http://www.zerohedge.com/contributed/2012-08-04/will-we-have-wait-21st-century-peasants%E2%80%99-revolt-seeing-any-real-change
Submitted by George Washington on 08/04/2012 15:21 -0400
and......
http://www.zerohedge.com/contributed/2012-08-03/con-game-writing-assets
Submitted by testosteronepit on 08/03/2012 21:02 -0400
Some — pretty nauseating — quotes by King from that parliamentary hearing: “No-one saw it because the game wasn’t fixed”, and “There were concerns about the accuracy of Libor during the financial crisis but that is not the same as proof that the figures had been manipulated for private gain,” [...] “That is my definition of fraud.”. King then accused bankers involved in Libor rigging of “fraud motivated by personal greed”. Mirror, mirror on the wall…
By the way, in November 2008 King described Libor to the UK parliament like this: “It is in many ways the rate at which banks do not lend to each other, … it is not a rate at which anyone is actually borrowing.”
Let’s be bluntly honest here, why don’t we: both Geithner and King are simply lying. And even if we can’t prove they are lying, we can certainly state that their words lack all plausibility. That is because Libor is arguably the most important number in the financial industry of the past two decades, and people who reach positions such as the ones Geithner and King hold, MUST have known for a long time what was going on with Libor.
Along the same lines that you don’t win a Nobel prize in physics if you don’t know that E = MC squared, you don’t get the world’s top jobs in overseeing banking and finance if you don’t know what and who is involved in Libor. If only because it would make you a potential threat to those profiting from it.
The reason Libor was used as the foundation for Tarp and other bailouts despite the fact that in the fall of 2008 everyone in the field knew it was rigged (well, except for Mervyn King) was not because there were no — potentially more reliable — alternatives that could have been used. No, it was the very fact that Libor was the rate that could most easily be manipulated. And was. Had been for years. The proof is there for all to see. Emails and letters are there to show this, no matter what denials are issued.
Meanwhile the timeline for who knew, or should have known, what about Libor rigging keeps being pushed back.
Whereas Mervyn King, according to his own words, was as innocent as he was ignorant until June 2012, as was Bob Diamond, and Tim Geithner found out in early 2008 (can we hear them both under oath next time, please?!), and other voices mentioned 2005, former Morgan Stanley trader Douglas Keenan wrote in the Financial Times last week (My thwarted attempts to tell of Libor shenanigans) that when he came to the bank in 1991, his colleagues, who had been there longer, found him humorously naive for not knowing that Libor was actively being rigged.
That takes us smoothly back a good part of the way to 1986, Libor’s year of birth. If and when in 1991 it had been manipulated for long enough to have Keenan’s colleagues snicker at his ignorance, it seems safe to say that it has been rigged pretty much ever since its inception.
And how could it not have been? Libor requires no real data, no real rates at which banks lend and borrow. It merely asks banks to state every working day at 11.00 am GMT at what rate they think they can borrow, for a wide range of maturities in a wide range of currencies. Ergo: anything goes. This was done on purpose. Libor was built to be rigged. And here’s what is was built for:
Graph: Analoguni
Douglas Keenan writes that in his time at Morgan Stanley, the head of interest-rate trading was none other than Bob Diamond, whoyears later was fired as Barclays CEO by Mervyn King, the BoE governor who claims he did not know until mere days before that what to all intents and purposes he should have known for a long long time. The interest-rate trade gave birth to some of the earliest new financial instruments that led to the inception of Libor. By value, the vast majority of derivatives today consists of interest-rate swaps.
The first half of the 1990s brought us credit default swaps. They are often wrongly characterized as instruments with which to hedge investments, an innocuous and benign form of insurance. But they are really instruments to hide (gambling) losses and allow the investor/gambler to circumvent reserve requirements …
There is talk of changing Libor into a better, reality-based, standard. But the plans are being drawn up by the same people who have for years at best maintained a ‘see no evil, hear no evil’ attitude. If we want a real turnaround, we must not let the same old crowd of politicians, regulators and bankers to come within a mile of negotiations for a new standard …
The “resolution” of the Libor scandal (which will probably never be completed) will show us once again that we have a choice to make between either saving the banks or saving our economies and societies.
We can’t do both. But in all honesty, I doubt that the prospect of such a choice is real. It looks to me like the choice has long since been made by a succession of unrepresentative representatives we elected with our empty votes, and who have left us with a runaway crossover between Frankenstein and the Sorcerer’s Apprentice. I wasn’t kidding when I said the other day that if you want your vote to count, you’ll have to get out into the streets to do so.
The Libor affair is one in a series of things laid bare by the ongoing financial crisis that will inevitably, at one point or another, force us to confront the moral bankruptcy at the heart of our societies.
Will We Have to Wait for a 21st Century Peasants’ Revolt Before Seeing Any Real Change?
While everyone from Tony Blair to Nouriel Roubini is debatingwhether or not bankers should be hung, the Wall Street Journal and Bloomberg provide some fascinating historical context.
The journal's Jason Zweig reports:
Financial criminals throughout history have been beaten, tortured and even put to death, with little evidence that severe punishments have consistently deterred people from misconduct that could make them rich.The history of drastic punishment for financial crimes may be nearly as old as wealth itself.The Code of Hammurabi, more than 3,700 years ago, stipulated that any Mesopotamian who violated the terms of a financial contract – including the futures contracts that were commonly used in commodities trading in Babylon – “shall be put to death as a thief.” The severe penalty doesn’t seem to have eradicated such cheating, however.In medieval Catalonia, a banker who went bust wasn’t merely humiliated by town criers who declaimed his failure in public squares throughout the land; he had to live on nothing but bread and water until he paid off his depositors in full. If, after a year, he was unable to repay, he would be executed – as in the case of banker Francesch Castello, who was beheaded in 1360. Bankers who lied about their books could also be subject to the death penalty.In Florence during the Renaissance, the Arte del Cambio– the guild of mercantile money-changers who facilitated the city’s international trade – made the cheating of clients punishable by torture. Rule 70 of the guild’s statutes stipulated that any member caught in unethical conduct could be disciplined on the rack “or other corrective instruments” at the headquarters of the guild.But financial crimes weren’t merely punished; they were stigmatized. Dante’s Inferno is populated largely with financial sinners, each category with its own distinctive punishment: misers who roll giant weights pointlessly back and forth with their chests, thieves festooned with snakes and lizards, usurers draped with purses they can’t reach, even forecasters whose heads are wrenched around backward to symbolize their inability to see what is in front of them.Counterfeiting and forgery, as the historian Marvin Becker noted in 1976, “were much less prevalent in Florence during the second half of the fourteenth century than in Tuscany during the twentieth century” and “the bankruptcy rate stood at approximately one-half [the modern rate].”
In England, counterfeiting was punishable by deathstarting in the 14th century, and altering the coinage was declared a form of high treason by 1562.
In the 17th century, the British state cracked down ferociously on counterfeiters and “coin-clippers” (who snipped shards of metal off coins, yielding scraps they could later melt down or resell). The offenders were thrown into London’s notorious Newgate prison. The lucky ones, after being dragged on planks through sewage-filled streets, were hanged. Others were smeared with tar from head to toe, tied or shackled to a stake, and then burned to death.
The British government was so determined to stamp out these financial crimes that it put Sir Isaac Newton on the case. Appointed as warden of the Royal Mint in 1696, Newton promptly began uncovering those who violated the financial laws of the nation with the same passion he brought to discovering the physical laws of the universe.
The great scientist was tireless and merciless. Newton went undercover, donning disguises to prowl through prisons, taverns and other dens of iniquity in search of financial fraud. He had suspects brought to the Mint, often by force, and interrogated them himself. In a year and a half, says historian Carl Wennerlind, Newton grilled 200 suspects, “employing means that sometimes bordered on torture.”
When one counterfeiter begged Newton to save him from the gallows – “O dear Sr no body can save me but you O God my God I shall be murderd unless you save me O I hope God will move your heart with mercy and pitty to do this thing for me” – Newton coldly refused.
The counterfeiter was hanged two weeks later.Until at least the early 19th century, it remained commonplace for counterfeiters and forgers to be put to death; between 1792 and 1829, for example, notes Wennerlind, 618 people were convicted of counterfeiting British paper currency, and most of them were hanged.Many were women.
Bloomberg provides details of one "peasant revolt" stemming from a Libor-like currency manipulation scheme:
During the “Good Parliament” of 1376, public discontent over [manipulation of currency exchange rates similar to the current Libor scandal] came to a head. The Commons, represented by the speaker, Peter de la Mare, accused leading members of the royal court of abusing their position to profit from public funds.
A particular target was the London financier Richard Lyons ....Initially the government bowed to public pressure. Lyons was imprisoned in the Tower of London and his properties and wealth were confiscated. Other leading courtiers implicated in these abuses, such as Latimer and the king’s mistress, Alice Perrers, were banished from court.Once parliament had dissolved and the public outcry had died down, however, the king’s eldest son, John of Gaunt, acted to reverse the verdicts of the Good Parliament. Latimer and Perrers soon reappeared at the king’s side and Lyons was released from the Tower and recovered his wealth, while the “whistleblower” de la Mare was thrown in jail. The government also sought to appease the wealthy knights and merchants that dominated parliament by imposing a new, regressive form of taxation, a poll tax paid by everyone rather than a tax levied on goods. This effectively passed the burden of royal finance down to the peasantry.
It seemed as though everything had returned to business as normal and Lyons appeared to have gotten away with it. In 1381, however, simmering discontent over continuing suspicions of government corruption and the poll tax contributed to a massive popular uprising, the Peasants’ Revolt, during which leading government ministers, including Simon of Sudbury (the chancellor and archbishop of Canterbury) and Robert Hales (the treasurer) were executed by the rebels. This time, Lyons did not escape; he was singled out, dragged from his house and beheaded in the street.
If the King had followed the rule of law - and kept Lyons and the boys in jail - everything would have calmed down. The monarchy - just like the present-day government - chose to ignore the rule of law, and protect the thieves and punish the whistleblowers.
We have argued for years that the best way to avoid violence is to reinstate the rule of law.
The Bloomberg article - written by a professor of the history of finance and a professor of finance at the ICMA Centre, Henley Business School, University of Reading - ends on a similar note:
The question now is whether public outrage at the Libor scandal and other financial misdeeds will lead to fundamental reforms of the financial sector -- such as the separation of retail and investment banking or legislation to regulate the “bonus culture” -- or just more cosmetic changes that fail to address the structural issues.
Will we have to wait for a 21st century peasants’ revolt before seeing any real change?
and......
http://www.zerohedge.com/contributed/2012-08-03/con-game-writing-assets
The Con Game Of Writing Up Assets
Wolf Richter www.testosteronepit.com
Normally we see the gory details only after a firm collapses, like Enron or Lehman, when vultures tear open its guts to fight over shriveled assets that had appeared fat and healthy on paper, and some of them had been written up repeatedly to create—which our accounting system encourages us to do—paper income.
Other outfits get bailed out. JPMorgan among them. A distinction made behind closed doors. They still have hollowed-out balance sheets ... and the certainty, if they’re large enough, that the Fed and the Treasury, or central banks and government agencies around the world, will prop them up at a moment’s notice. Confidence is required to keep the scheme going. Once confidence fades, the scheme collapses, and central banks have to print trillions and hand them to the industry so that confidence will reassert itself, and so that the scheme can be driven to the next level. And yet, it’s all about prosaic accounting.
Accounting rules allow the use of estimates to value many assets. And estimates can be written up. If a trader or an executive imagines that an asset has increased in value, he’ll set in motion a chain reaction that will cause the company to make the adjustments, increasing the value of the asset with one entry and increasing by the same amount an income account. It’s all good. Asset value goes up, profit goes up. Trader bonus goes up. Manager bonus goes up. CEO bonus goes up. Investors froth at the mouth. Earnings per share beat analysts’ expectations. A money machine. Everyone is happy. Even regulators, their banks being strong and profitable. Halleluiah.
Until it blows up. So, the revelation that the “London whale”—as JPMorgan trader Bruno Iksil was known due to his enormous positions—had been prodded by his boss to jack up the valuations of his trades comes as no surprise. But this time, the system got snared and exposed live. Iksil had been trading credit-default swaps in amounts so huge that they were budging the index. He lived in Paris and commuted to his office in London, on the Eurostar presumably. What is it with these French guys that are accused of gouging deep holes into the balance sheets of their mega banks?
Before him, there was Jérôme Kerviel who became famous in 2008 as the junior trader who’d lost $6 billion at French mega-bank Société Générale. Accused of a litany of shenanigans, he was condemned to five years in the hoosegow, though he claimed he was innocent and was being scapegoated. He just couldn’t prove it. Until now. And he’s fighting back. Read.... David and Société Générale.
It has been quite a ride for JPMorgan. At first, it was a loss of $2 billion, a “tempest in a teapot,” as CEO Jamie Dimon said. Then more truth seeped out, and it was suddenly $5.8 billion. And now it looks like it might spiral past $7 billion. Citing unnamed sources, the Wall Street Journal reported on the internal investigation that reviewed emails and voice communications. And these people were doing what nearly everyone is doing, nudging up asset values. With a host of beneficial side effects: increase capital ratios, boost income, goose bonuses.
The internal investigators determined that credit-trading chief Javier Martin-Artajo, who was working at the Chief Investment Office (CIO), had pushed Iksil to jack up the values of his trades—not just once, but repeatedly. And Iksil complied. Normally, this would have been no big deal, and future losses could have been swept under the complex rug of the mega bank. They tried. The called it $2 billion and a tempest in a teapot. No big deal really, just some hedging, all by the book. “The CIO balances our risks,” said CFO Doug Braunstein back when the scandal broke. It was about “protecting the balance sheet.” But it turned out to be too big to be swept under the rug.
There will be some housecleaning. And leaks to the Wall Street Journal to make clear to the world that this was a one-time event that won’t repeat itself, the handy-work of a couple of guys—who, through their lawyers, have denied any wrongdoing. New procedures would nip this sort of thing in the bud. These leaks and assorted dog-and-pony shows are part of the campaign to re-inflate the bubble of confidence without which the financial markets—and the valuations of stocks, bonds, and other instruments—would take a big hit.
And here is an issue that has been blissfully ignored or underplayed by the mainstream media though it has a profound impact on the US.... Mexico Dissolves Their FBI And Moves To Legalize Drugs, by hard-hitting Chriss Street.
and.....
http://www.nakedcapitalism.com/2012/08/pirate-banking-21-to-32-trillion-in-estimated-tax-haven-money-managed-by-big-global-banks.html
Pirate Banking: $21 to $32 Trillion in Estimated Tax Haven Money, Managed by Big Global Banks
An interview on Real News Network with James Henry of the Tax Justice Network covers his newly released report “The Price of Offshore Revisited” in which he estimates the size of the “offshore” market as somewhere between $21 and $32 trillion as of December 2010. Note that this total includes only financial assets, and thus omits real assets (real estate, gold, artwork, yachts) that are held via trusts or corporate entities in tax havens.
If you are in finance, the broad outlines of this story are familiar. Much of “private banking”, particularly the Swiss variety, is to serve as a bolthole for money that the wealthy are trying to keep out of the hands of the taxman (or have looted from their country’s treasury). Henry estimates that 90% the total funds in “offshore” accounts is not reported to tax authorities. But US firms have become fierce competitors in this business. In the 1980s, Citibank became a major player in the Latin American market. And the current ranking of private banking operations puts Goldman as number three, behind UBS and Credit Suisse. And the results are perverse. Developing countries, which in theory should be the targets for investments by advanced economies, are instead often capital exporters as the wealthiest locals move their funds into tax havens.
Henry points out that while the US has started trying to crack down on the Swiss, it’s refused to help in making US banks engage in similar reporting to countries that, like the US,tax
their citizens on global income. And that’s because, as Nicholas Shaxson discussed in his book Treasure Island, the US is now the leader in “offshore,” having displaced the UK.
If you are in finance, the broad outlines of this story are familiar. Much of “private banking”, particularly the Swiss variety, is to serve as a bolthole for money that the wealthy are trying to keep out of the hands of the taxman (or have looted from their country’s treasury). Henry estimates that 90% the total funds in “offshore” accounts is not reported to tax authorities. But US firms have become fierce competitors in this business. In the 1980s, Citibank became a major player in the Latin American market. And the current ranking of private banking operations puts Goldman as number three, behind UBS and Credit Suisse. And the results are perverse. Developing countries, which in theory should be the targets for investments by advanced economies, are instead often capital exporters as the wealthiest locals move their funds into tax havens.
Henry points out that while the US has started trying to crack down on the Swiss, it’s refused to help in making US banks engage in similar reporting to countries that, like the US,
and......
http://www.nakedcapitalism.com/2012/08/raul-ilargi-meijer-the-central-libor-question-do-we-want-to-save-our-banks-or-our-societies.html
FRIDAY, AUGUST 3, 2012
Raúl Ilargi Meijer: The Central Libor Question: Do We Want to Save Our Banks or Our Societies?
Raúl Ilargi Meijer, editor-in-chief of The Automatic Earth, wrote three weeks ago that Libor rigging was a criminal conspiracy from the start. Here he provides an update which summarizes how collusion between large banks and central banks/regulators allowed the rate-rigging scandal to continue unchecked, at the expense of society and the real economy, for decades. This is an edited version of Raúl’s piece.
In the US, the UK and European Union, the actual say a voter gets to exercise from the ballot box has been reduced to something fast approaching the freezing point. The story of Libor is an excellent example of the inner workings of this process, and of the consequences that follow …
There is no segment of private industry that has grabbed more power than the banking industry… Banks will offer up individual traders as lambs for the sacrificial chopping block, and lawmakers will declare that justice has been done. The traders can protest as much as they want that they were not operating in a vacuum, and that their superiors were very much aware of their machinations, if not outright demanding them, but it will make no difference. Bob Diamond was thrown to the wolves so Mervyn King could stay where he is. King himself made sure of it …
The underlying idea for Libor was always: “by the bankers, for the bankers”. And if anyone involved in setting up Libor back in 1985 now wishes to claim that they had no idea that allowing banks to make up the rates at which they borrowed out of thin air created scope for manipulation, that would insult everyone’s intelligence including yours and mine. The problem is that in today’s climate, this doesn’t keep them from making precisely such claims. And that is very much part of a trend. It has increasingly become acceptable for bankers and politicians alike to deny anything flat out and see what happens, knowing their friends have their backs.
I don’t know that US finance secretary Tim Geithner said it in exactly so many words, but he did at least strongly imply that he didn’t know about Libor manipulation until the spring of 2008. And he then proceeded — along with the likes of Hank Paulson and Ben Bernanke — to base the rates for the bailout programs such as Tarp, six months or so later, on that same manipulated rate, saving the banks tens of billions of dollars in the process.
Bank of England Governor Mervyn King did him one better: he stated he didn’t know anything about Libor manipulation until two weeks prior to his parliamentary hearing on July 17, despite receiving correspondence from Geithner telling him about it, over four years ago. Geithner declared he had been very clear, and even went to the unusual step of putting his warnings to King in writing. King claims he never saw any warning signs …
By the way, in November 2008 King described Libor to the UK parliament like this: “It is in many ways the rate at which banks do not lend to each other, … it is not a rate at which anyone is actually borrowing.”
Let’s be bluntly honest here, why don’t we: both Geithner and King are simply lying. And even if we can’t prove they are lying, we can certainly state that their words lack all plausibility. That is because Libor is arguably the most important number in the financial industry of the past two decades, and people who reach positions such as the ones Geithner and King hold, MUST have known for a long time what was going on with Libor.
Along the same lines that you don’t win a Nobel prize in physics if you don’t know that E = MC squared, you don’t get the world’s top jobs in overseeing banking and finance if you don’t know what and who is involved in Libor. If only because it would make you a potential threat to those profiting from it.
The reason Libor was used as the foundation for Tarp and other bailouts despite the fact that in the fall of 2008 everyone in the field knew it was rigged (well, except for Mervyn King) was not because there were no — potentially more reliable — alternatives that could have been used. No, it was the very fact that Libor was the rate that could most easily be manipulated. And was. Had been for years. The proof is there for all to see. Emails and letters are there to show this, no matter what denials are issued.
Meanwhile the timeline for who knew, or should have known, what about Libor rigging keeps being pushed back.
Whereas Mervyn King, according to his own words, was as innocent as he was ignorant until June 2012, as was Bob Diamond, and Tim Geithner found out in early 2008 (can we hear them both under oath next time, please?!), and other voices mentioned 2005, former Morgan Stanley trader Douglas Keenan wrote in the Financial Times last week (My thwarted attempts to tell of Libor shenanigans) that when he came to the bank in 1991, his colleagues, who had been there longer, found him humorously naive for not knowing that Libor was actively being rigged.
That takes us smoothly back a good part of the way to 1986, Libor’s year of birth. If and when in 1991 it had been manipulated for long enough to have Keenan’s colleagues snicker at his ignorance, it seems safe to say that it has been rigged pretty much ever since its inception.
And how could it not have been? Libor requires no real data, no real rates at which banks lend and borrow. It merely asks banks to state every working day at 11.00 am GMT at what rate they think they can borrow, for a wide range of maturities in a wide range of currencies. Ergo: anything goes. This was done on purpose. Libor was built to be rigged. And here’s what is was built for:
1986 was the time when the derivatives industry was starting to take off for real. An interest rate was needed to “guide” them. But not one that would be neutral or impartial, not if the bankers had any say in the matter. They had all the say they wanted and needed. Still, as I said, I don’t think it was a conspiracy in the sense that in 1986 anybody knew exactly how big it was all going to get (not that it matters; it’s about intent).
Derivatives “languished” for a while around the one times global GDP level. Then they came into their own and rose to ten times that or more. The industry began to clue in on the virtually limitless possibilities.The first half of the 1990s brought us credit default swaps. They are often wrongly characterized as instruments with which to hedge investments, an innocuous and benign form of insurance. But they are really instruments to hide (gambling) losses and allow the investor/gambler to circumvent reserve requirements …
The entire mortgage investment based universe — CDOs, MBS etc — was/is based on Libor as well. Banks could go nuts, and do so all the way to the bank; not only could they insure themselves for a pittance against failure on highly leveraged wagers, through Libor they even controlled how much the insurance would cost. AIG stands out as the biggest counterparty; it insured anything under the sun.
From AIG’s point of view, it didn’t matter what it insured, or what the rates were: CDS were never supposed to be triggered. They were — and are — merely a way to hide losses. The AAA ratings that Moody’s and S&P gave them made it all even better: interest rates could be kept that much lower. All for the sake of the next, and preferably larger, wager. We know how this ended for AIG. It was given our money, so it could keep on hiding losses.There is talk of changing Libor into a better, reality-based, standard. But the plans are being drawn up by the same people who have for years at best maintained a ‘see no evil, hear no evil’ attitude. If we want a real turnaround, we must not let the same old crowd of politicians, regulators and bankers to come within a mile of negotiations for a new standard …
The “resolution” of the Libor scandal (which will probably never be completed) will show us once again that we have a choice to make between either saving the banks or saving our economies and societies.
We can’t do both. But in all honesty, I doubt that the prospect of such a choice is real. It looks to me like the choice has long since been made by a succession of unrepresentative representatives we elected with our empty votes, and who have left us with a runaway crossover between Frankenstein and the Sorcerer’s Apprentice. I wasn’t kidding when I said the other day that if you want your vote to count, you’ll have to get out into the streets to do so.
The Libor affair is one in a series of things laid bare by the ongoing financial crisis that will inevitably, at one point or another, force us to confront the moral bankruptcy at the heart of our societies.
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