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Barclays Libor Scandal: Naming Names

Posted by Larry Doyle on July 24, 2012 8:38 AM |

When battling wildfires, firefighters will very often scorch the earth and sacrifice acreage and property as a defensive mechanism against the wildfire taking over and destroying even more valued territory.

As I review recent developments in the scandalous Libor “wildfire,” a mental image of that defensive strategy runs through my head. Why is that?

With news of pending arrests in this case, we awake this morning to see a number of individual names released by The Wall Street Journal as seemingly ring leaders and participants in this scandal. 

As I read the WSJ’s report, Libor Probe Expands to Bank Traders, I had a wide array of strong feelings come over me, including:

1. These individuals have neither yet been arrested nor charged with a crime. Why does the WSJ feel it is at liberty to publish their names, cast a heavy dose of implied guilt upon them, and effectively end their financial careers? Is the WSJ doing the bidding of the financial regulators and/or the Wall Street heavyweights occupying corner offices?

2. Is there any doubt that by publicizing their names, financial regulators — or whomever is behind the release — are trying to intimidate these individuals and get them to speak?

3. Each of the individuals named had a manager charged with supervising their trading activities. I think again this morning of what I addressed in writing, Barclays Libor Scandal: Who’s Really to Blame?

Do you think the CEOs of other banks would also like to ring fence this issue to a small group of expendable individuals on selected trading desks? No doubt.

Are we to believe that a manipulative scheme of this scale is the work of a relatively small number of mid-level execs? Stop it. Talk about taking naivete to a stratospheric level.

The heads of each desk involved in this mess have/had enormous managerial oversight responsibilities. Included in those responsibilities is the review of e-mails which are flagged to detect questionable activities. Should the blame stop there? Not even close. Those managers would be required to report questionable activities to their superiors and the appropriate people within Compliance. At this point, we are reaching into very senior levels of each and every Wall Street bank. Can we stop digging? Not yet.

It defies logic to think that at some point the heads of Compliance and Trading would not have mentioned the manipulation of a rate such as Libor to the highest levels of the organization.

With these three thoughts and impressions running through my mind, why is it that the WSJ did not also release the names of each desk manager/supervisor, heads of division, heads of compliance, and those further up the line?

I am not here to defend the actions of the individuals referenced in the WSJ article released this morning. Anything but.

I am here to bang the drum loudly in the hope that the pursuit of truth and transparency in this scandal runs the full course. To do otherwise would be little more than another rendition of “justice neglected is justice denied.”

America is supposed to be better than that.

Related Sense on Cents Commentary
Barclays Libor Scandal: Wake Up, America!!
Barclays Libor Scandal: The Complicit Regulators
Barclays Libor Scandal: The Precedent
Barclays Libor Scandal: Holding Regulators to Account
Barclays Libor Scandal: “Diamond Lied”
Barclays Libor Scandal: Who’s Really to Blame? 
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. . .
Barclays Libor Scandal: Prison Will Remedy

Larry Doyle 

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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.

  • fred

    LD,

    I had an interesting response to your blog today, it brought back memories of my childhood, particularly to the word “klepto”.

    I knew the meaning of “klepto” had something to do with stealing, but I was more curious about the exact meaning in the context of your post. Why did this word suddenly pop into my mind?

    A quick Google check online defined klepto as a slang expression refering to the act of stealing for the sake of stealing without any monetary need to do so; often directed by the temporary adrenaline rush produced by the activity rather than the long term consequences of the action.

    I’ve always enjoyed slang because it is a gutteral response providing nuances not always present in proper English; it’s precise, refreshing and most of all honest.

    To provide a real time example, my children have grown up playing sports, I have always tried to be positive but I don’t want my children playing to my expectations. Instead I tell them to work hard and listen for WOW responses from people. If you get a wow it’s real, it’s honest and it’s sincere. “If you get a WOW it means you’ve done something that REALLY impressed that person”.

    Let me tie my comments into a neater package.

    In recent times, I don’t know how often I’ve caught myself murmuring gutteral responses, usually prompted by a news story about a pro athlete, an actor, a business/political leader. “How much is enough?” or “He/she just doesn’t get it!”.

    Today, Hulkamania truly is running wild. We’re in the “steroid age”, it’s now about the adrenaline rush rather than true need or honest deserve. Our leaders, heros, mentors, neighbors and often ourselves, we now feel entitled to “things” that don’t really belong to us, things we haven’t really earned and truly don’t need.

    When you think about it, every dollar of debt or every dollar of excessive salary belongs to or is paid for by someone else.

    As long as we “kick the can down the road”, as long as we allow our leaders to deny responsiblity and pay themselves obscene amounts of salary, as long as we justify our selfish actions as deserved, we remain a nation of kleptos murmuring politically correct cliches that don’t really matter.

    I can’t help but think that people would achieve a greater sense of purpose if we began to seek out positive gutteral WOWs instead of short term adrenaline rushes.

    • LD

      Fred,

      I think you just hit a nerve commonly regarded as a “value system.”

      The pursuit of short term pleasure for pleasure’s sake with little regard of the need for long term disciplines.

      Barring meaningful change, entities with that type of profile almost always underperform.

      • fred

        Greed is Good.

        Maybe the reason for the underperformance of “ethically” driven entities is because Wall St controls our countries financial markets and the Wall St “culture” has captured not only Washington but our national “character”.

        Using the rationale for the recently imposed NCAA penalty on Penn State as an example, maybe we have to “kill” the entire program, sacrificing both the good and the bad, to fully expunge the demon from our collective psyche and set an example for others.

        Do we have the faith and trust that free markets, our rule of law and the framework provided within our Constitution and the Bill of Rights will provide a better solution than a “captured” status quo?

        Thanks almost entirely to Fed policy, I don’t think we’ve experienced enough pain to want to change.

        Death by a thousand cuts.

  • ed pefferman

    Larry,
    Thanks for the great site. The “Inside Job” was
    absolutely the best piece I’ve seen on it. Charles
    Ferguson deserves an Emmy.
    Ed

  • Jay

    Each of the individuals named had a manager charged with supervising their trading activities. I think again this morning of what I addressed in writing, Barclays Libor Scandal: Who’s Really to Blame?

    And the band played on ….

  • JR

    Fred….following up on the role of a value system in society…in his book Orthodoxy, G.K. Chesterton, a convert to Catholicism, said that he liked Catholics because they knew how to honor God: through humilty and self-restraint.
    If children are raised to consider humility and self-restraint as qualities to admire, and become adults with the capacity to differentiate between monetary success and a successful life, those adults have a fighting chance to push back against the corrupting influence of Wall Street, and for that matter, modern life.
    No easy answers, are there?

    • fred

      JR,

      I don’t know. I’m not sure I agree with A. K. Chesterton.

      Are a successful life and monetary success mutually exclusive? How about the corrupting influences of Wall St, are they necessarily synonymous with or inseparable from modern life?

      I do agree with you though, JR, there are no easy answers.

  • aabbcc

    Yesterday 07:43 AM
    Incremental Risk Charge: An analysis: Going forward how much will the Libor scandal cost Barclays Bank and who will be chosen to lead its affairs.
    Answer: See No.5 below.
    In the aftermath of the Barclays Bank Libor scandal (financial Hiroshima) and their greed and subsequent cover up tactics, we studied the future impact on the bank and its franchise in the next 6-8 months using the ## Monte Carlo method and the capital asset pricing model. This has been developed using variable analysis on a common measure of the volatility of its ongoing business, i.e. its beta–which is determined using linear regression. These have been applied to the latest audited Barclays Bank balance sheet, their Libor rate rigging scenario and inferences drawn with 95% accuracy. The result highlights the following 5 points:
    1. In the next 12 months, as its market standing and franchise has suffered, the Barclays Bank group will have to make a loan loss provision of USD 5.75 billion.
    2. Their combined exposure (including paper transactions) is USD 1.35 trillion which they need to unwind at the earliest and reconcile their financials/book of accounts within 24 months. Overall loan losses to be written off could be around USD 3.5 billion and thus their paid up capital will be affected.
    3. Their International trade, LC and LC confirmation business, correspondent banking business will reduce by about 40 % in the next 12 months as their price/rate quotation/covenants/IM will be seen with suspect.
    4. As a result of (3) above, their overseas operations will reduce (some businesses will have to close down) by at least 30 % globally. This will open up a new avenue wherein, in the next 24 months, their overseas business will very likely be acquired by 2 Chinese and 1 Australian banking consortium.
    5. The above points indicate that they will definitely need UK Government bailout well within a year. The UK government is already planning to nationalize the bank and make it a pure local British deposit taking bank going forward with an Australian as its head. Deposits/customers will come back to the bank only if the banks’ Investment Banking activities is completely spinoff. The Americans will make this happen.
    ## Methodology: I also used the Levy distribution – a continuous probability distribution which is unbounded below and above. The normal distribution is a special case of this with the parameter being one half of the variance. The Levy distribution, or Pareto Levy distribution, is increasingly popular in finance because it matches data well, and has suitable fat tails. The tail of the distribution decays like . Mean = and Variance = .

  • ed pefferman

    Larry,
    Did you read Tyler Durden piece “Deep into the Liborgate
    Rabit Hole:The Swiss Hedge Fund Link”

    FYI
    Ed






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