- Your history
Friday Fun : Send lawyers, guns & money !!
The start of the silly season, always the perfect time for scandals and conspiracy theories of all kinds. And this year we got a great treat from the financial sector with Morgan Stanley bribing Moody’s to obtain a perfect AAA score on a pile of dodgy mortgages sized 23 bio USD. But closer to home, we have now the unraveling of li(e)bor-gate : big time manipulation - so the story goes - of a vital instrument being the London interbank market rate, a key market instrument for pricing numerous financial products(derivatives, swaps, short term money market funding etc). And so far, the blog sphere has been rather modest about this, something in the style of “what’s new, a big yawn and let’s carry on”. Well, not entirely and it reminds me a bit of the Catelina conspiracy case in ancient Rome, involving Cicero, Cato the younger and Julius Caesar.
On the one hand we have the Julius Caesar approach, he himself implicated in the Catelina conspiracy and defending or downsizing the seriousness of the coup d’état attempt in the senate. And it resembles a bit to what the lawyer approach would be in case of for example defending war criminals: “Your honour, when we look at all the crimes at stake, we should sentence the accused with 200 times life or 50 times death sentence. That makes no sense, let’s just restrict ourselves with 25 years imprisonment”. Now this is the line people like Cullen Roach advocate in the present Libor Gate casus :
“In more than 99% of cases, libor very much shadowed the central bank policy rate so if manipulation was at stake, they did a very bad job in doing so. Furthermore, Barclays – even if a member of a cartel of rate setters – couldn’t have pulled this trick alone. Basically, everybody knew about it so what’s the big fuzz?”
The “everybody knew about it” is of course always a killer. In this case however, everybody is restricted to everybody with knowledge in the sector and with knowledge over libor. But let’s take it a little bit further with Cato the younger, making an attempt to plea for capital punishment. Robert Reich, former member of the Clinton administration, gives his arguments as follows:
There are really two different Libor scandals. One has to do with a period just before the financial crisis, around 2007, when Barclays and other banks submitted fake Libor rates lower than the banks’ actual borrowing costs in order to disguise how much trouble they were in. This was bad enough. Had the world known then, action might have been taken earlier to diminish the impact of the near financial meltdown of 2008. But the other scandal is even worse. It involves a more general practice, starting around 2005 and continuing until – who knows? it might still be going on — to rig the Libor in whatever way necessary to assure the banks’ bets on derivatives would be profitable. This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us – whose money they’ve used for to make their bets – losers and chumps.
Hummmm, not bad, not bad. Now who is right and who is wrong ? Well, the thing is, actually Reich might be a bit wrong as well and Cullen Roach in his final argument emphasizes the hypocrisy surrounding this case:
On one side of the aisle you have Conservatives perpetually complaining about “manipulation” in overnight rates due to the Central Bank and on the Left you now have people complaining about “manipulation” over the LIBOR rate set by private banks. One side generally hates financial capitalism and the other side generally hates capitalism manipulated by government intervention of any kind. Maybe it’s time to just accept the fact that central banks manipulate rates and banks key their rates off this rate?
Whatever the arguments, the accused – bankers, brokers, Bank of England and HM Treasury - will have a tough time ahead in parliamentary hearing commissions and court. In the US, it seems that class action is lining up because a lot of mortgage (re)financing is dependent on London rates as well. And here the fun part is complete : Yesterday, Morgan Stanley - remember the one from the AAA dodgy mortgages at the start of our little conspiracy story - came out with the following study : the 16 banks being probed for attempting to rig the libor rates could face 6 bio USD of related litigation cost (of course Morgan Stanley is not involved). In addition, they may also lose 4% to 13% in 2012 earnings per share from regulatory fines. Greetings from a market colleague !
And then it’s high time to send in big time lawyers, big time money and may be who knows, even guns! So we make some room for good old Warren Zevon. Of the following song, a nice acoustic version can be retraced from http://www.youtube.com/watch?v=PjVbypiUOHA in which he explains the inspiration (taking a vacation in Hawai - The Hula Hula Boys !!). This version however is recorded during a live session with sax player David Sanborn. In Dead Poet Society terms, it sounds more "sonore". It starts with Warren going home - as usual with a waitress - and then suddenly it all went wrong. Hiding in Honduras, a desperate man, send lawyers guns and money, the sh!?t has hit the fan !!
Cheers and have a nice weekend
58 Comments
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Nacht Und Nebel
On 13 Jul, 2012
Christof,
Feeling moody and naughty today:)How very Italian :):)
http://youtu.be/jQwnYtZNC-0
So you have become a civilized angry young man?
So Tommy the pinball wizard wasn't deaf dumb and blind at all :)
http://youtu.be/4AKbUm8GrbM
Trust me even in the emperors new clothes you would still rock.I can't say that about Herman,he hasn't the knees for it
And what will Herman friends say about all of this?
The door swings both sides,I guess
http://youtu.be/X12VJTHRYks -
christof Govaerts
On 13 Jul, 2012
@NuN
I just replied on your bunga bunga comments on the twist blog posting :-)
And having been a waiter myself when at university, I always sympathize with waitresses like Warren. Some nice links, Pinball wizzard is indeed one of the classics (guitar intro !!) we should post one of these weeks
Cheers -
Nacht Und Nebel
On 13 Jul, 2012
Christof,
I have a deep sympathy for waitresses too :) Even Crembo,our midnight nookie cookie cowboy will know by now that they are very bullshit resistent.
http://youtu.be/Z1caPVZN14Q
You are no longer the minister of sound but the minister of sound and vision ! :)
http://youtu.be/j-IkC3isMoc -
christof Govaerts
On 13 Jul, 2012
@NuN
If it's not asked too much, I would like to take responsibility as well over the department of festivities and Horeca. You take foreign affairs and "diplomacy" but watch out for those aggressive cleaning maids in your hotel room :) -
Nacht Und Nebel
On 13 Jul, 2012
Christof,
:) The departement of festivities and horeca are all yours.I must say I am very experienced in foreign affairs but there will be not enough china in the world when Charles Chang (thai for elephant) enters the room.:) A man must know his limitations:)
Chambermaid ,you say.How very french:) -
incognito
On 13 Jul, 2012
@Christof: you seem to agree with Cullen Roach when he writes: "Maybe it’s time to just accept the fact that central banks manipulate rates and banks key their rates off this rate?"
You're kidding no? Central banks have a public mandate to manipulate rates. The goal is to steer the economy in the right direction (reality may be different, but that's their goal and mandate). Commercial banks, on the other hand, have manipulated te libor rate for their own benefit and without a mandate.-
christof Govaerts
On 13 Jul, 2012
@incognito
Hold your horses my dear friend, this is something else. When libor exploded in 2008 despite rate cuts, the issue was mistrust in the private sector. In the Barclays debate, one of the issues is that the central bank/Treasury department gave the order to change the interbank rate, regardless of market conditions. Now I can understand this but it doesn't imply I have to agree with it. Furthermore, in this case, there seems to be something very strange going on : first the bank of England and HM Treasury put pressure on Bob Diamond to resign in view of scandalitis, afterwards it might well seem to be the case that Barclays at several occasions moved the rate and was ordered to do so by politics. So if Bob Diamond is facing the fire squad, he shouldn't be standing there alone-
incognito
On 13 Jul, 2012
the central bank didn't give an explicit 'order' to lower the interbank rate:
http://www.deredactie.be/cm/vrtnieuws/economie/120709_BoE_Barclays
if tucker really 'suggested' that this rate should be manipulated (it certainly sounds credible, if you ask me), he should hang too, secundo: regardless of the question whether they were initially encouraged by tucker: barclays & co later continued to manipulate the libor rate for their own benefit-
Nacht Und Nebel
On 13 Jul, 2012
the central bank didn't give an explicit 'order' to lower the interbank rate.How very civilized of them.The cosa nostra didn't order that Jimmy Hoffa should be killed.He only needed to dissapear :)He only needed to go west:)
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incognito
On 13 Jul, 2012
http://www.standaard.be/artikel/detail.aspx?artikelid=DMF20120712_00221139
Ze zijn amoreel. Moraal speelt simpelweg geen rol in het besluitvormingsproces. Voor bankiers zijn beslissingen niet fout of slecht, maar een “reputatierisico”. Steriliserend taalgebruik. In mijn tijd bij de bank zagen ze je als een buitenaards wezen als je morele argumenten gebruikte.' -
incognito
On 13 Jul, 2012
yes: let central banks monetise government debt en masse (we're in a deflationary environment), raise (!) interest rates (because the credit boom is over: we shouldn't try to prolong it) and lower taxes
http://www.businessspectator.com.au/bs.nsf/Article/Bear-market-opportunities-debt-crisis-central-bank-pd20120711-W3SV4?OpenDocument&src=sph
Now the governments of Europe, the US and Japan are insolvent and the only question is when the central banks will monetise their debt – that is, print more money and buy their debts.-
christof Govaerts
On 13 Jul, 2012
@incognito
op dat gebied ben ik het wel eens, en dat is het tweede argument van Robert Reich, no question about it : they did in fact manipulate it ongeacht het feit dat ze telefoon kregen om het te doen ; ik ben ook niet naief, deze jongens in london zijn geen doetjes
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Nacht Und Nebel
On 13 Jul, 2012
The total lending for the Fed’s “broad-based emergency programs” was $16,115,000,000,000. That’s right, more than $16 trillion. The four largest recipients, Citigroup, Morgan Stanley, Merrill Lynch and Bank of America, received more than a trillion dollars each. The 5th largest recipient was Barclays PLC. The 8th was the Royal Bank of Scotland Group, PLC. The 9th was Deutsche Bank AG. The 10th was UBS AG. These four institutions each got between a quarter of a trillion and a trillion dollars. None of them is an American bank.
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Nacht Und Nebel
On 13 Jul, 2012
Do not say that Gordon Brown manipulated to gold price but rather say that Gordon Brown was charitable towards America:)
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Theo
On 13 Jul, 2012
The Libor thing reminds me of the Godfather III
"All my life I kept trying to go up in society. Where everything higher up was legal. But the higher I go, the crookeder it becomes. Where the hell does it end?"-
christof Govaerts
On 13 Jul, 2012
@Theo
Like the Godfather III, it usually ends with an Italian drama style opera ; or a shoot-out. But our London cowboys can always ring Goldman Sachs' big time lawyer team, they have a good track record in getting their clients acquitted-
Theo
On 13 Jul, 2012
@ Christof
You see, that would have made for an interesting season 6 of "Damages"-
Christof
On 14 Jul, 2012
@theo
Sadly enough i only saw a couple of episodes of damage with a briljant glen close and ted danson by the way. But from what i know, they surely qualify in playing risk and chess. But the real chess genius doesn't need lawyers guns and money, he pulls the trick on his own, without manipulation
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incognito
On 14 Jul, 2012
http://www.huffingtonpost.com/2012/07/12/warren-buffett-libor-scandal_n_1668649.html?utm_hp_ref=business&utm_hp_ref=business
It's a big deal," Buffett told CNBC "Squawk Box" host Becky Quick Thursday. "You get Libor, and you're talking about the whole world."
http://www.bloomberg.com/news/2012-07-13/new-york-fed-says-it-knew-barclays-was-underreporting-libor.html-
incognito
On 14 Jul, 2012
“Today’s revelation is stunning,” Representative Dennis Kucinich, a Democrat of Ohio, said in a statement. “Not only did banks knowingly and intentionally manipulate a bedrock of financial markets, but government regulators in both the United States and the United Kingdom knew about the manipulation and only offered a couple of suggestions to improve the system.”
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Christof
On 14 Jul, 2012
@incognito
Wat mij het meeste stoort is het feit dat dit mega is, we spreken hier over meer dan juist een 10 miljard die fout in positie gaat. En het heeft een invloed op wat de man in de straat maandelijks betaalt aan krediet. Talking about size, kan dit tellen. En zoals gewoonlijk verdwijnt dit op de achtergrond of zullen de wall street advocaten dit wel regelen. Opnieuw ontsnapt men de dans-
incognito
On 14 Jul, 2012
het feit dat toezichters er half bij betrokken lijken te zijn, doet het ergste vermoeden, maar anderzijds: er is al een half miljard betaald door barclays, en het onderzoek is eigenlijk nog maar begonnen
http://www.demorgen.be/dm/nl/996/Economie/article/detail/1469417/2012/07/13/Boetes-in-Liborschandaal-kunnen-oplopen-tot-22-miljard-dollar.dhtml
en in de VS gaan potentiële benadeelden op eigen houtje de strijd aan:
http://www.smh.com.au/world/us-agencies-build-a-class-action-to-claim-losses-under-libor-scandal-20120713-221b5.html-
Nacht Und Nebel
On 14 Jul, 2012
http://www.huffingtonpost.com/2012/07/13/new-york-fed-libor-documents_n_1671524.html?ref
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Nacht Und Nebel
On 14 Jul, 2012
http://online.wsj.com/article/BT-CO-20120713-707812.html
Yves de Blackberry eat your heart out!
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Nacht Und Nebel
On 14 Jul, 2012
http://www.reuters.com/article/2012/07/13/banking-libor-fed-idUSL2E8ID74120120713
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Nacht Und Nebel
On 14 Jul, 2012
http://www.reuters.com/article/2012/07/13/us-banking-libor-geithner-idUSBRE86C04P20120713
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Nacht Und Nebel
On 14 Jul, 2012
http://www.huffingtonpost.co.uk/2012/07/09/bank-of-england-deputy-paul-tucker-rate-rigging_n_1658175.html
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Nacht Und Nebel
On 14 Jul, 2012
Not this time!The normal nose bleed routine will not do!Somebody will have to eat the hot potato!Who is the weakest?If the libor is rigged then the ECB-rates are also rigged.They all knew there in it together....The mob are men of honour
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Nacht Und Nebel
On 14 Jul, 2012
As I said before 'who will regulate the regulators?"
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incognito
On 14 Jul, 2012
http://www.economist.com/node/21558584
The golden rules of banking
They make the rules, and get the gold-
incognito
On 14 Jul, 2012
the mega banks are sick emanations of our sick economic system called 'creditism' (Duncan's term for the biggest inflationary credit boom the world has ever seen):
Rather than being driven by investment and capital accumulation, our economic growth dynamic has been driven by credit creation and consumption, then more credit creation and consumption. That has created very rapid economic growth for the last 40 or 50 years. The problem is that this new debt-fuelled economic paradigm, creditism, can't create any more growth because the private sector can't bear any more debt. Total debt in the U.S. first went through $1 trillion in 1964. Over the next 43 years, it expanded 50 times to $50 trillion in 2008. Then the private sector defaulted and couldn't pay its debts. It created the world we live in and made it much more prosperous than it might have been otherwise. It was only to have so much credit because we broke the link between dollars and gold, starting in 1968. The law was changed. The Fed was no longer required to keep it in gold backing. The paper currency was the foundation upon which the $50 trillion of credit was built.
Read more: http://community.nasdaq.com/News/2012-04/richard-duncans-new-depression-claims-the-us-employs-creditism-not-capitalism.aspx?storyid=134381#ixzz20asqdre1
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incognito
On 14 Jul, 2012
Normally, the credit boom would already have imploded (deflationary bust). But the authorities have prevented that from happening (2008-2009). The boom will be kept alive. The alternative (deflationary bust) is too painful (confer Greece). Government debts will keep climbing (japan). If the markets don't cooperate, the central banks will intervene (monetise government debt: I don't believe in the dire outcome of Duncan's option 2). Even the ECB if push come to shove.
1. do what the Libertarians say they want and radically reduce government spending, in which case the economy in the U.S. and around the world will immediately spiral into a great depression with disastrous economic and geopolitical consequences.
2. the government borrows and spends massive amounts through trillion dollar budget deficits, financed in part through quantitative easing. Keep spending the way they've spent now, essentially mostly directed at consumption purposes. That's the second option. They could probably keep doing that without difficulty for another five years, and maybe even as long as ten years. In ten years from now, they will go bankrupt just like Greece, and then we will collapse and enter a great depression. (...)
3. the government keeps borrowing and spending, changes the way it's spending. Rather than spending on consumption related purposes, the government should invest very aggressively in transformative 21st century technologies, (...)-
FV
On 14 Jul, 2012
@incognito : But what about the 3rd option ? Can you keep spending eternally ?!? Assuming you 'create' the necessary money for those 21st century investments (solar, ...), what other implications will that money printing have ?
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incognito
On 14 Jul, 2012
there's not enough demand (confer Duncan's the dollar crisis), that problem is, in theory (in a fiat system), easy to fix: simply 'print' demand (confer bernanke's helicopter speech), but I would use that government money in the first place to lower taxes (ánd, at the same time, raise interest rates, a lot), and in the second place for the kind of public investments duncan is talking about in his option 3 (confer the new deal)
the implications? high inflation if they exagerate, certainly if people loose their confidence in fiat money (but that would also help to get rid of the mountains of debt that threaten to suffocate our economies)
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dirk schepens
On 14 Jul, 2012
stevig stukje warren zevon ... bankieren is blijkbaar een rotklus .jean blaute twitterde ergens vorige week : ik bestuurde mijn wagen slecht en kreeg terecht een fixe boete. Ach, bestuurde ik maar slecht een bank!
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Christof
On 15 Jul, 2012
Beste dirk, ombre e compadre
Jean blaute as usual to the point and witty. Tja, bankieren, it's a dirty job - in every sense of the word - but some one's got to do it ! Dit gezegd zijnde, mag dit ons niet weerhouden om onze gesprekken verder te zetten bei Peter Carotte/Wurzel ! Tot binnenkort
Tof
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Nacht Und Nebel
On 15 Jul, 2012
the silly billies are getting a good reward for helping out....
caviar socialisme............Steven Freebeers ...a l'anglaise....
http://news.bbc.co.uk/2/hi/business/7186975.stm-
Nacht Und Nebel
On 15 Jul, 2012
Blairs 5 million a years isn't enough........
There is often disappointment if an adviser fails to deliver any big deals."
For Mr Blair, the deal has advantages beyond the pay cheque.
It will be an opportunity to make high-powered contacts, as companies will often have a selection of eminent advisers that they bring together from time to time.
And as an adviser, he has none of the legal responsibilities of a company director.
The work for JP Morgan will account for only a small part of Mr Blair's income.
He is a sought-after speaker and can earn up to £200,000 for a speech. This month, he embarks on a particularly lucrative tour of the United States and Canada.
A Belgian socialist pur sang I would say......-
Theo
On 16 Jul, 2012
@ NuN
That's why Blair called it New Labor
and now we'll get a New Libor
It's a Renaissance thing... The new is the old, but the old is not the new.-
Nacht Und Nebel
On 16 Jul, 2012
Theo,
In this renaissance thing....will liability become lie-ability?:)-
Theo
On 16 Jul, 2012
@ NuN
Li (lithium) is the lightest and least dense solid. It is highly reactive.
The first nuclear reaction was done by turning Li into He (helium) - it serves as fuel for hydrogen bombs.
On the other hand, psychiatrists claim to be able to cure manic-depressive disorder and delusion with Li+ (lithium ion)... known to accountants as Limited Liability... and to lawyers as Diminished Responsibility
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Theo
On 16 Jul, 2012
Liability = an asset with a priori low ability which due to transmutation turns into fire for the Big Bang
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Nacht Und Nebel
On 15 Jul, 2012
Robert Rubin, Citigroup, was US Treasury Secretary
Jonathan Powell, Morgan Stanley, was adviser to Tony Blair
Joseph Prueher, Merrill Lynch, was US ambassador to China
http://youtu.be/G8cf3HaDisI -
Nacht Und Nebel
On 15 Jul, 2012
and we do not have ask who's saxophone Ives was blowing......The Lewinsky saga goes on and on
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Christof
On 15 Jul, 2012
@NuN
Beste nacht ; voor volgende week vrijdag dacht ik nog andere singer songer writers aan het woord te laten, in casu Neil Young en Luka Bloom. Do you have some inner thoughts about this ?
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Nacht Und Nebel
On 15 Jul, 2012
Het is niet zozeer voor de muziek dat ik uw blog lees maar ieder prachtig schilderij verdient een prachige omlijsting.
Let Neil and Luka bloom:)-
Christof
On 15 Jul, 2012
And so it is, begeleid met de nodige visuele artistieke invulling
Cheers-
Nacht Und Nebel
On 15 Jul, 2012
Zolang u maar het schilderij blijft.....zelfs zonder de muziek als omlijsting heel vaak schitterend :)
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incognito
On 15 Jul, 2012
Bernanke has bought most of the bonds from the banking system. This is a bad way to boost the broad M3 money supply. You have to go outside the banks to gain traction, buying from pension funds, life insurers, and the general public. Don't say QE has failed in the US. It has hardly been tried.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9401574/Fed-fiddles-as-America-slides-back-into-recession.html-
Nacht Und Nebel
On 16 Jul, 2012
You have to go outside the banks to gain traction, buying from pension funds, life insurers, and the general public
There's a sucker born every minute.I guess there aren't enough suckers!-
Nacht Und Nebel
On 16 Jul, 2012
BTW as long as Helicopter Ben is Helicopter Ben I am having a ball with mortgage
REITs so why should I invest in an negative interest bond?
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incognito
On 16 Jul, 2012
by bying from the general public, the fed would inject fresh 'demand' in the economy, that is exactly what we need, this crisis is, au fond, caused by a lack of aggregate demand, it would be different if it were caused by a lack of supply, a lack of demand can be solved any minute, with a few clicks on a keyboard, it's that simple, however, it should be accompanied by higher interest rates (and other measures): QE ('printing' demand) should be seen as a life-support system, while the economy 'heals' from an inflationary credit boom that lasted several decades
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incognito
On 16 Jul, 2012
interesting stuff about the huge implications of liborgate & about the euro crisis:
http://www.independent.co.uk/news/business/comment/hamish-mcrae/hamish-mcrae-libor-fiasco-will-make-borrowing-harder-7944170.html
Germany, of course, would find it easiest to leave but would gain least from doing so.
Indeed it would suffer from Italy's increased competitiveness following a devaluation, as it did from previous devaluations of the lira currency.-
Nacht Und Nebel
On 16 Jul, 2012
devaluation isn't always the answers.It is a part of the solution but in the end 'you need to have the right product for the market'.Nokia's smartphone price devaluation of about 50 percent will not make Nokia healthy again .I have a 15 year old Nokia cell phone ,call it brand loyalty! :)
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Nacht Und Nebel
On 16 Jul, 2012
Who is paying the bill for the efforts to prop up the banking system through low interest rates? The most obvious group is savers, explained Penner, “because people who are older, who are retired, and who were expecting to be able to invest their hard-saved money at a very low-risk investment at a certain rate of return to live a certain way of life are screwed beyond belief.”
http://reitwrecks.com/2011/10/the-high-cost-of-low-interest-rates.html
