06/28/2012 archive

Barclays fined for manipulation of Libor

By Danielle Douglas, Washington Post

Published: June 27

The British bank admits to scheming to manipulate rates to increase profits and hide the reality of its distress during the financial crisis. Regulators suspect Barclays did not act alone, but was part of a larger conspiracy to set artificially low rates for Libor and the Euro interbank offered rate, or Euribor.

The U.S. Commodities Future Trading Commission uncovered evidence of Barclays senior management and numerous traders in London, New York and Tokyo making false reports to improve the bank’s trading position dating to 2005, according to the complaint filed Wednesday. At the height of the recession, the bank submitted low figures to keep rates down and to deflect public scrutiny about its condition.

“When a bank acts in its own self-interest by attempting to manipulate these rates for profit, or by submitting false reports . . . to lower submissions to guard the bank’s reputation, the integrity of benchmark interest rates is undermined,” David Meister, director of enforcement at the CFTC, said in a statement.

Counterparites: Barclays’ $450 million LIBOR settlement

By Ben Walsh, Reuters

June 27, 2012

The importance of Libor and, to a lesser extent, Euribor, is hard to overstate. They are used to value of hundreds of trillions of dollars of financial instruments. Or as Matt Levine puts it, they “set the rates on pretty much all the loans and swaps in the world … CFTC order mentions $350 trillion of [over-the-counter] swaps, $10 trillion of loans, and $437 trillion of CME eurodollar contracts indexed to Libor alone”.

In that context, it’s fair to ask what’s $450 million compared with a scheme like that? Not much, proportionally. And Barclays won’t face criminal prosecutions, because of what the DOJ calls its “extraordinary cooperation”. Individual employees, though, are the subject of ongoing criminal investigation.

This Week in Financial Not-Crime

By: masaccio, Firedog Lake

Wednesday June 27, 2012 1:47 pm

(T)oday we learn that manipulating LIBOR isn’t a crime. Barclays Bank paid $450 million to settle charges that it deliberately manipulated the bench-mark interest rate used to establish how much people pay on $350 billion worth of credit cards, student loans and mortgages. It’s also good news for other banksters who haven’t even been sued, like HSBC, Citigroup, JPMorgan Chase and other firms that are being looked at by regulators around the world.

Apparently the manipulation ran both ways, to increase the rate artificially for direct profit, and to reflect a lower rate to hide the fact that other banks were charging Barclays more than other banks because of its perceived weakness. Still, it’s hard to see a connection between a $450 million fine and the massive profits that could come by increasing LIBOR even fractionally. If LIBOR were .1% higher on $350 billion of debt, that comes to $350 million per year. The fraud went on for at least 4 years, which in my example means $1.4 billion in profits, all going directly to the bottom line.

Quelle Surprise! Barclays Settlement on Massive Interest Rate Price Fixing Illustrates Bank Crime Pays Well

Yves Smith, Naked Capitalism

Thursday, June 28, 2012

Barclays is first to settle, and given the scale and potential profitability of this activity, the fine looks paltry: $450 million among the FSA, the CFTC, and the Department of Justice (£230 million to the US authorities, £60 million to the FSA). The DOJ has granted “conditional leniency” on anti-trust charges. Price fixing is criminal under the Sherman Act. Four top executives, including CEO Bob Diamond are also giving up bonuses this year.

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But all we need to do is contrast this case with the municipal bid-rigging prosecution described by Matt Taibbi in the current Rolling Stone. Here you have three individuals at GE Capital going to jail for price fixing, which is crime under the Sherman Act. But they were merely the arms and legs of big banks. Where were the prosecutions of the higher ups, or of the senior officers of banks who were in on this con? We see the same pattern over and over: justice is meted out only on the foot soldiers, those far enough away from the executive ranks so as not to call into question the integrity of the system. The irony of it all is the public is well aware of how crooked the financial services industry is (the poll data alone is proof). But for the elites, it is vital that they not admit that something is rotten in Denmark, for if they did, they’d have to do something about it.

A Huge Break in the LIBOR Banking Investigation

Matt Taibbi, Rolling Stone

POSTED: June 28, 10:15 AM ET

This is unbelievable, shocking stuff. A sizable chunk of the world’s adjustable-rate investment vehicles are pegged to Libor, and here we have evidence that banks were tweaking the rate downward to massage their own derivatives positions. The consequences for this boggle the mind. For instance, almost every city and town in America has investment holdings tied to Libor. If banks were artificially lowering the rates to beef up their trading profiles, that means communities all over the world were cheated out of ungodly amounts of money.

First there were huge bid-rigging settlements for Chase, UBS, Bank of America, GE and Wachovia. Now we’ve got a $450 million settlement for Barclays for Libor manipulation, and one imagines this won’t be the end of it. Anyway, more on this to come soon, and if you’re wondering, yes, there should be a lot more press on this.

UK probing more banks for interest rate fixing

By ROBERT BARR, Associated Press

20 minutes ago

Osborne said Barclays was not the only bank to be involved in market fixing. Beyond the U.K., there are also investigations in several countries involving numerous global banking groups.

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“Banks were clearly acting in concert,” said Andrew Tyrie, a British lawmaker who chairs the influential Treasury Committee in the House of Commons. “I fear it’s not going to be the end of the story, that we are going to find that other banks have been involved.”

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“If Bob Diamond had a scintilla of shame, he would resign,” said Matthew Oakshott, a member of the House of Lords. “If Barclays’ board had an inch of backbone between them, they would sack him.”

Prime Minister David Cameron, when asked whether Diamond should resign, said he thinks “the whole management team have got some serious questions to answer. Let them answer those questions first.”

The massive fines are unlikely to be the end of the pain for Barclays. The cost of lawsuits related to the LIBOR scandal will likely be bigger, said Sandy Chen, banking analyst at Cenkos Securities.

“Since Royal Bank of Scotland, HSBC and Lloyds Banking Group have also been named in lawsuits, we expect they will also face significant fines and damages. We are penciling in multi-year provisions that could run into the billions,” Chen said.

Leading article: A sick banking culture that cannot be tolerated

The Independent

Friday 29 June 2012

Politicians have attempted with varying degrees of rigour to introduce rules preventing a recurrence. Mostly, in the face of determined lobbying by the banks (led in the UK by Barclays), they have retreated or watered down their proposed measures. But it is obvious now that the authorities are only scratching at the surface: a far stronger hand is required.

For a start, they should act immediately and decisively. Fining a bank has little effect: what is required is the naming and shaming and driving from office of those involved. The era of entitlement – something we hear an awful lot about in relation to those at the other end of society, on benefits – must be brought to an end for bankers. Incredibly, only one UK top banker has been punished for his bank’s role in provoking the credit crunch: Fred Goodwin lost his job and subsequently, his knighthood. Now, with a second storm engulfing the sector, that cannot be allowed to happen again. Light-touch regulation and, with it, light-touch penalties should be banished. In that respect, Bob Diamond is right: the time for mere remorse is well and truly over.

Barclays Libor fix trail leads to senior managers

By Sarah White, Reuters

Wed Jun 27, 2012 6:09pm EDT

Staff responsible for submitting rates in some instances told colleagues of “internal political” pressure to set these low, the FSA’s report shows.

Barclays “senior management at high levels” became concerned over the media scrutinizing the bank’s funding access early in the financial crisis, in August 2007.

“Senior management’s concerns in turn resulted in instructions being given by less senior managers at Barclays to reduce Libor submissions in order to avoid negative media comment,” the UK’s FSA said in its report. “The origin of these instructions is unclear.”

The U.S. CFTC said specific instructions to lower submissions came from “senior Barclays Treasury managers”. They asked submitters to provide rates at a level where Barclays wouldn’t be “sticking its head above the parapet”.

Can Bob Diamond hang on after Barclays Libor scandal?

Nils Pratley, The Guardian

Wednesday 27 June 2012 11.37 EDT

Barclays tried to manipulate a $550tn market for almost half a decade. Internal controls and risk management functions were inadequate. The compliance department failed to do its job. The bank’s actions created the risk that the stability of the UK financial system would be threatened.

Add up that collection of misdemeanours and even £290m of fines, plus a voluntary waiving of boardroom bonuses, is woefully inadequate. The outside world will want to know why no director of Barclays has offered his resignation.

…

None of the various regulators’ reports suggest that Diamond or any other executive director at Barclays knew what was going on – they, we must assume, are not the “senior management” referred to in the FSA report who gave instructions to reduce Libor submissions. But should the top brass have known what was going on? Why doesn’t the buck stop at the top when the reputation of the bank has been so badly damaged?

The heads of state of the EuroZone countries met in Brussels today for a two day summit to  try to come to an agreement on how to bail out two of its biggest members, Italy and Spain:

The 27 government chiefs will discuss buying Spanish and Italian government bonds to bring down borrowing costs that are near euro-era records, Finnish Prime Minister Jyrki Katainen said. He also proposed that bailout funds buy collateralized government debt in primary markets.

“I’ve come for very rapid solutions to support countries in difficulty on the markets,” French President Francois Hollande told reporters as he arrived in Brussels. Without specifying Spain or Italy, he said they “have made considerable efforts to deal with their public accounts.”

Leaders will consider short-term measures to stem the sovereign debt turmoil as EU President Herman Van Rompuy’s road map to strengthen the bloc’s common currency and financial oversight ran into immediate opposition from Germany. German Chancellor Angela Merkel has become increasingly isolated as Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy unite to push for quicker action to ease the crisis that emerged in Greece in late 2009.

Apparently all did not go German Chancellor Merkel’s way as she canceled her scheduled evening press conference. Or maybe she was watching her country’s football team get trounced by the Italians.

Euro 2012 Live Blogging: Italy 2 Germany 0

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Follow us on Twitter @StarsHollowGzt

E. J. Dionne: Scalia Should Resign from the Supreme Court

Justice Antonin Scalia needs to resign from the Supreme Court.

He’d have a lot of things to do. He’s a fine public speaker and teacher. He’d be a heck of a columnist and blogger. But he really seems to aspire to being a politician – and that’s the problem.

So often, Scalia has chosen to ignore the obligation of a Supreme Court justice to be, and appear to be, impartial. He’s turned “judicial restraint” into an oxymoronic phrase. But what he did this week, when the court announced its decision on the Arizona immigration law, should be the end of the line.

Katrina vanden Heuvel: Women Who Don’t Have Anything Close to ‘Having It All’

Anne-Marie Slaughter, the first women to head policy planning in the State Department, has set the punditry buzzing with her Atlantic cover story, ” Why Women Still Can’t Have it All,” on the pressures felt by successful professional women.

Women with high-powered careers competing for leadership roles while raising a family face harsh and conflicting pressures, as Slaughter details. But the stark reality is that most working mothers face far more daunting obstacles simply trying to keep their families afloat. And with advertisers geared to young affluents, celebrating a lifestyle that few can afford, the reality of most working mothers is too seldom discussed in the media.

JP Morgan Managers Being Told Trade Loss is $9 Billion

Posted by Teri Buhl

Tue 26 Jun 2012

This morning the New York Times Dealbook rewrote my scoop about a possible $9bn loss for JPM and didn’t credit me for reporting this first. They’ve done journalism theft like this before when I was scooping them at the New York Post during the financial crisis. Times reporters like Andrew Ross Sorkin led the scoop stealing behavior during 08 and this morning I see him doing the same thing on CNBC. Scoops are assets for journalist and I don’t appreciate the New York Times taking my hard-earned research and sourcing and using it as their own without a mention or link to my original reporting. If you think this is wrong- write them, comment on their sites or tweet about it. Only together we can hold other journalist accountable and demand accuracy.

(h/t Dashiell Bennett @ Atlantic Wire)

JPMorgan Trading Loss May Reach $9 Billion

By JESSICA SILVER-GREENBERG and SUSANNE CRAIG, The New York Times

June 28, 2012, 2:30 am

To put the size of the loss in perspective, JPMorgan logged a first-quarter profit of $5.4 billion.

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The chief investment office – which invests excess deposits for the bank and was created to hedge interest rate risk – brought in more than $4 billion in profits in the last three years, accounting for roughly 10 percent of the bank’s profit during that period.

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More than profits are at stake. The growing fallout from the bank’s bad bet threatens to undercut the credibility of Mr. Dimon, who has been fighting major regulatory changes that could curtail the kind of risk-taking that led to the trading losses. The bank chief was considered a deft manager of risk after steering JPMorgan through the financial crisis in far better shape than its rivals.

“Essentially, JPMorgan has been operating a hedge fund with federal insured deposits within a bank,” said Mark Williams, a professor of finance at Boston University, who also served as a Federal Reserve bank examiner.

Up Date: SCOTUS has ruled the individual mandate unconstitutional constitutional but redefined as a tax.

Up Date: As per MSNBC, the mandate was upheld but redefined as a tax. There is some confusion as to whether that means it is unconstitutional or not.

Up Date: Roberts votes with the four “liberal” justices.

Quotes from SCOTUS Blog:

The money quote from the section on the mandate: Our precedent demonstrates that Congress had the power to impose the exaction in Section 5000A under the taxing power, and that Section 5000A need not be read to do more than impose a tax. This is sufficient to sustain it.

On the Medicaid issue, a majority of the Court holds that the Medicaid expansion is constitutional but that it w/b unconstitutional for the federal government to withhold Medicaid funds for non-compliance with the expansion provisions.

Another way to think about Medicaid: the Constitution requires that states have a choice about whether to participate in the expansion of eligibility; if they decide not to, they can continue to receive funds for the rest of the program.

In other words, states can opt out of ACA without losing federal funding for Medicaid.

Rejection of mandatory Medicaid expansion –at time of slashing of safety nets–could be devastating to most vulnerable.

— Katrina vandenHeuvel (@KatrinaNation) June 28, 2012

Up Date: More from SCOTUSBlog:

In Plain English: The Affordable Care Act, including its individual mandate that virtually all Americans buy health insurance, is constitutional. There were not five votes to uphold it on the ground that Congress could use its power to regulate commerce between the states to require everyone to buy health insurance. However, five Justices agreed that the penalty that someone must pay if he refuses to buy insurance is a kind of tax that Congress can impose using its taxing power. That is all that matters. Because the mandate survives, the Court did not need to decide what other parts of the statute were constitutional, except for a provision that required states to comply with new eligibility requirements for Medicaid or risk losing their funding. On that question, the Court held that the provision is constitutional as long as states would only lose new funds if they didn’t comply with the new requirements, rather than all of their funding.

Essentially, the individual mandate of the ACA was upheld under the right of the government to tax individuals. Chief Justice Roberts agreed with that and voted with Ginzburg, Breyer, Kagan, Sotomayor.

The court also ruled if individual states opt out of the ACA, they cannot lose current Medicaid funding. They will only lose new funding.

Up Date: From Lyle Denniston at SCOTUSBlog:

The rejection of the Commerce Clause and Nec. and Proper Clause should be understood as a major blow to Congress’s authority to pass social welfare laws. Using the tax code – especially in the current political environment – to promote social welfare is going to be a very chancy proposition.” This is a big deal. Congress in the future may have to use far more of the taxing power than they are comfortable with. This is still a conservative ruling in many respects.

National Federation of Independent Business v. Sebelius (pdf)

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

Click on images to enlarge.

June 28 is the 179th day of the year (180th in leap years) in the Gregorian calendar. There are 186 days remaining until the end of the year.

In common years it is always in ISO week 26.

This date is the only date each year where both the month and day are different perfect numbers, June 6 being the only date where the month and day are the same perfect number.

On this day in 1919, Keynes predicts economic chaos

At the Palace of Versailles outside Paris, Germany signs the Treaty of Versailles with the Allies, officially ending World War I. The English economist John Maynard Keynes, who had attended the peace conference but then left in protest of the treaty, was one of the most outspoken critics of the punitive agreement. In his The Economic Consequences of the Peace, published in December 1919, Keynes predicted that the stiff war reparations and other harsh terms imposed on Germany by the treaty would lead to the financial collapse of the country, which in turn would have serious economic and political repercussions on Europe and the world.

snip

A decade later, Hitler would exploit this continuing bitterness among Germans to seize control of the German state. In the 1930s, the Treaty of Versailles was significantly revised and altered in Germany’s favor, but this belated amendment could not stop the rise of German militarism and the subsequent outbreak of World War II.

In the late 1930s, John Maynard Keynes gained a reputation as the world’s foremost economist by advocating large-scale government economic planning to keep unemployment low and markets healthy. Today, all major capitalist nations adhere to the key principles of Keynesian economics. He died in 1946.

Governments ignore Keynes at their own peril.

This is an Open Thread

Author’s note:  this piece was originally posted Wednesday past.  Tonight Jace is settling in well.  He stays at my house most of the time because The Girl’s parents really do not want a cat inside and it has been in excess of 100 degrees F the past four days.  I take him over often so that she and The Little Girl can play with him.  He sleeps with me every night.

I normally do not write about current events in this series, but this is actually related to experiences that I had when I was little.  Many of you who read this regular series are familiar with the people to whom I refer to as The Girl and The Little Girl, two people extremely dear to me.

The Girl is 19, and her beautiful daughter is three.  Their family had two cats, Bella (whom I call Lal after the Star Trek: The Next Generation episode “The Offspring” where Data named the android that he created that from the Hindi word for “beloved”), and Jace.  Jace was a tom Tabby (actually more likely a Maine Coon Cat) who both girls lived dearly.

The girls were out of town Friday when I got a call from The Girl’s mum asking me to come and pick up Jace’s body from the street in front of their house.  He had been run over by a car, and by the looks of things died instantly because of massive head trauma.  I do not think that he was even aware that his demise was in progress.