LIBOR manipulation? Done for you, Big Boy | FT Alphaville

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LIBOR manipulation? Done for you, Big Boy | FT Alphaville

FT’s Alphaville provides some of the juicy detail on the UK’s FSA and US Dept of Justice report on Barclay’s almost 5 year “attempted manipulation of and false reporting of LIBOR and Euribor Benchmark rates”.

“From here it starts to get really juicy. Thank goodness for people who will put anything in an email, eh?

Barclays’ traders located at least in New York, London and Tokyo asked Barclays’ submitters to submit particular rates to benefit their derivatives trading positions, such as swaps or futures positions, which were priced on LIBOR and Euribor. Barclays’ traders made these unlawful requests routinely, and sometimes daily, from at least mid-2005 through at least the fall of 2007, and sporadically thereafter into 2009. The Order relates that, for example, one trader stated in an email to a submitter: “We have another big fixing tom[orrow] and with the market move I was hoping we could set [certain] Libors as high as possible.”

As “high” as possible? Gosh, there was even an internal push and pull about whether the rate should be lower (good for reputation) or higher (good for certain derivatives transactions)?”

It seems to that they Barclay’s were willing to change rates for external traders too, on request.

“Requests from external traders:

For example, on 26 October 2006, an external trader made a request for a lower three month US dollar LIBOR submission.  The external trader stated in an email to Trader G at Barclays “If it comes in unchanged I’m a dead man”.  Trader G responded that he would “have a chat”. Barclays’ submission on that day for three month US dollar LIBOR was half a basis point lower than the day before, rather than being unchanged.  The external trader  thanked Trader G for Barclays’ LIBOR submission later that day: “Dude.  I owe you big time!  Come over one day after work and I’m opening a bottle of Bollinger”.

It goes on and on…”

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Donagh is the editor of Irish Left Review. Contact Donagh through email: dublinopinionAtgmail.com
 

4 Responses

  1. John O\'Farrell

    June 28, 2012 9:40 am

    This is a useful guide to Libor, published just as the house of cards was collapsing…
    http://www.lrb.co.uk/v30/n18/donald-mackenzie/whats-in-a-number

    “Libor anchors contracts amounting to some $300 trillion, the equivalent of $45,000 for every human being on the planet. It’s a critical part of the infrastructure of financial markets but, like plumbing, doesn’t usually get noticed. Only a handful of economists, and no other academics, have ever looked in any detail at Libor, and even the financial press didn’t show much interest in how Libor is calculated until this spring, when there was sharp controversy over whether these crucial numbers could be trusted…”

    “…On 16 April (2008), under the headline ‘Finance markets on edge as trust in Libor wanes,’ the WSJ reported a claim by Scott Peng, an analyst at Citigroup, that although, because of the credit crunch, Libor was already high relative to the rates set by central banks, it should be even higher. Three-month US dollar Libor, Peng suggested, should actually be 30 basis points higher than it was – a difference that represents huge amounts of money, given the trillions of dollars indexed to it.

    “The British Bankers’ Association responded by telling the WSJ that it was monitoring inputs closely and that if it was ‘deemed necessary’, it would ‘take action to preserve the reputation and standing in the market of our rates’ – a warning that the WSJ read as a threat to remove any bank making dubious inputs…”

  2. Donagh Brennan

    June 28, 2012 9:45 am

    Thanks John, as coincidence would have it I only noticed this comment a moment after I’d posted a link to MacKenzies essay, which I remember reading in 2008 (but noticed a twitter link to it from LRB this mornin’).
    http://www.irishleftreview.org/2012/06/28/whats-number-donald-mackenzie-importance-libor-lrb/

    Thanks for highlighting those points as well. Needless to say its worth reading the whole article to begin to get a handle on something that is beyond most people’s everyday understanding of how money and lending works.

  3. John O\\\\\\\'Farrell

    June 28, 2012 12:35 pm

    Small minds think alike – or is this the LRB readers’ version of the ‘vast right-wing conspiracy’?

    Meantime, Libor is in the news for a few hours and the calls are starting for Barclay’s Caudillo Bob Diamond to FOAD.

    Just like Stepehn Hester (RBS) and Fred the Shred were poster bad guys for bonuses, and Jimmy Carr was the moral problem with tax avoidance, just like:

    http://www.youtube.com/watch?v=zNiiHVYnQ6A

    Blame the bad guy. Now move on. nothing more to see…

  4. Donagh Brennan

    June 28, 2012 1:35 pm

    Well when banks and the institutions of financial capital have such a hold of the levers of political power, its inevitable that the emphasis will be on damage limitation, from a PR perspective, rather than anything coming close to actual structural change. Given that the FSA and the US dept of justice were very slow on this and the fine was tiny given the amounts involved.

    In Ireland, despite the meltdown right across the banking sector it was obvious that all the moves were to maintain things as they were. So, for the ‘pillar’ banks changes at the top were slow and virtually meaningless – people taking retirement when it suited them.

    Jimmy Carr was the perfect PR fall-guy. Didn’t support the Tories, criticized banks and allowed Tories to refer to tax avoidance as repugnant (given that only a small amount of people who are ever likely vote for them can avoid paying tax as it’s taken directly from their wages.