Thread: LIBOR: The Biggest Con In Finacial History

Robert MorleyColumnist

LIBOR: The Biggest Con in Financial History

July 17, 2012 | From theTrumpet.com
Could a lie destroy the Western world’s financial system?



The libor (London Interbank Offered Rate) is the benchmark interest rate for a whopping $800 trillion of financial instruments—that’s more than 10 times global gross domestic product. It is at the heart and core of virtually every piece of debt that is issued to consumers around the world. Credit cards, car loans, mortgages, student loans, interest rate swaps and other complex derivative products all depend on the libor rate.
And apparently libor is rigged.

Barclays, JP Morgan Chase, Bank of America, Lloyds and 12 other big banks stand accused of colluding to manipulate libor. The Bank of England, the Federal Reserve, and now U.S. Treasury Secretary Timothy Geithner stand accused of aiding and abetting.

The Anglo-Saxon financial system is in turmoil.

If regulators allow lawsuits to proceed, and if banks are proven in court to have manipulated libor rates, the financial consequences will be massive. More critical, however, is the damage to confidence in the English-speaking world’s financial system—-that broken trust may very well be irreparable.
It could even be the end of Anglo-Saxon global financial dominance.

The good news, if you can call it that, is that so far only British bank Barclays has admitted to fixing interest rates. As punishment, authorities fined it $455 million—peanuts for an organization whose yearly profits often run into the multiple billions. Not a person went to jail. It is about the equivalent of fining Bonnie and Clyde or John Dillinger $100 and turning them loose again.
But America and Britain’s other big banks have now been fingered. JP Morgan Chase, Citi Group, Bank of America and others have admitted they are under investigation. If guilty, they may have defrauded investors, states, municipalities, pension plans—even everyday homeowners with a mortgage—tens of billions of dollars. Maybe a lot more.

According to allegations, the banks colluded to set interest rates and then passed the information on to their trading units, which then were able to speculate with impunity—at the expense of virtually the whole world.
A couple of years ago there was a lot of media mystification about how big banks like Goldman Sachs were able to go a whole quarter without a single day of trading losses. Now we know. It isn’t that they are smarter than everyone else, it is because they cheat.
But the scandal goes beyond cheating. Barclays has indicated that both the Bank of England and the Federal Reserve of New York (then under current U.S. Treasury Secretary Timothy Geithner) were aware of the manipulation at least as far back as 2007—but chose to do nothing. The Bank of England stands accused of actually encouraging Barclays to manipulate the interest rate so as to let it appear financially stronger than it actually was during the 2008 financial crisis.

But most shocking of all is the lack of shock.
The consensus of some analysts is that, yes, the banks were cheating—but they are banks! Isn’t that what they do?

One Barclays manager excused the bank’s actions this way: “So, to the extent that, um, the libors have been understated, are we guilty of being part of the pack? You could say we are.”
Everyone was lying. Everyone was cheating. Everyone was stealing. And nobody had any problem with that.
It’s as if people checked their moral coats at the door when they came into work. “Dude! I owe you big time!” wrote one happy Barclays staffer in an e-mail after colluding to manipulate the interest rate. “Come over one day after work and I’m opening a bottle of Bollinger,” said another in a separate e-mail.
The regulators were in on it too.
Bank of England’s Mervyn King knew about it in 2007. Nothing was done. The Federal Reserve has admitted it knew about Barclays too. In 2008, President Timothy Geithner fired off a quick memo to the Bank of England suggesting needed libor reforms, one of which was giving more U.S. banks a say in setting rates. That appears to have been the extent of Geithner’s effort to stop the fraud.

So the state-sanctioned pillaging continued.
It’s the crime of the century, says the Nation’s Robert Scheer: “Modern international bankers form a class of thieves the likes of which the world has never before seen. Or, indeed, imagined ….
“It reveals that behind the world’s financial edifice lies a reeking cesspool of unprecedented corruption. The modern-day robber barons pillage with a destructive abandon, totally unfettered by law or conscience and on a scale that is almost impossible to comprehend.”
“I don’t believe that there is a money pro on either the buy or sell side over the past 30 years who didn’t understand that the Libor Fixing was ‘fixed,’” writes retired FX trader Bruce Krasting. “If they claim to be ‘shocked’ today, they are either lying or stupid. The same goes for every central banker and treasury official.”
The whole system—from head to toe—is sick. There is no soundness to it.
Bank of England Deputy Governor Paul Tucker says his investigation has revealed a “cesspit.”
He says that beyond libor, other indexes and markets need to be investigated too. “I can’t be confident about anything after learning about this cesspit,” he said.
Mr. Tucker should know all about that cesspit. Barclays officials accuse him of not only condoning the libor manipulations, but have produced e-mails that they claim show he actually encouraged it during the height of the financial crisis in 2008.
If all the allegations prove true, this is the biggest financial scandal the world has ever seen, by far. Bernie Madoff is a piker. The mortgage mess, the robo-signing/rocket-docket perpetrators, Enron, WorldCom and the Long Term Capital Management frauds are nothing compared to libor.
Imagine if you were told that the Dow Jones Industrial average was rigged. Or that the U.S. dollar index never really measured the dollar’s value. That’s how big a deal this is.
And the sordid revelations keep coming.

Everyone knows that the crude oil market is subject to manipulation. The opec cartel exists for that reason. Similarly, everyone knows the Federal Reserve, the Bank of England, the Bank of China and other central banks manipulate the values of their currencies to achieve policy goals.
But now investigators are finding that even the most widely relied-upon and important indices—ones that the public has been led to believe to be free—are actually fixed too. Markets for natural gas, various metals, foodstuffs and other commodities may be just as fraudulently manipulated by financial institutions and their traders as libor.
On July 2, the U.S. Federal Energy Regulatory Commission sued JP Morgan over possible manipulation of electricity markets in California and the Midwest. The allegations could hardly come at a worse time.
The global financial system was apparently a racket all along—the banksters just temporarily convinced the world otherwise.
Now confidence in the whole system is being broken.
“If you can’t trust what is believed to be a market-based price, then you have to question all market-based prices,” says Cumberland Advisers chief investment officer, David Kotok.
“libor is probably the single-most supposedly market-based price of credit in the world,” he says. “And now we see it may have been rigged and rigged for a long period of time. It’s destructive of confidence to the ‘nth’ degree and calls into question huge elements of finance.
“If you can’t trust the regulatory authorities, who are supposed to be protecting investors, institutions and participants, then who can you trust?”
That’s a hugely important question that investors and governments around the world are sure to be asking: Can the Anglo-Saxon financial system be trusted?
The implications will affect us all.
The U.S. dollar is a fiat currency. Like all fiat currencies, its value is not linked to any tangible asset. The only thing backing the value of the dollar is the confidence that it will be able to purchase a similar amount of goods tomorrow as it does today. But here is the catch. There is no standard that determines what a dollar is worth—it’s all relative. The dollar’s value could collapse overnight.
The same is true for every currency, whether euro, yuan or pound. Each is backed by confidence—confidence that the national government will impartially enforce the law, confidence that the government will honestly pay its debts (not just print more money), and confidence that the currency will remain a store of wealth.
And most importantly, the value of the dollar is predicated on confidence that the economic system as a whole is largely trustworthy.
It is that confidence—confidence in America and Britain—that is now being questioned.
When that confidence is broken, faith-based economic systems collapse rapidly and spectacularly. Foreign investors flee; capital flight ensues; governments can no longer borrow money, so they print it; inflation soars, currencies devalue; economies devolve—and First World nations become Third World.
The libor scandal should better be called the liebor scandal. And it may very well be the lie that breaks America and Britain. •



LIBOR: The Biggest Con in Financial History - Columns - theTrumpet.com - World News Analysis Based on Bible Prophecy by the Philadelphia Church of God

Deep Into The Lieborgate Rabbit Hole: The Swiss Hedge Fund Link?


Submitted by Tyler Durden on 07/18/2012 20:36 -0400

• Barclays
• British Bankers' Association
• Deutsche Bank
• LIBOR
• Morgan Stanley
• New York City
• Nomura
• RBS
• Royal Bank of Scotland
• SocGen
• Switzerland

That Lieborgate is about to spill over and take down many more banks is well known: as previously reported that the world's biggest bank Deutsche Bank, has become a rat for the Liebor prosecution having turned sides. The reason: "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." However, just like in the case of Barclays (with Diamond), JPM (with Bruno Iksil), UBS (with Kweku) and Goldman (with Fabrice Tourre), there always is a scapegoat. Today we find just who that scapegoat is. From Bloomberg: "Regulators are investigating the possible roles of Michael Zrihen at Credit Agricole, Didier Sander at HSBC and Christian Bittar at Deutsche Bank, the person said on condition of anonymity because the investigation is ongoing. The names of the banks and traders were reported earlier today by the Financial Times."
Of course, as so very often happens, the link between the investigated firm, and the person in question no longer exists - after all what better brute way to tie up loose ends, than to fire the person in question at some point in the past: "Michael Golden, a spokesman for Deutsche Bank, confirmed that Bittar left the bank last year and declined to comment on the investigation." Not surprising. Yet this is where the story gets interesting, and provides a whole new twist on the Lieborgate scandal.

Notice that up until now, the only firms that have been implicated in Lieborgate are, by definition, the BBA member banks which provided daily USD Libor fixings. However, nowhere is it said that this information never exited this close knit cabal of 16 manipulating banks. After all, there are $2 trillion in AUM (a number that is likely $5 trillion when accounting for all the rehypothecated assets at the Prime Brokers) out there run by unregulated hedge funds, and all of these entities would certainly find a way to make a pretty buck on even the tiniest 'manipulated', and leveraged Libor arbitrage. And would also pay a pretty penny to get that info. Which brings us back to Bittar. And LinkedIn.

Since neither Bloomberg, nor the earlier FT article have any discussion of just where Mr. Bittar ended up, knowing quite well there is very likely a full-scale investigation forming into his Libor transgressions. The first place we went to, naturally, was LinkedIn, not because we expected to find his profile there: very few higher echelon bankers actually post their resumes on LinkedIn, but because we were fairly confident that the very useful function of seeing whose other profiles had been looked at in the context of even a "fake" Bittar, would provide us with clues. Sure enough that's precisely what happened.

Sure enough, the first entry for the DB trader is the following:

Christian Bittar

Owner, SAFETY DYNAMICS

Greater New York City Area
Construction

Hardly the person we are looking for. Yet what we were looking for is right here: the follow up profiles of people that are contextually relevant, and correct. And again the context, at least superficially, is anyone connected to a person who allegedly has been involved in Libor manipulation.

We get some curious names:



Going down the list, it just gets curiouser and curiouser as we go deeper and deeper into the rabbit hole.

The first person:

• philippe moryousse, Managing Director at Morgan Stanley
  

a cursory search reveals the following on philippe: From February

Barclays reported a suspected manipulation of the Euribor by one of its employees, Philippe Moryoussef, who left the bank in 2007 and is currently employed with Nomura Singapore.

Addressing the allegations, a Nomura spokesman said: “Nomura is aware of the investigation into the setting of Euribor and Libor rates. The allegations against Mr Moryoussef are related to a period of time before he joined Nomura. We would point out the fact that Nomura is not a member of either the Euribor panel or the Libor panel, and therefore has no role in the setting of these rates.”

And yet, as of literally 9 hours ago:

Philippe Moryoussef, a Singapore- based derivatives trader at Nomura Holdings Inc., (8604) Japan’s biggest brokerage, left the bank as investigators probe his involvement in the suspected manipulation of interest rates, according to two people with knowledge of the move.

Moryoussef’s departure last month was by mutual agreement and relates to his work at his past employer, Barclays Plc (BARC), rather than Nomura, said one of the people, who asked not to be identified because the departure hasn’t been made public. Moryoussef didn’t return messages sent via LinkedIn and wasn’t contactable through directory searches in Singapore and London.

Moryoussef joined Nomura in February 2011 after a yearlong stint at Morgan Stanley, according to the U.K. Financial Services Authority’s register. He worked at Edinburgh-based Royal Bank of Scotland Group Plc (RBS) from August 2007 to June 2009 and at London-based Barclays from May 2005 to August 2007.

FSA spokesman Chris Hamilton declined to comment on whether Moryoussef is under investigation as part of its probe. Officials at Barclays declined to comment on Moryoussef.

So immediately we get one indirect connection, at least based on others' curiosity, into a person who has just left once more after his past transgressions at Barclays back in 2007 have become evident. Something tells us Philippe is one of the anonymous gentlemen whose Champagne-reference laden emails have made the case against Barclays legendary. Oh and his previous stint at RBS is likely about to be exposed too.

But like we said this is not about banks, there are more interest fish to fry here. Namely pure-play buysiders. Which is why we continue down the list, until we find...

• Michael Zrihen, Senior Portfolio Manager at Lombard Odier Asset Management, based in Geneva, Switzerland
  

What does Michael do, and what did he do before?

Current: Senior Portfolio Manager at Lombard Odier

Past: Head of the Euro Short term IRD Market Making and Proprietary Trading at Credit Agricole CIB
Proprietary Trading, Executive Director at SGCIB
Co-Head of Euro STIRD desk at SGCIB

IRD means Interest Rate Derivatives means, you guessed it, Lie-bor. And where is that name familiar from? Oh yes. First paragraph above:

Regulators are investigating the possible roles of Michael Zrihen at Credit Agricole, Didier Sander at HSBC and Christian Bittar at Deutsche Bank, the person said on condition of anonymity because the investigation is continuing. The names of the banks and traders were reported earlier by the Financial Times.

So allegedly Zrihen, who now works in Geneva (keep a note of this), manipualted Libor at CA, and is now at Lombard Odier - "Geneva's oldest firm of private bankers and one of the largest in Switzerland and Europe." There is no news on whether Zrihen has been let go by Lombard Odier. Yet.
Next, we continue down the list, until we reach.... Richard Fell:



Well lookee here: another former INTEREST RATE DERIVATIVES TRADER, which means that he likely is that as a PM at his current firm BlueCrest as well. And note also where BlueCrest is based: Geneva, Swizterland.

At this point we decide to do another search: one for Christian Bittar and BlueCrest, and guest what we find, courtesy of Derivatives Intelligence:



The original LinkedIn list continues (much to the likely chagrin of at least one SocGen trader and one more CA-CIB banker), but we have seen enough, and the pattern is forming: it appears that the bankers who were allegedly involved in Libor manipulation in some capacity in their previous lives working for banks, decided to quietly depart under mutually acceptable conditions and find new lives, still trading Libor and IR derivatives, in some of the best known, and even less regulated, Swiss hedge funds and private banks.
Our question then is the following: while much has been said about Lieborgate as being purely associated with the 16 BBA USD fixing member banks, just who else made money, and is the traditionally quiet and always under the radar Swiss financial community about to be exposed for having profits far more from Lieborgate than any of the BBA member banks?

Because if the stigmatized traders were accepted with open arms at various Swiss hedge funds, one would think there may, just may have been, some quid pro quo in the past (for those who have worked in the financial industry this needs no further explanation).

We eagerly await the answer, and perhaps the Swiss regulators to finally wake up to their own "pristeen" financial industry.

Deep Into The Lieborgate Rabbit Hole: The Swiss Hedge Fund Link? | ZeroHedge

Citi, Bank Of America, And JPMorgan Enter Lieborgate: Congress Expands Libor Probe To Big Three Domestic Banks


Submitted by Tyler Durden on 07/17/2012 20:40 -0400

• Bank of America
• Bank of America
• Barclays
• Ben Bernanke
• Ben Bernanke
• Borrowing Costs
• Citigroup
• Federal Reserve
• House Financial Services Committee
• JPMorgan Chase
• LIBOR
• New York Fed
• Reality
• United Kingdom

When the Fed released its "trove" of materials confirming that the Fed indeed knew that the Barclays was manipulating its Libor submissions (amusingly explained by Ben Bernanke before Senate today that "the employee had no idea what Libor is in that case"), few were surprised, but more were confused why the congressional inquiry focused solely on the Fed's interactions with British Barclays, instead of focusing on the three domestic banks that were part of the BBA's USD Libor fixing committee. And only three US banks. As we observed previously:

zerohedge @zerohedge
The DOJ realizes it can't pin Liebor on Goldman right? It has to be Citi, BofA or JPM

15 Jul 12

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And while the DOJ may not have gotten the memo just yet that of the 16 LIBOR fixers, 3 were US, and all most certainly engaged in the same manipulation that has now cost Barclays the posts of its Chariman, CEO and COO, some Congressmen have gotten the memo. Bloomberg reports: "Congressional investigators probing banks’ efforts to rig the London interbank offered rate plan to request correspondence between the Federal Reserve and U.S. banks that help set the rate. ’’What we’re going to do now is expand our inquiry into the domestic banks and see what kind of dialogue began with the Fed and these banks,’’ Representative Randy Neugebauer, a Texas Republican and chairman of the oversight and investigations panel of the U.S. House Financial Services Committee, said in an interview on CNBC today."

Which banks? In this case, those who should be investigated.

Neugebauer intends to request correspondence between the Fed and the three U.S. banks on the Libor-setting panel, JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Bank of America Corp., according to a congressional aide, who spoke on condition of anonymity because the details were not yet public.

The U.S. central bank is drawing more scrutiny from lawmakers critical of its record as a bank regulator after the New York Fed released documents showing it was aware that Barclays Plc (BARC) underreported borrowing costs in 2008. Neugebauer requested the documents, which were made public July 13.

And where it gets tricky is that the Chairman today already made it very clear that Libor manipulation is "unacceptable behavior." He may have a harder time explaining if it is next uncovered that not only did the Fed know that Barclays was engaging in such unacceptable behavior, but that the three biggest US banks, two of which - BofA and JPM - had the lowest Libor submissions around the time in question, as Zero Hedge first demonstrated, and one of which is still an indirect ward of the state, not only did the same, but were encouraged by the Fed to do so.
Sadly, the UK does not have Dancing with the Stars and Jersey Shore, which is why heads have rolled. In America, first the general populace has to understand why all of this is important, then it has to grasp who is at fault, and finally that it was all really the Fed's fault. Sadly, with $0.99 iDistractions and reality TV, this is never going to happen.

And with "probers" like Chuck Schumer around, who needs aliens?

But one can dream.

Citi, Bank Of America, And JPMorgan Enter Lieborgate: Congress Expands Libor Probe To Big Three Domestic Banks | ZeroHedge

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