Tag: Barclays

Our Treasury Secretary Was Chosen to Represent Bankers. Not You.

Cross posted at our new beta site Voices on the Square and in orange.

That’s right, and it was clear to everyone who opposed the pick of Tim Geithner from the start.  In his testimony yesterday on the NY Fed’s knowledge of the LIBOR scandal, Tim Geithner once again stated the falsity that the NY Fed was not a regulator (like he has before showing he’s either a liar or completely incompetent), when in fact he was one of the most important regulators, unknown to him, supposedly.

This was during the proceedings looking into the 100 cents on the dollar backdoor bailout of Goldman Sachs through AIG facilitated while he was President of the NY Fed.

COUNT 2: He wasn’t even a regulator! In Geithner’s own words during confirmation hearings in March: “First of all, I’ve never been a regulator…I’m not a regulator.” According to the New York fed bank’s Web site, that was your job!!

Quoting from the Fed’s website: “As part of our core mission, we supervise and regulate financial institutions in the Second District.” That district of course is the epicenter for bailed out banks and billion dollar bonuses.

It is not just the responsibility of Fed Board governors like Tim Geithner said in his testimony yesterday while trying to inflate the case for his so called “intervention” that wasn’t on LIBOR. This lack of knowledge and corruption bothers me and it also bothers me that so many don’t care, because there is an election. I feel like we are all being lulled to sleep every night by MSNBC and the partisan cable news 2012 election war syndrome.

Shortly after the President was elected, there were many naive Democrats who claimed Giethner was “a brilliant pick” merely because the President picked him which is always the criterion, sadly. I saw it as the beginning of the end of any chance of a functioning financial system that we were promised during the 2008 election by this President.  That’s why I got involved in 2008, and that’s why a lot of us are unmotivated to say the least.

You see, to be making excuses for Tim Geithner even now while not even understanding the responsibilities of the NY Fed is outright embarrassing and immoral for all the damage it causes.  

LIBOR: There Will Be No Prosecutions

LIBOR If you think for that the Justice Department in this administration is going to prosecute or regulate any of the people who were involved in the LIBOR scandal, erase that thought. Regardless of any evidence the government may have now or in the future that would send the average trader to prison for life, the main goal for Attorney General Eric Holder is to protect the banksters from prosecution. There was no reason to give immunity

from prosecution of the Commodities Exchange Act. Since the government already had the e-mails, they had enough to issue subpoenas and arrest warrants. Instead, Holder’s office gave them immunity from prosecution:

A crucial element in any prosecution is criminal intent, and it’s plain from the Barclays e-mails that various participants knew that what they were doing was wrong. As one Barclays trader put it in e-mails to traders at other banks, “don’t talk about it too much,” “don’t make any noise about it please” and “this can backfire against us.”

Faced with what would seem to be an open-and-shut case, how did the Justice Department proceed? Barclays entered into a nonprosecution agreement in which the United States government agreed not to prosecute Barclays as long as it met its other obligations under the agreement, including continued cooperation in what the government said was an investigation still under way. Barclays also received a conditional grant of immunity from the antitrust division. [..]

The United States government “had the smoking guns,” Professor (John C.) Coffee said, and “it could have demanded its price from Barclays,” including a guilty plea to a crime. At the same time, the agreement “isn’t surprising,” he said. “The Department of Justice has done this in almost every major case since the collapse of Arthur Andersen.” (Andersen was the accounting firm indicted after the collapse of Enron.)

Glen Ford nails precisely why there will be no prosecutions, since the ultimate aim is “protecting the banks from the consequences of their crimes:”

“The reason Eric Holder is staging criminal investigations is because that’s the only way he can protect the bankers, through immunities and by gradually narrowing the scope of the case.”

The Obama Justice Department is in theater mode, again, pretending to threaten the bankster class with criminal penalties – prison time! – for their manipulation of the global economy’s benchmark interest rates. The Justice Department claims to be building criminal and civil cases in the LIBOR scandal, which in sheer scope is the biggest fraud by international capital in history. But that’s all a front, a farce. Barack Obama has spent his entire presidency protecting Wall Street, starting with his rescue of George Bush’s bank bailout bill after it’s initial defeat in Congress, in the last days of Obama’s candidacy. He packed his administration with banksters, passed his own bailout and, in collaboration with the Federal Reserve, channeled at least $16 trillion dollars into the accounts of U.S. and even European banks – by far the greatest transfer of capital in the history of the world. Obama has reminded the banksters that it was he who saved them from the “pitchforks” of an outraged public. He pushed through Congress so-called financial reform legislation that left derivatives – the deadly instruments of mass financial destruction that were at the heart of the meltdown – untouched. [..]

Now Obama and Holder are playing the same diversionary game, making tough noises about criminal investigations of the LIBOR conspirators. But the Justice Department has already given immunity to Barclay’s Bank, of Britain, and to the Swiss banking giant UBS. More immunities will follow. The reason Eric Holder is staging criminal investigations is because that’s the only way he can protect the bankers, through immunities and by gradually narrowing the scope of the case. In the end, there will be settlements all around, and the banksters will move on to even more fantastic heights of criminality – thanks to the loyal, protective hands of President Obama.

Prosecutions? Don’t hold you breath.

LIBOR: Past Time to Investigate the NY Fed

Wall St. is a high crime area and the criminals are allowed to run free.

~Dennis Kelleher~

Back in May of 2009, Eliot Spitzer, former New York State Attorney General, aka “The Sheriff of Wall St,”, wrote this article for Slate after the revelation that New York Federal Reserve Bank Chairman Stephen Friedman’s “purchased some Goldman stock while the Fed was involved in reviewing major decisions about Goldman’s future.” In the article he called into question just who it is that selects the person who sits at the head of the table:

A quasi-independent, public-private body, the New York Fed is the first among equals of the 12 regional Fed branches. Unlike the Washington Federal Reserve Board of Governors, or the other regional fed branches, the N.Y. Fed is active in the markets virtually every day, changing the critical interest rates that determine the liquidity of the markets and the profitability of banks. And, like the other regional branches, it has boundless power to examine, at will, the books of virtually any banking institution and require that wide-ranging actions be taken-from raising capital to stopping lending-to ensure the stability and soundness of the bank. Over the past year, the New York Fed has been responsible for committing trillions of dollars of taxpayer money to resuscitate the coffers of the banks it oversees. [..]

So who selected Geithner back in 2003? Well, the Fed board created a select committee to pick the CEO. This committee included none other than Hank Greenberg, then the chairman of AIG; John Whitehead, a former chairman of Goldman Sachs; Walter Shipley, a former chairman of Chase Manhattan Bank, now JPMorgan Chase; and Pete Peterson, a former chairman of Lehman Bros. It was not a group of typical depositors worried about the security of their savings accounts but rather one whose interest was in preserving a capital structure and way of doing business that cried out for-but did not receive-harsh examination from the N.Y. Fed.

The composition of the New York Fed’s board, which supervises the organization and current Chairman Friedman, is equally troubling. The board consists of nine individuals, three chosen by the N.Y. Fed member banks as their own representatives, three chosen by the member banks to represent the public, and three chosen by the national Fed Board of Governors to represent the public. In theory this sounds great: Six board members are “public” representatives.

So essentially, we have the thieves guarding the vault. Willie Sutton would have loved this.

That brings us to the LIBOR scandal and Treasury Secretary Timothy Geithner’s role. In his currentSlate article, Mr. Spitzer again reiterates the growing need to investigate the NY Fed. and Mr. Geithner. What did he know? When did he know it? Why didn’t he refer it to the Justice Department?

The New York Federal Reserve knew about Libor games being played by the banks years ago and seems to have done precious little about it-except perhaps send a memo parroting the so-called reform ideas proposed by the banks themselves. Then nothing more. No prosecutions, no inquiries of the banks to see if the illegal behavior had stopped-just a live-and-let-live attitude.

Apparently, as Mr. Geithner had testified during his confirmation hearing for Treasury, he didn’t see himself as a “regulator.” Yet, that is the most important part of the NY Federal Reserve. But then look who chose him as Fed president:

Hank Greenberg of AIG and John Whitehead of Goldman Sachs–these companies that got bailed out-were on the NY Fed committee that made Tim Geithner their president.

No conflict of interest there? Wow.

MR. Spitzer believes that it is time for the NY Fed to be investigated:

Was there a similar conflict of interest when the New York Fed apparently did nothing adequate about the Libor games? Well, look who was on the board: Dick Fuld of Lehman fame; Sandy Weill of Citibank; Jeff Immelt of GE-the largest beneficiary of the Fed’s commercial paper guarantees; and, of course, Jamie Dimon of JPMorgan Chase, whose bank’s London derivative trades and Libor involvement make his role on the board even more absurd.

Matt Taibbi, Rolling Stone contributing editor, and Dennis Kelleher, president and CEO of Better Markets Inc., join “Viewpoint” host Eliot Spitzer to assess the scope of the unfolding Libor scandal given news that the U.S. Justice Department is building criminal cases and expects to “file charges against at least one bank later this year,” according to The New York Times.

Lets just say that I agree with Atrios, don’t hold your breath for either an investigation or prosecutions.

Happy Friday the Thirteenth or Not

If it weren’t Friday the Thirteenth, you’d think it was April’s Fool. It’s all the usual excuses by the CEO’s and the TBTF banks, “we are just finding it was this bad”

JPMorgan Fears Traders Obscured Losses in First Quarter

JPMorgan Chase, which reported its second-quarter results on Friday, disclosed that the losses on a soured credit bet could mount to more than $7 billion, as the nation’s largest bank indicated that traders may have intentionally tried to conceal the extent of the red ink on the disastrous position. [..]

If the trades, made out of the powerful chief investment office unit in London, had been properly valued, the bank said it would have lost $1.4 billion on the position in the first quarter.

Jamie Dimon, the bank’s chief executive who has consistently reassured investors that the losses would be contained, announced that the bank lost $4.4 billion on the botched trade in the second quarter. So far this year, the bank says it has lost $5.8 billion on the trades in credit derivatives.  [..]

Since announcing the multibillion-dollar mistake, JPMorgan has lost $25 billion in market value.

Jamie Dimon finally admitting what we already knew but still not admitting that the real losses for the bank is closer to $30 billion. He is either the most incompetent CEO or he thinks that we’re all stupid to realize he knew about tis all along.

or  “but Timmy wrote a memo”

Barclays Informed New York Fed of Problems With Libor in 2007

A Barclays employee notified the Federal Reserve Bank of New York in April of 2008 that the firm was underestimating its borrowing costs, following potential warning signs as early as 2007 that other banks were undermining the integrity of a key interest rate.

In 2008, the employee said that the move was prompted by a desire to “fit in with the rest of the crowd” and added, “we know that we’re not posting um, an honest Libor,” according to documents that the agency released on Friday. The Barclays employee said that he believed such practices were widespread among major banks.

In response, the New York Fed began examining the matter and passed their findings to other financial authorities, according to the documents.

But the agency’s actions came too late and failed to thwart the illegal activities. By the time of the April 2008 conversation, the British firm had been trying to manipulate the interest rate for three years. And the practice persisted at Barclays for about a year after the briefing with the New York Fed.

Friday’s revelations shed new light on regulators’ role in the rate manipulation scandal. The documents also raise concerns about why authorities did not act sooner to thwart the rate-rigging.

The perp’s figured they were too big to indict and the Justice Department agreed.

In Barclays Inquiry, the Calculation in Making a Deal

The question needs to be faced in the wake of the bank’s admitted efforts to manipulate the London interbank offered rate, known as Libor, the benchmark for countless interest rate determinations and approximately $450 trillion in derivative contracts.

If the Justice Department was looking for a textbook case of white-collar financial crime – including a conspiracy that was flourishing at the height of the financial crisis – this would seem tailor-made. As the facts released by the government make clear, there were two separate but overlapping schemes to manipulate Libor within Barclays. Yet the bank secured a nonprosecution agreement and agreed to pay a penalty of more than $450 million, a comparatively paltry sum for a bank that had more than £32 billion ($50 billion) in revenue in 2011. “The perception so far has been that the regulators have been toothless,” John C. Coffee Jr., professor of law and specialist in white-collar crime at Columbia Law School, told me this week. [..]

(The criminal division said its agreement with Barclays was reached in conjunction with the antitrust division.)

And this is why Richard Diamond and Jamie Dimon have nothing to worry about and the world is still being screwed.

 

LIBOR Effects on US Loans

LIBOR just keeps getting bigger by the day, like a wildfire.

Effect of Libor on US loans examined

by Shahien Nasiripour at The Financial Times

US lawmakers have raised concerns that the alleged manipulation of the London Interbank Offered Rate, or Libor, may have harmed households, raising the stakes on a scandal that thus far has been confined to Wall Street and the City of London.

There are at least 900,000 outstanding US home loans indexed to Libor that were originated from 2005 to 2009, the period the key lending gauge may have been rigged, investigators have said. Those mortgages carry an unpaid principal balance of $275bn, according to the Office of the Comptroller of the Currency, a bank regulator.

During periods when banks were allegedly attempting to push Libor higher, households with loans tied to the gauge may have paid higher rates than necessary. However, if the rate was manipulated lower, households may have benefited from paying below-market interest rates.

“I think the US government should be just as aggressive in getting to the bottom of this scandal as the United Kingdom has been,” said Senator Sherrod Brown, chair of the bank regulatory subcommittee on the Senate banking committee.

“This was not isolated to London, but affected tens of millions of investors, borrowers and taxpayers in our country as well,” Mr Brown added.

Libor Investigation Extended to US Mortgages, but What About TALF Loans?

by Yves Smith at naked capitalism

One area we hope will be investigated is the impact on TALF borrowing. Some of the loans were priced off Libor, raising the specter that the banks might have gamed the rates not just for advertising purposes, but to game these programs. From the Federal Reserve Bank of New York’s website:

   The interest rate on TALF loans secured by ABS backed by federally guaranteed student loans will be 50 basis points over 1-month LIBOR. The interest rate on TALF loans secured by SBA Pool Certificates will be the federal funds target rate plus 75 basis points. The interest rate on TALF loans secured by SBA Development Company Participation Certificates will be 50 basis points over the 3-year LIBOR swap rate for three-year TALF loans and 50 basis points over the 5-year LIBOR swap rate for five-year TALF loans. For three-year TALF loans secured by other eligible fixed-rate ABS, the interest rate will be 100 basis points over the 1-year LIBOR swap rate for securities with a weighted average life less than one year, 100 basis points over the 2-year LIBOR swap rate for securities with a weighted average life greater than or equal to one year and less than two years, or 100 basis points over the 3-year LIBOR swap rate for securities with a weighted average life of two years or greater. For TALF loans secured by private student loan ABS bearing a prime-based coupon, the interest rate will be the higher of 1 percent and the rate equal to “Prime Rate” (as defined in the MLSA) minus 175 basis points. For other TALF loans secured by other eligible floating-rate ABS, the interest rate will be 100 basis points over 1-month LIBOR.

Note again that some of the loans were priced off one-month Libor, which per the Barclays disclosures, were among the maturities manipulated; these are clearly a place to start [..]

The Market Has Spoken, and It Is Rigged

by Simon Johnson at The New York Times

In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.

This is a big mistake, in terms of the economics at stake and the likely political impact.

The behavior at Barclays has all the hallmarks of fraud – intentional deception for personal gain, causing significant damage to others.

The Commodity Futures Trading Commission nailed the detailed mechanics of this deception in plain English in its Order Instituting Proceedings (which is also a settlement and series of admissions by Barclays). Most of the compelling quotes from traders involved in this scandal come from the commission’s order, but too few commentators seem to have read the full document. Please look at it now, if you have not done so already.

The commission’s order portrays a wide-ranging conspiracy (or perhaps a set of conspiracies) to rig markets, including, but not limited to, any securities for which the price is linked to a particular set of short-term interest rates.

This past weekend on Up with Chris Hayes, Chris and his panel guests discuss the rate rigging scandal.

LIBOR Just Won’t Go Away

The huge LIBOR scandal that involves the manipulations of rates by the big banks is like a black hole that is sucking more and more into its center. Nor is this scandal victimless, as former former Barclay’s chief executive Bob Diamond would have the world believe.

Yes, Virginia, the Real Action in the Libor Scandal Was in the Derivatives

by Yves Smith at naked capitalism

As the Libor scandal has given an outlet for long-simmering anger against wanker bankers in the UK, there have been some efforts in the media to puzzle out who might have won or lost from the manipulations, as well as arguments that they were as “victimless” or helped people (as in reporting an artificially low Libor during the crisis led to lower interest rate resets on adjustable rate loans pegged to Libor; what’s not to like about that?)

What we have so far is a lot of drunk under the streetlight behavior: people trying to relate the scandal to the part that is most visible and easy to understand, meaning the loan market that keys off Libor. As much as that’s a really big number ($10 trillion), it is trivial compared to the relevant derivatives. From the FSA letter to Barclays:

   The Eurodollar futures contract traded on the CME in Chicago (which is the largest interest rate futures contract by volume in the world) has US dollar LIBOR as its reference rate. The value of volume of that contract traded in 2011 was over 564 trillion US dollars.[..]

Devil’s advocates have also argued that while Barclays submitted improper Libor rates, there’s no evidence they influenced the rates. I read the FSA document quite differently.

Recall that (so far) we have two phases of activity: one from 2005 to 2007, in which derivatives traders at Barclays would lean on the Submitters on a regular basis to place bids that would help improve the profits of positions they had on, and a later phase, during the crisis, where Barclays felt its peers were submitting lowball figures to the daily fixings and it was getting bad press for being an outlier, and it went to posting what it though were competitive, as in artificially low, data.

The Big Losers in the Libor Rate Manipulation

by Barry Ritholz at The Big Picture

Local Governments Which Entered Into Interest Rate Swaps Got Scalped

We know that the big banks conspired to manipulate Libor rates, with the approval of government authorities.

We know that the Libor manipulation effected the world’s largest market – interest rate derivatives.

But who are the biggest victims?

Sometimes the big banks manipulated the Libor rates up, and sometimes down.  Different groups of people got hurt depending which way the rates were gamed.

Atrios thinks that British Chancellor of the Exchequer George Osborne is Stupid

At one point in The Godfather Part III, Michael Corleone sagely remarks: “Never hate your enemies. It affects your judgment.” It was this lesson that George Osborne, as so often in his political career, forgot this week. After his aides were forced to “clarify” that he had never alleged that Ed Balls was personally involved in the Libor scandal (rather that he had “questions to answer”, a distinction without a difference if ever there was one), opinion is hardening among Conservative MPs that the Chancellor has overreached himself.

In a fascinating piece in today’s Times (£), Sam Coates and Roland Watson collate a series of off-the-record barbs from Tory backbenchers. One MP describes Osborne’s obsession with the alleged role of Balls and “Whitehall sources” in the scandal as a “red herring”, adding: “There was no smoking gun.” Another opines: “People want us to sort out the effing banks, not worry about what Ed Balls might have said four years ago.” Osborne’s dual role as Chancellor and chief Tory strategist is also called into question (the increasing view among Tory MPs is that he isn’t good at either job). One MP comments: “When are we going to get a Chancellor who is not part time? You can’t run the sixth largest economy in the world with a mate-ocracy.”

Hard to disagree with that.