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Barclays Libor Scandal: I Address “The Real Problem”

Posted by Larry Doyle on July 5, 2012 7:34 AM |

I was interviewed by First Business News this morning. What is “the real problem” for investors behind this scandal? For that answer and more, please view this 3-minute clip to get a few of my thoughts on the developing Libor scandal.

Navigate accordingly.

Larry Doyle

Related Sense on Cents Commentary
Barclays Libor Scandal: When Did Manipulation Start?
Barclays Libor Scandal: How Big Will This Get?
Barclays Libor Scandal: Reports Regulators Knew; Time for Independent Investigation and Eliot Spitzer
Barclays Libor “Price Fixing”: Collusion Is Illegal. . .

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • LD

    I STRONGLY recommend people view this 9-minute clip:

    The Mob Learned from Wall Street

    WOW!!

  • Gary

    Hi Larry,

    Is anybody listening ?

    Please keep the volume up –

    “This isn’t a democracy, it’s an auction”

    Thanks,

  • Bill

    Larry,

    I read your informative piece on the Barclays mess on the CNN Money site.

    I have to ask you, why are these illegal banking practices referred to as a “scandal”?

    If the terms “criminal activity” and “crimes” were substituted, I believe you would be far more persuasive with your argument that these corrupt individuals should be indicted and, if found guilty, jailed.

    Thank you for considering my thoughts.

    • LD

      Bill,

      Thanks for writing. Let us not forget that every scandal still requires a full and thorough investigation prior to indictments being handed down. From there perpetrators are allowed due process.

      Democracy requires a judicial system that works.

      We start with a scandal and then go from there.

      • Peter S.

        LD, I could not agree with you anymore than I do!

  • JR

    And now the class action lawsuits begin……

  • Ed

    Larry, I am not too informed on exactly what was done, other than rate manipulation. Who benefited? I am assuming Barclays did, but what about other institutions, who benefited and how much?

    Here in the US, many lenders use LIBOR rates as a factor for adjusting mortgages and commercial loan rates. Does this mean that average consumers and businesses have been assessed an inflated rate because of the manipulation at Barclays and elsewhere?

    If the clever Brits have been manipulating LIBOR for their benefit, I would have to wonder if their cousins here in the US haven’t been doing the same thing? Of course, not the honorable Jamie Dimon, or those fine folks at Goldman Sucks…… they wouldn’t use an inflated rate just to make some more money…would they?

    • LD

      Ed,

      This is the mother of all scandals. Why? I find it very hard to believe that every banking institution involved in submitting levels to the British Bankers Association to determine the level for Libor was not aware and at some point in time involved in the collusion.

      The details released in the Barclays investigation allege that Libor was being manipulated as far back as 2005. The markets at that point in time were not stressed so the manipulation was defined for pure profit. During the crisis in 20008 and 2009 Libor was kept deflated in an attempt to project an appearance that banks were in better condition than they truly were. I have no doubt that the Bank of England, the Federal Reserve, the US Treasury and other regulators on both sides of the pond were aware of the rigging of Libor.

      Who benefited from keeping Libor too low? Those who would pay interest including people with Libor based adjustable rate mortgages. Who lost? Investors who owned Libor based contracts and investments. Where is the BIG kahuna? The derivatives markets which are MULTI-trillion in size. Even a basis point or three on trillions of derivatives adds up to a LOT of $$.

      The managers of the funding desks within both the investment banks and commercial banks would have to have known what was going on. Managers on the derivatives desks as well. We are talking plenty of very heavy hitters.

      I would bet that the banks try to negotiate a quick settlement of a few billion dollars and sweep this under the rug. That would be a travesty. Major heads should roll. I am not sure if you saw any of the testimony Bob Diamond, former CEO of Barclays, gave yesterday to the parliamentary committee in the UK. They went after him in spades. Our pols in DC could learn few things from watching that testimony.

      When people become aware that the central bankers and govt officials were in on this manipulation during the crisis, WATCH OUT.

      This is going to be very interesting.

      • Huckleberry

        I think you’ve hit upon it here. From what I can understand, this is the grand scandal at the root of a rigged system.

        I expect the argument against investigation will be the usual line about the threat of “uncertainty.” Which is hogwash. It is this kind of conspiracy that is at the heart of our current uncertainty, not some trumped up argument about some possible future regulation.

        I think that during the next few years we will see if this republic can still function, or if we need to start over. I have to say, given the record of the past few years I am not optimistic.

        (PS – caught the podcast from last weekend – good job! You ought to think about doing the weekly thing again…)

  • Ginny

    Awesome…. keep up the heat.

  • Jim Wells

    Fascinating to see that the same banks being investigated for manipulating LIBOR, are also major issuers of credit cards that use LIBOR to set their card rates. Coincidence? I think not.

    Particularly distressing to see the lack of activity and forceful comment by US federal financial regulators as it seems to indicate their trepidation at being forced to take action against the Too Big To Behave Banks that they have treated as their pals for decades.

  • The lawsuits started a while ago – they’ve just kept them under wraps. McCormick et al v. Bank of America Corporation et al…AMONG OTHERS!

    THE COURT: Bigger than a bread box.
    MR. WEINSTEIN: Yes, definitely bigger than a bread
    box.
    THE COURT: What are we talking about; is it hundreds,
    thousands. I have no idea.
    MR. WEINSTEIN: We don’t know for sure. We believe
    it’s measured in thousands, yes.
    THE COURT: In a five-year period, the Fortune 500
    companies issued thousands of debt instruments linked to LIBOR.
    MR. WEINSTEIN: We believe so; it’s certainly in the
    hundreds and we believe it’s in the thousands.

  • wallstreet69

    swaps desks make more by front running deals (corporate, muni, rate locks, etc) than manipulating LIBOR resets. The latter is chump change.

    Libor used to reflect the cost to borrow on an unsecured basis for AA rated banks. There are no more AA rated banks. Now there are only banks backed by their respective governments/central banks.

    Arguably, once banks received this implicit guarantee from their respective governments (post Lehman)….LIBOR has set at an appropriate level.

    …not saying I agree with what occurred….Central banks / Governments missed out, should’ve nationalized & thrown out management when they had the chance!

    Love your site. Thank you for your commentary!

  • coe

    I think if we believe the problem is one centered on transparency, then we miss the true issue. In my opinion, the REAL problem is the fact that business leaders and their staffs cheat and steal – the lack of transparency has allowed them to get away with it. And further, perhaps one element at the root of the problem is that the incentives have been established to reward the bad behavior quite handsomely.

    Those rewards come not only in outsized and unearned pay packages, but in celebrity as well.

    Even in the Barclays example, how many of the articles refer to Bob Diamond’s charm and image and hard driving “style”. Has it been that charm and image and style that have lifted the stock price to the puny level where it trades? You do the math.

    Unless and until three things happen, I believe the banks will quickly try to buy their way out of hot water and sweep this under the rug. What are the three steps needed? First, people responsible for the illegal activity need to be tried and convicted of crimes and go to jail. Second, other people involved need to be dismissed, and their ill-earned bonuses clawed back. And third, how about reinstituting the separation of banking from commerce. Allow the classic banking function to be tied to federally insured deposits; but fund the capital markets “business” proposition without using the subsidized deposits.

    By the way, I believe there is a similar story in Asia – where Hibor has been rather widely known to have been manipulated for years. And, not surprisingly, I believe the regulators have also been party to this info.

    Lastly, we are all complicit as long as we continue to conduct business with the big banks that are misbehaving. If mom and pop pull their deposits from JPM or their investments from MS and if institutional clients and their Boards of Directors pause and say to themselves, “Why on God’s green earth am I directing business to these crooks – how are they cheating me?”, then, and only then, will the message start to get acroiss. Wake up, everybody!

  • John

    Its time all you big money people wake the hell up and start putting 2 plus 2 together. No its not 3 or 5 it is 4 that is how easy it is to figure out if you want to. First follow the Federal Reserve Bank and who actually runs it not just in the U.S. but over in Europe and where ever else that Countries are failing.Hm its a wonder they are failing, ever here of a One World Govt. These people create every market whether in a recession or not. They control everything that happens just follow all the big companies and who owns and runs them.Heres just a couple of names that might ring a bell .Rothchilds, Rockafeller,Soros, Murdoch and the Big Pharm.

    So when you say fine these Big Banks what good does it do .They run the Govt. they control the money , they control the news, they control your minds. Now they have HAARP and can control the weather so if you dont wake up and put the people on trial for treason that are responsible for these atroscites it will soon be to late. Our leaders in this country are all puppets and have been since J.F.K. and you see what he got for going against the big boys.

    So when the rest of America thinks they are living the free Democratic live style and doing their big part by voting Dem or Repub doesnt really matter either way the country is doomedwith either of the 2 puppets.Like the man says abolish the federal reserve and all the crooked politicians that have sold their souls to the highest bidder.Every big corperation is owned and run by corrupt individuals.Every Federal run program in our govt. wastes the taxpayers dollars like a board game with fake money while they are taking bribes from the big corps.

    If our govt. was there for the people would they let the Big Pharms pay off the F.D.A. and fight to get all of these chemical additives like aspertame and fluoride and hundreds of others allowed into our foods.Im sorry that most people cant see whats happened to our country which I still Love dearly,just not the crooks and slanted media that have also sold their souls to the devil.

    Your poor children have to live with the fact that their parents had alot to do with the destruction of our country from within .God Bless their souls.Where is a true american like Ron Paul when you need him ,OH I forgot the media doesnt report on him because they are not allowed.Wake Up, Love You Ron Paul






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