92 (41.77) wrote:

good thinking master Yoda

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#2) On July 12, 2012 at 11:27 AM, Option1307 (30.63) wrote:

Nice write up, +1.

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