Transcripts Expose Rate-Rigging at Libor, the Benchmark for Over $300 Trillion in Global Contracts

The Ledger
Liam Vaughan
Gavin Finch

LONDON | Every morning, from his desk by the bathroom at the far end of Royal Bank of Scotland Group's trading floor overlooking London's Liverpool Street station, Paul White punched a series of numbers into his computer.

White, who joined RBS in 1984, was one of the employees responsible for the firm's submissions to the London interbank offered rate, or Libor, the global benchmark for more than $300 trillion of contracts, from mortgages and student loans to interest-rate swaps. Behind him sat Neil Danziger, a derivatives trader at the bank since 2002. On the morning of March 27, 2008, Tan Chi Min, Danziger's boss in Tokyo, told him to make sure the next day's submission in yen would increase.

"We need to bump it way up high, highest among all if possible," Tan, known by colleagues as "Jimmy," wrote in an instant message to Danziger, according to a transcript made public by a Singapore court and reviewed by Bloomberg before being sealed by a judge at RBS's request.

The trader typically would have swiveled in his chair, tapped White on the shoulder and relayed the request, people who worked on the trading floor said. Instead, as White was away that day, Danziger input the rate himself.

The next morning RBS said it paid 0.97 percent to borrow in yen for three months, up from 0.94 percent the previous day. The Edinburgh-based bank was the only one of 16 surveyed to raise its rate. If it had lowered its submission in line with others, the cost of borrowing in yen would have fallen one-fifth of a basis point, or 0.002 percent, according to data compiled by Bloomberg. Even that small a move could mean a gain of $250,000 on a position of $50 billion.

Events like those that took place on RBS's trading floor, across the road from Bishopsgate police station and Dirty Dicks, a 267-year-old public house, are at the heart of the biggest and longest-running scandal in banking history.

For years, traders at RBS, Barclays, UBS, Deutsche Bank, Rabobank Groep and other firms that stood to profit worked with employees responsible for setting the benchmark to rig the price of money, according to documents obtained by Bloomberg and interviews with two dozen current and former traders, lawyers and regulators. Those interviews reveal how the manipulation flourished for years, even after bank supervisors were made aware of the system's flaws.

The conspiracy wasn't confined to low-level employees. Senior managers at RBS, Britain's largest publicly owned lender, knew banks were systematically rigging Libor as early as August 2007, transcripts of phone conversations obtained by Bloomberg show. Some traders colluded with counterparts at other banks to boost profits from interest-rate futures by aligning their submissions. Members of the close-knit group knew each other from working at the same firms or going on trips organized by interdealer brokers such as ICAP to Chamonix, a French ski resort, or the Monaco Grand Prix.

"We will never know the amounts of money involved, but it has to be the biggest financial fraud of all time," said Adrian Blundell-Wignall, a special adviser to the secretary general of the Organization for Economic Cooperation and Development in Paris. "Libor is the basis for calculating practically every derivative known to man."

Geithner Admits He Hid LIBOR Fraud From The DOJ

Alexander Higgins Blog

Secretary of Treasury Tim Geithner is forced to admit under oath that he did NOT inform the DOJ even though he was aware of specific cases of fraud.

Decent clip. More from Geithner’s Libor testimony July 25.

You can just skip to the 4-minute mark and watch the last 2 minutes. After considerable effort, Miller gets Geithner to admit that he ‘did NOT inform the DOJ of anything even though he was aware of specific cases of fraud involving LIBOR manipulation.’

Tim Geithner Admits Banks Bailed Out With Rigged Libor, Costing Taxpayers Huge Amount

Huffington Post
Mark Gongloff

 Timothy Geithner claimed on Wednesday that the government had no choice during the financial crisis but to lend to banks and AIG using an interest rate, Libor, that everybody knew was flawed.

Call it a back-door bailout: By using an artificially low Libor, the government saved the banks and AIG millions, maybe billions -- and cost the taxpayers the same amount.

The use of Libor in the bailouts also rubber-stamped that hopelessly manipulated interest rate as a market measure, raising still more questions about just how worried Geithner and other regulators really were about it.

In a House Financial Services Committee hearing on Wednesday, Treasury Secretary Geithner was asked why Treasury and the Fed used the London Interbank Offered Rate as a basis for loans to insurance giant American International Group and to U.S. banks under the Term Asset-Backed Securities Loan Facility -- even though Geithner and other regulators had long suspected that Libor was artificially low, as Geithner testified.

"We were in the position of investors around the world," Geithner shrugged. "You have to choose a rate, and we did what everybody did -- use the best rate available at the time."

Geithner repeated his claim that he warned other U.S. and British regulators in the spring of 2008 about possible manipulation of the key interest rate and recommended changes to the way the rate was set.

But he also said that, months later, when it came time to set bailout terms for the Too Big To Fail Set, the government just had no other choice but to use Libor.

Sure, that's one way to look at it. Another, less charitable way to look at it is that the Fed was fully aware that Libor was being manipulated lower, and was fine charging an artificially low rate to lend money to banks and to AIG, in what amounted to yet another kind of bailout. Why make life harder for them, right? They had enough problems dealing with the crisis they had created. Raising red flags about Libor might have only made the crisis worse, making it harder for banks to borrow money.

But in the process, the government left untold mountains of cash on the table for U.S. taxpayers. Even if Libor was only manipulated a tiny bit lower, these small breaks add up.

Geithner did not show evidence of rigged Libor, British bank official says

Washington Post
Zachary A. Goldfarb
Jia Lynn Yang

Federal Reserve Chairman Ben S. Bernanke told lawmakers Tuesday that the central bank did all it was required to do after learning in 2008 of the ma­nipu­la­tion of the Libor interest rate, including notifying counterparts in Britain.

But Bank of England Governor Mervyn King, addressing Parliament earlier in the day, said he received none of the evidence of misreporting that the Fed had gathered.

Libor — the London interbank offered rate— serves as a benchmark for mortgages, student loans, auto loans and many other financial contracts and is an indicator for the health of the banking industry.

The scandal was exposed late last month when the British bank Barclays agreed to pay $450 million to regulators to settle allegations it manipulated Libor in years preceding and during the financial crisis.
Barclays admitted to artificially lowering its Libor rate, which made the bank appear to be healthier than it really was in the midst of the crisis. It also acknowledged that several traders rigged the rate for personal profit. Other banks are also being investigated.

Libor is calculated in Britain and reflects the borrowing costs of 18 banks, including firms in Europe and Japan and three American institutions: Bank of America, Citigroup andJPMorgan Chase.
On Tuesday, elected officials wanted to know from top financial policymakers what they knew and when they knew it.

In Britain, a parliamentary committee asked King about evidence amassed by the Federal Reserve Bank of New York in April 2008 that Barclays was manipulating Libor.

The New York Fed on Friday disclosed that it had early evidence of ma­nipu­la­tion — including a phone call in which a Barclays executive admitted to a Fed staffer that the British bank was manipulating the rate.

“The New York Fed did not raise any evidence of wrongdoing with regards to Libor,” replied King, who said that he received only a memo of suggestions from then-New York Fed President Timothy F. Geithner, now the U.S. Treasury secretary,on reforming the rate.

Later in the day, Bernanke defended the Fed’s actions. He noted that beyond providing advice to the Bank of England, the New York Fed also presented its concerns to a broader group of U.S. financial regulators.

“There was rapid follow-up,” Bernanke said in testimony before the Senate banking committee.

In response to questions, Bernanke said he could not assure lawmakers that the problems with Libor have been remedied by its supervisory body, the British Bankers’ Association.

“I can’t give assurance with full confidence, because the British Bankers’ Association did not adopt most of the suggestions made by the Federal Reserve Bank of New York,” Bernanke said. “It’s likely the concerns are less now because we’re no longer in the crisis.”

Elites Bilk Populace through Manipulation of Currency, Interest Rates and Precious Metals

J.T. Waldron

The mechanisms for transferring wealth from the majority to the elite involve a massive conspiracy to deceive with the primary goal of getting all to jump into tangled heaps of collapsing markets. 

Starting with the currency market, the Federal Reserve responds to increased public scrutiny and pending audits by posting a study extolling the virtues of  quantitative easing to keep high prices for the stock market.   As reported by CNBC, the Federal Reserve claims that stock market prices woud be 50% lower without the Federal Reserve.  The question should be, "So what?  Do the prices accurately reflect the value of the stocks or not? "  This inflation is fueled by the misconception that the price of stocks somehow reflect the state of the economy.  Stocks from companies that rely on cheap labor overseas, downsizing, consolidation, liquidation - anything that could dismantle the domestic labor force. 

Keeping news pundits with ample filler on their tele-prompters, one can often hear the excuse du jour for why indexes have slipped on any given day.  This becomes its own clever PR technique suggesting concerns with the war on terror, public trends less favorable to investors, or whatever the desired suggestion is laid out for those who've bought into the system. 

In the name of saving the market from dismal price performance on behalf of a handful of investors, U.S. currency has incurred a 97% loss in purchasing power since the Federal Reserve's formation in 1913.  

The Federal Reserve is directly accountable for an average of 10% inflation in the last 10 years.  The result is a population indirectly taxed through the reduction of real purchasing power, especially among those for whom purchasing power actually means something.  They are robbed to please an elite handful of investors depending upon inflated stock prices. 

But that is only one avenue for bilking the public.  Apparently, interest rates were manipulated to draw more unwitting families and individuals into financial traps like various credit lines and mortgages.   As a Barclay's employee reported to the New York Federal Reserve, “Our feeling is that Libors are again becoming rather unrealistic and do not reflect the true cost of borrowing.”. 

There was nothing ambiguous about what was communicated by the Barclay employee to the New York Fed:  “Where I would be able to borrow in the interbank market … without question it would be higher than the rate I’m actually putting in.”

Libor serves as a benchmark interest rate for trillions of dollars worth of loans to consumers and corporations.

Recollections of Geithner's handling of interest rate-fixing are no different from skilled bureaucracies at all municipal levels - make sure there is one memo or piece of paper to pull out of your ass for culpable deniability.  A sincere effort to restore credibility to the markets would have seen Geithner demanding an end to the practice, stating the implications for fraud at this scale, and threats to go public.   The staid approach in itself suggests that systemic deception is the norm, not the exception.
  

As much as 800 trillion dollars of financial products were were initially valued based on Libor rates.  The consistent pattern was to present lower interest rates to sell more loans and financial products.   This makes the market so inefficient, there is no reliance in determining the value of these debt instruments.  

Some analysts, like Bruce Kastling, make the claim that consumers enjoyed initial lower rates and, because they entered at a lower rate, they have no claim.  

How many people would have never qualified for or purchased mortgages or consumer loans had the cost truly reflected the market?  Setting aside the folly of variable interest rate loans, illegal rescission of various credit lines, and extreme interest rate hikes, what about the effects from a massive fraud of this scale on the economy?  

How many times have vast market corrections induced default and foreclosure among those who didn't see it coming?  Are we to blame the victim for not anticipating huge market volatility that results from mass conspiracy to commit fraud?  Probably not. 

And what's in store for those who choose precious metals as a means of protecting real purchasing power?   Are those investing in gold going to see an accurate reflection of their wealth over time? 

According to Ned Taylor-Leland, an investment director at Cheviot, "like interest rates, gold and silver reflect the true value of money the same way interest rates do."

"It is effectively an intervention in two ways; one would be the fact that for central banks, gold and silver going up doesn't make their currency look any good, and secondly a number of the big commercial banks have very large short positions which they like to manage and make easy money from."

Under the guise of a safe haven for value, smaller investors are finding their prices subject to an elite group of investors corrupting market accuracy in exchange for speculative profits and the concerted effort to keep the value of the U.S. dollar artificially high in the wake of massive Bernanke-style currency dumps.  

These conspiracies to deceive the public should open renewed dialog over U.S. taxpayer funded bailouts for institutions hiding behind the fascist concept of "too big to fail".  Bailouts are another example of how the majority is bilked into thinking they are somehow supporting the saviors of capitalism when they are actually handing more wealth over to the criminal elite.

This whole system relying  on  the "magic of the market place" needs to be dismantled.  Here are some additional statistics indicating this mass exodus of wealth from the majority to the criminal elite from an earlier article by J.D. Sayles:

#1 - The “corporate-tax-percentage” of all federal revenue plummeted from 32% to7% since 1960.

#2 - Two out of three U.S. corporations paid no federal taxes from 1998-2005 on sales of $2.5 trillion

#3 - Tax rates for the wealthiest plummeted from 91% to 36% - which goes far lower with loopholes.  All of which combined to cause a collapse in tax revenues from these sectors.  Our revenue this past decade was about $41 trillion.  Had we received just an additional 10% over this time period we could have our debt reduced by:  $4.1 trillion

#4 - Multi-Billion dollar corporate subsidies have doubled over the past decade to over 2000 programs.  Energy subsidies cost roughly $200 billion the past 20 years and farm subsidies over the same period of time cost taxpayers roughly $300 billion more:  $500 billion

#5 - Tax-payer bailouts for bankers, who provide 40% of all campaign donations:  $700 billion

#6 - More than one trillion tax dollars have been wasted on wars, subsidizing the corporate war machine with another $2 trillion predicted in future commitments resulting from these wars:  $1.167 trillion plus $45 billion for aid to repair the destruction that we caused.

#7 - Trillions of dollars were admittedly "misplaced" by the Pentagon, subsidizing the corporate war machine:  $2.3 trillion

#8 - Billions of tax dollars given in foreign “aid”, subsidizing the corporate war machine:  $200 billion

#9 - Trillions of dollars in salaries and bonuses for the political/corporate elite the past few decades

#10 - The corporate elite (top 1%) own almost 50% of America’s wealth and 23% of America’s income.  The last time these numbers happened were as we exited the "Guilded Age", the collapse of the stock market in 1929 and entered into the age of "The Great Depression".  Yet they push for more...

#11 - Politicians make fortunes legislating to the gain of their personal corporate stock portfolios

#12 - Politicians make fortunes in the political after-life with corporate lobbying income

#13 - An unfunded big PHRMA bill (03 modernization act) cost taxpayers another:  $534 billion

#14 - Due to market manipulations, pensions lost:  $3.3 trillion

#15 - Small investors and 401ks invested in the stock market lost:  $9.3 trillion

#16 - In addition to 3 million foreclosures, homeowners lost in home equity:  $9 trillion

Tim Geithner May Be Criminally Liable for Failure to Disclose that Goldman Sachs Would Receive AIG Funds

Why The Huge Spike in Oil Prices? "Peak Oil" or Wall Street Speculation?

Global Research

F. William Engdahl

Since around October last year,  the price of crude oil on world futures markets has exploded. Different people have different explanations. The most common one is the belief in financial markets that a war between either Israel and Iran or the USA and Iran or all three is imminent. Another camp argues that the price is rising unavoidably because the world has passed what they call “Peak Oil”—the point on an imaginary Gaussian Bell Curve (see graph on right) at which half of all world known oil reserves have been depleted and the remaining oil will decline in quantity at an accelerating pace with rising price. 

Both the war danger and peak oil explanations are off base. As in the astronomic price run-up in the Summer of 2008 when oil in futures markets briefly hit $147 a barrel, oil today is rising because of the speculative pressure on oil futures markets from hedge funds and major banks such as Citigroup, JP Morgan Chase and most notably, Goldman Sachs, the bank always present when there are big bucks to be won for little effort betting on a sure thing.  They’re getting a generous assist from the US Government agency entrusted with regulating financial derivatives, the Commodity Futures Trading Corporation (CFTC).

Since the beginning of October 2011, some six months ago, the price of Brent Crude Oil Futures on the ICE Futures exchange has risen from just below $100 a barrel to over $126 per barrel, a rise of more than 25%. Back in 2009 oil was $30. 

Yet demand for crude oil  worldwide is not rising, but rather is declining in the same period.  The International Energy Agency (IEA) reports that the world oil supply rose by 1.3 million barrels a day in the last three months of 2011 while world demand increased  by just over half that during that same time period.Gasoline usage is  down in the US by 8%, Europe by 22% and even in China. Recession across much of the European Union, a deepening recession/depression in the United States and slowdown in Japan have reduced global oil demand while new discoveries are coming online daily and countries like Iraq are increasing supply after years of war. A brief spike in China’s oil purchases  in January and February had to do with a decision last December to build their Strategic Petroleum Reserve and is expected to return to more normal import levels by the end of this month.

Why then the huge spike in oil prices? 

Playing with ‘paper oil’

A brief look at how today’s “paper oil” markets function is useful. Since Goldman Sachs bought J. Aron & Co., a savvy commodities trader in the 1980’s, trading in crude oil has gone from a domain of buyers and sellers of spot or physical oil to a market where unregulated speculation in oil futures, bets on a price of a given crude on a specific future date, usually in 30 or 60 or 90 days, and not actual supply-demand of physical oil determine daily oil prices.