New York Times, Gretchen Morgenson Applaud British, Issue Challenge To American Regulators Over LIBOR Scandal — Barclays Scandal

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New York Times, Gretchen Morgenson Applaud British, Issue Challenge To American Regulators Over LIBOR Scandal

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Piggybankblog posted on 07/09/12

Cross linked with rollingstone.com

The New York Times and its outstanding financial reporter, Gretchen Morgenson, have published an important article about the LIBOR banking crisis, challenging American regulators to take this mess as seriously as the British appear to be.

We found out just over a week ago that Barclays CEO Bob Diamond, as well as several other senior Barclays officials, were pushed out of their jobs after Bank of England chief Mervyn King trained a mysterious Vaderesque power on them, impelling them to leave with an “inflection of the eyebrows.”

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Morgenson’s piece from Saturday, “The British, at Least, Are Getting Tough,” wonders aloud why American regulators – Ben Bernanke, cough, cough – don’t take a similarly stern approach with our own corrupt bank officials. First, she summarizes what seems to be the mindset of American officials:

“Dirty clean” versus “clean clean” pretty much sums up Wall Street’s view of cheating. If everybody does it, nobody should be held accountable if caught. Alas, many United States regulators and prosecutors seem to have bought into this argument.

This viewpoint has been particularly in evidence since 2008. Time and again, American regulators have appeared to be paralyzed by corruption in cases when most or all of the banks have been caught raiding the same cookie jar. From fraudulent sales of mortgage-backed securities, to Enronesque accounting, to Jefferson-County-style predatory swap deals, to municipal bond bid-rigging, the strategy of American regulators has been to accept “Well, everybody was doing it” as a mitigating factor when negotiating settlements, where that should have made them want to crack the whip even harder.

Why? Because “everybody is doing it” corruption is way more dangerous than corruption involving one or two rogue firms going off-reservation. Regulators who spot that kind of industry-wide problem, to say nothing of cartel-style anticompetitive corruption, should be in a panic: They should always impose serious, across-the-board punishments, and it goes without saying that senior executives responsible have to be removed.

This is exactly what has begun to happen in England, now that the British have gotten wind of this LIBOR scandal, which involves the worst and most serious form of corruption – huge companies acting in concert to fix prices/rates. As the Times explains:

Last week’s defenestrations of Marcus Agius, the Barclays chairman; Robert E. Diamond Jr., its hard-charging chief executive; and Jerry del Missier, its chief operating officer, apparently occurred at the behest of the Bank of England and the Financial Services Authority, the nation’s top securities regulator. (Mr. del Missier also seems to have lost his post as chairman of the Securities Industry and Financial Markets Association, the big Wall Street lobbying group. His name vanished last week from the list of board members on the group’s Web site.)

Morgenson notes that the Barclays CEO, Diamond, seemed shocked that there were actual consequences for his misbehavior:

MR. DIAMOND seemed shocked to be pushed out. An American by birth, he probably thought he’d be subject to American rules of engagement when confronted with evidence of wrongdoing at his bank. You know how it works on this side of the Atlantic: faced with a scandal, most chief executives jettison low-level employees, maybe give up a bonus or two — and then ride out the storm. Regulators, if they act, just extract fines from the shareholders.

The article goes on to point out the frightening fact that del Missier, the outgoing Barclays COO, was at the time the scandal broke the sitting head of SIFMA, the trade group representing securities dealers. We know from the emails Barclays released last week that del Missier was privy to the discussions about rigging LIBOR rates; he was one of the people Diamond was writing to when he penned a memo claiming that Paul Tucker, the Bank of England deputy chief, had urged the bank to fake its LIBOR rates.

At the very least, del Missier should have said something, should have opposed the idea. Instead, he went right on being a front for Wall Street’s largest professional association:

With each new financial imbroglio, the gulf widens between Main Street’s opinion of Wall Street and the industry’s view of itself. When Mr. del Missier, the former Barclays chief operating officer, took over as chairman of the Securities Industry and Financial Markets Association last November, he said: “We will continue to work on maintaining and burnishing the level of confidence investors have in our markets, in our own financial institutions, and in the general economic outlook for the future.”

Given the Libor scandal, let’s just say good luck with that.

Hear hear.

When the rest of this scandal comes out, and it turns out that up to 15 more of the world’s biggest banks (including Chase, Bank of America, and Citi) were doing the same thing as Barclays, our regulators better start “inflecting their eyebrows” pretty damn vigorously. Because if it comes out that these other banks were all involved with this scandal (and it will come out that way, almost for sure), and their CEOs and COOs get to keep their jobs, that’ll be a sure sign that the fix is in. Let’s hope Ben Bernanke, Eric Holder, and Tim Geithner are listening. 

His name is MATT TAIBBI AND HE IS FIGHTING BACK!

All Rise!  The Honorable Matt Tabbi has left the courtroom of Public Opinion!

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Libor Manipulation Should Be Criminal Offense, EU’s Michel Barnier Says

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Piggybankblog posted on 07/09/12

Cross lined with huffington.com

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BRUSSELS, July 9 (Reuters) – Europe’s top regulatory official intends to propose new rules that would criminalise the manipulation of benchmarks such as Libor, a spokesman for the EU commissioner in charge of financial reform said on Monday.
Michel Barnier wants to amend proposed market-abuse legislation that is designed to clamp down on insider trading and other wrongdoing to include the manipulation of a reference such as Libor, which is a basis for lending and derivatives contracts around the world.
“We need to draw lessons from the Libor case,” a spokesman for Barnier said. “We intend to close the regulatory gap in our proposed market-abuse legislation by including the direct manipulation of market indexes such as Libor.”

As it stands, the market-abuse proposal, which is now being negotiated with the European Parliament and EU member governments, defines insider dealing and market manipulation as criminal offences and lays down minimum penalties.

A global investigation into manipulation of interbank lending rates widened last week with Britain’s fraud squad taking up the case.
Authorities in the United States, Europe, Japan and Canada are examining more than a dozen big banks over suspected rigging of Libor (the London Interbank Offered Rate).

British-based bank Barclays has so far been the only bank to admit wrongdoing, agreeing last week to pay a fine of more than $450 million.
The Libor rates, compiled from estimates by large banks of how much they believe they have to pay to borrow from each other, are used to determine interest rates on trillions of dollars in contracts around the world.

The European Commission proposes legislation that would apply across all 27 countries in the European Union. The bloc’s member states and the European Parliament must give approval before it can take effect. (Reporting by John O’Donnell; editing by Rex Merrifield)

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LIBOR Banking Scandal Deepens; Barclays Releases Damning Email, Implicates British Government

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Piggybankblog posted on 07/09/12

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Cross linked story with Rollingstone.com

This Libor-manipulation story grows crazier with each passing minute. We have officially disappeared now down the rabbit-hole of the international financial oligarchy.

Former Barclays CEO Bob Diamond is testifying before parliament in London today, and that’s sure to bring some shocking moments. But there’s already been one huge stunner. In advance of that testimony, Barclays released an email from October 29, 2008, written by Diamond to then-Chairman John Varley and COO Jerry del Messier (who also stepped down yesterday). The email from the CEO to the other two senior Barclays execs purports to detail the content of the conversation Diamond had with Bank of England deputy governor Paul Tucker that same day.

In the email, Diamond essentially tells the other two execs that he has been given permission by Tucker – encouraged, actually – to rig Libor rates downward. What’s even worse is that Diamond’s email suggests that Tucker was only following orders, i.e. that Tucker had received phone calls from “a number of senior figures within Whitehall” – that is, the British government – expressing concern about Barclays’ high Libor rates. Tucker in this version of events was acting as a middleman for the British government, telling Diamond to fake his borrowing rates in order to preserve the appearance of financial stability, for the good of Queen and country as it were.

 

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Again: Libor, the London Interbank Exchange Rate, is the rate at which banks borrow from each other. A huge percentage of the world’s variable-rate investments are pegged to Libor. When Libor rates are high, it suggests that the banks’ confidence in each other is low, and high Libor rates are generally an indicator of shaky financial health among the banks. If the banks manipulated Libor, they did it to make themselves look healthier, but this had the consequence of affecting hundreds of trillions of dollars’ worth of financial products worldwide.

During the crash of 2008, governments understandably would have been concerned about high Libor rates – high rates and a lack of confidence in banks threatened economic stability – but the notion that governments would have encouraged banks to fake those rates would have been beyond unthinkable even a decade ago.

Back to the email. Diamond’s version of the conversation with Tucker, if true, is mind-blowing. To paraphrase, Diamond said that Tucker started off by asking Diamond why other banks were reporting such low borrowing rates relative to Barclays.

Diamond apparently deadpanned that his bank’s problem was that it was reporting the real numbers, while all the other banks were lying. “I asked [Tucker] if he could relay the reality, that not all banks were providing quotes at the levels that represented real transaction,” Diamond wrote.

Tucker then steered Diamond to crime using the painfully oblique manner of an English gentleman trying to engage a prostitute without using any dirty words. He told Diamond that “while he was certain [Barclays] did not need advice,” the bank did not necessarily need to report such high rates all the time. Tucker put it this way: “It did not always need to be the case that [Barclays] appeared as high as [it has] recently.”

This email amazes for a few reasons. One, it suggests that Barclays, which is currently carrying the standard in the LIBOR-manipulation scandal, was actually bringing up the rear — that all of the other banks were in on it, and Barclays only attracted the government’s notice because they were last.

The second is the apparent revelation that Tucker was acting on orders, or at least suggestions, from Whitehall. If nothing else, this is an awesome piece of political jungle defense by Diamond, tossing a hand-grenade into the seat of Her Majesty’s government minutes before he’s supposed to be grilled by parliament. This revelation is almost certain to inspire an Aldrich-Ames-style manhunt for the Whitehall figures responsible for this alleged communication to Tucker. And if this turns out to be true? Wow.

Of course, right now, we only have Diamond’s word that it is, and under normal circumstances his word should mean less than nothing. The disgraced ex-CEO, who last year infamously said it was time for banks to stop apologizing, will likely now replace Jamie Dimon (who replaced Lloyd Blankfein, who replaced Angelo Mozilo, etc.) as the reigning hateable-white-guy Face of World Financial Corruption, so he’ll have a difficult time if this whole thing comes down to a test of his public credibility.

 

His name is MATT TAIBBI AND HE IS FIGHTING BACK!

All Rise!  The Honorable Matt Tabbi has left the courtroom of Public Opinion!

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Tags: BARCLAYS