Tim Geithner, The New York Fed & LIBOR
Outstanding update and summary from the Huffington Post. Commentary is below.
Let's say you're one of the most important banking regulators in America, and you get word that some of the world's biggest banks are manipulating an interest rate that affects borrowing costs throughout the economy. Do you: a) leap into action and not rest until the problem is solved, or b) write a strongly worded memo and then hope for the best?
According to reports in The New York Times and the Wall Street Journal, then-New York Fed President Timothy Geithner chose b), writing a six-point memo to the Bank of England on how to fix the process of setting Libor, the hopelessly manipulated interest rate. And then he turned his attention to other things, such as being Treasury Secretary, for the next four years.
The result of this choice -- one that was apparently made by every other regulator on both sides of the pond, to be fair -- has been a banking scandal of epic proportions. It will involve Geithner and his then-boss, Fed Chairman Ben Bernanke, testifying before a Senate subcommittee later this month. It could well cost the 16 banks involved $22 billion, according to a new estimate by analysts at Morgan Stanley (which is not involved in this particular scandal). And the manipulation of Libor may have already cost consumers, businesses, cities, states and school districts untold millions and/or billions of dollars, which an army of plaintiffs' lawyers are gearing up to extract from the banks. Maybe Geithner did not choose too wisely?
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DB here. For an alternate point of view on LIBOR read this from Bruce Krasting. Bruce is correct regarding the liability gold rush as the manipulation has tended to keep consumer rates lower than they otherwise would have been, but I beg to differ on the issue of 'nooses', as he writes below. Given rampant unpunished fraud, and unless and until the system someday arrives at a point where the prison-industrial complex just can't keep up with the demand because we're putting so many of the septic squid behind bars, then there is no such thing as a bad reason to prosecute Wall Street. Period.
People have been sandbagging Libor quotes since Libor was originated. I don’t believe that there is a money pro on either the buy or sell side over the past thirty years who didn’t understand that the Libor Fixing was “fixed”. If they claim to be “shocked” today, they are either lying or stupid. The same goes for every central banker and treasury official that knows the way to the bathroom. As far as any consumers who took out a Libor based loan are concerned; they have no claim at all. If Libor hadn’t been “fixed” all these years they would have paid substantially more on those loans. Libor has always been jimmied down, not up. The world has been looking for an excuse to hang some bankers (and a few regulators). Liborgate looks like it could be the opportunity for the bloodletting. I’m convinced that this is the wrong issue to bring out the nooses.
Jul 13, 2012 at 6:51 PM
Reader Comments (16)
http://www.huffingtonpost.com/2012/07/10/timothy-geithner-barclays-libor_n_1662389.html
http://dealbook.nytimes.com/2012/07/12/geithner-was-aware-of-problems-with-key-interest-rates/
http://www.huffingtonpost.com/2012/07/11/libor-scandal-lawsuits_n_1665708.html
"In the case of Oakland, California, in 1997 the city agreed to pay Goldman Sachs a fixed 5.6% rate in exchange for a payment equivalent to 65% of LIBOR until 2021 on a notional amount beginning at $170 million, and reducing over time as the principle on bond debt it mirrors is paid off. As the chart below shows, it was never a good deal for the city over the long-run since the net balance of payments, the difference between Oakland’s constant 5.6% obligation and whatever LIBOR happened to be on any payment date, was always in the bank’s favor. When LIBOR dropped to less than 1% in 2008 Oakland, however, was stuck with a toxic swap contract requiring millions in payments to Goldman Sachs each year, with no meaningful hedging function against climbing variable rates."
http://www.dollarsandsense.org/archives/2012/0512bondgraham.html
Jefferson County, Alabama is in the same boat on this, though for other reasons related to the deal in additon to the LIBOR manipulation.
"[T]he legal thrust was comparable to prosecuting Al Capone on tax evasion charges: the auctioneers’ true crimes were greater but largely unprovable."
http://gseart.com/ (State-of-the-Market Report, 2000)
And how did that end up?
"Sotheby's chairman A. Alfred Taubman was sentenced to jail."
http://nymag.com/arts/art/features/30620
I hope LIBOR-rigging is prosecuted and litigated to the hilt. Not only is it easily provable and thus likely to result in the convictions of criminals who are stealing from Main Street (brain dead reporters notwithstanding), but because the trove of documents and evidence that would emerge will shock even the most cynical among us--evidence that could well uncover more crimes and lead to more prosecutions.
Through its hubris toward justice, Wall Street has put itself in the position of one extremely long line of closely spaced dominoes. Here's to hoping LIBOR is the first to topple...
I honestly believe that is exactly what has crossed the minds of those in a position to actually do something -- and they don't want that. It MAY be because of a fear (unfounded) that to set the dominoes toppling would "destroy the global financial system" or some stupid shit like that. Of course, there is also cowardice. And then, there's greed. Make nice with the bankers and then go work for them (or take campaign donations from them or whatever).
In any case, I think you're right. We'd see some real doozie emails once the discovery process started.
So what! There are more then enough right issues to justify nooses, firing squads, and guillotines. Prosecute them, find them guilty and lock them up before the people they put in the streets and robbed of their futures start killing them. I hate to think that if some poor bastard who lost everything gets a chance to take out one or more of these crooks he goes to jail when he ought to get a medal, and credit to buy more ammo.
Colby College stands by scandal-tainted trustee chairman Robert Diamond
http://www.onlinesentinel.com/news/bankers-local-ties-run-deep_2012-07-13.html
[snip]
Robert E. Diamond Jr., the Massachusetts native and 1973 graduate, with a bachelor’s degree in economics, has been generous to his alma mater, pledging more than $14 million since 2003 to the private college through a private family foundation.
The college is sticking by Diamond, the former CEO of British bank Barclays who has been called one of the world’s richest bankers. He’s a Colby alumnus and benefactor, with a prominent building named after him, and has donated a lot of money to U.S. Sen. Olympia Snowe, R-Maine.
Notably, the foundation reported having more than $3.3 million invested in Barclays stock in 2010.
Diamond resigned from Barclays, Britain’s second-largest bank, on July 3 under company pressure. News reports said he had lost regulators’ confidence
Look it up.
My family was raised to do one's best and not take too much and forget divine absolution. It will not be forthcoming so one had better mind their manners. I try to sleep on the ground outside if at all possible. Poor Timmy.
The Frenchman who had sold shares of ventures into the central area of North America lost everything when The Louisiana Purchase of 1803 transpired. He had built a castle, in France, rivaling the King of France's, so the King sold this territorial claim to the early United States for less than 3 cents an acre. The developer was last seen doing the 'cat nonchalant walk' down the road with enough belongings to fill a handkerchief. He disappeared without a trace.
I know about the Bush neocons taking Timmy's soul when he was a wee nipper, and I feel a lifetime of community service would do him good. He would have to give up the bling, however. All of it.
http://www.reuters.com/article/2012/07/15/us-banking-libor-eibor-idUSBRE86E03N20120715
[snip]
Barclays belongs to a panel of 12 banks that quote indicative interbank lending rates in UAE dirhams. The quotes are averaged to arrive at a daily range of Emirates Interbank Offered Rates (Eibor), which are used to price financial instruments in the Gulf's top financial centre.
"Barclays has indicated to the UAE central bank that it wants to quit the panel, and the central bank has called for a meeting on Tuesday to discuss who will replace Barclays," a source familiar with the matter said, declining to be named because a public announcement has not yet been made.
A Barclays spokesman was not immediately available to comment. UAE central bank treasury officials declined to comment.
http://www.paulcraigroberts.org/2012/07/14/the-real-libor-scandal/
What's interesting is that it's a joint piece from Paul Craig Roberts (assistant Treas. Sec'y under Reagan) and Nomi Prins (whose work appears frequently in "lefty" publications like Mother Jones, the Nation, etc.).
Prins' book It Takes a Pillage is probably the hardest-hitting print resource available on the 2008 bailouts.
http://bangordailynews.com/2012/07/21/news/mid-maine/occupy-augusta-protesters-call-on-colby-college-to-disassociate-from-scandal-plagued-former-barclays-chief/
....see my July 14 7:31 am post....
http://www.nakedcapitalism.com/2012/07/satyajit-das-the-libor-fix-part-1.html
"Batman" Shooter’s Father Was Scheduled to Testify as Whistle-blower in Libor Bank Fraud Scandal
http://www.imackgroup.com/mathematics/917011-batman-shooters-father-was-scheduled-to-testify-as-whistle-blower-in-libor-interest-rate-scandal/
[snip]
Robert Holmes, the shooting suspect’s father, is a senior lead scientist with FICO, the American credit score company. He was scheduled to testify in the next few weeks before a US Senate panel that is investigating the largest bank fraud scandal in world history. This banking fraud threatens to destabilize and destroy the Western banking system.
Robert Holmes not only uncovered the true intent of the massive LIBOR banking fraud, but his “predictive algorithm model” also traced the trillions of “hidden”dollars to the exact bank accounts of the elite classes who stole it. In other words, Robert Holmes could NAME NAMES!