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Barclays Libor Scandal: The Complicit Regulators

Posted by Larry Doyle on July 17, 2012 12:40 PM |

Today’s Wall Street Journal lead editorial, New York Fed to Barclays: ‘Mm hmm’, concludes,

. . . if this is really the epic deceit and crime we are now reading about, then either new evidence needs to come to light, or the regulators who smiled and nodded and “Okayed” and “Mm hmmed” through the panic years are complicit with the banks now in the dock. They had ample opportunity to shut down this behavior, but nothing released by the New York Fed or the Bank of England suggests much more than a raised eyebrow at the time.

I am highly confident that there is plenty of supportive evidence of deceit and conspiratorial activity in the many thousands of e-mails and communications which officials have indicated they already hold. That said, I am also confident — and let’s not discount for even a second — that the regulators were complicit with the banks now in the dock. Why so confident? 

To wit, I welcome submitting an extensive body of evidence and supportive commentaries all under my oft-written heading of the Wall Street-Washington Incest. There are merely 130 or so stories linked there and written over the last three plus years that paint a very tangled, dare I say incestuous, web between the banks on Wall Street, their cronies in Washington, and the ineffectual regulators who serve at their behest.

I find it interesting that none other than The Wall Street Journal poses the question highlighted above. Why?

Back in January 2009 I brought riveting information regarding Wall Street’s self-regulatory organization FINRA and its auction-rate securities holdings to the WSJ. What happened? This most highly respected of financial periodicals passed on pursuing that story. Then what transpired?

I brought it to Bloomberg News. To their credit, they chose to pursue the story and revealed that FINRA liquidated its ARS holdings mere months before that market segment totally collapsed. Many inside and outside the industry view FINRA’s ARS liquidation as little more than a form of front running and/or insider trading.

Regulators complicit with banks? Come on. Stop the nonsense or dare I ask the editors of the WSJ,  “how much time do you have to discuss this topic?”

You really cannot make this stuff up.

Playing to win here. With winning defined as promoting transparency, pursuing the truth, and embracing integrity.

Who’s with me?

Related Sense on Cents Commentary
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.

  • LD

    A great read…

    Wrongdoing should be investigated: not by regulators, or panels of posturing politicians, or costly and long-winded public inquiries—but by the police and the Serious Fraud Office. And if it turns out that junior executives acted fraudulently and senior executives let them, or if regulators and politicians actually encouraged it, offenders should face fines and long-term disqualification.

    Charge the Criminals, Not the Companies

  • Hawk


    • LD

      The public gets this. If Diamond went down in the UK, then how does Dimon not go down here in the US?

      This has explosive potential.

      • Hawk

        How about if Tucker is going to get drawn and quartered by the MP’s why not Geithner?

        Where is the OUTRAGE?

  • LD

    That’s right…he should be on the firing line. I think his statement last week was merely an attempt to project himself as the white knight. What a crock.

    The problem really is who in Washington really has the balls to take on Timmy-boy or any other regulators.

  • coe

    I don’t think it all that surprising that there was a regulatory atmosphere that tacitly, if not overtly, allowed this type of behavior to happen on its watch. Remember, if you believed the alarmists, the whole global economy was on the verge of financial collapse and desperate measures needed to be taken to calm the jittery nerves of the markets. Banks were on the verge of sliding into the abyss due to lack of confidence, capital pressures, deteriorating credit and liquidity stresses. Is it any wonder that banks rigged LIBOR in a way that overstated the strength of their balance sheets – securities laws and regulators be damned.

    Isn’t it another example of the end justifying the means as well as regulatory capture?

    I happen to be watching some updates on the Penn State scandal…if adults in charge (the regulators, if you will) acted responsibly, perhaps Sandusky (the offending bank) would have been fired and prosecuted, and 8 latter victims would likely have been spared.

    Sweeping reform is needed. banks are too big to manage. Investment banking should not be funded with subsidized deposits. Criminals should be prosecuted – fined and jailed. Regulatory overhaul is similarly long overdue – FFIEC/FDIC/FED/OCC/FHFA/SEC/NCUA /FASB/FINRA/just rearrange the alphabet soup – too many conflicts/too many overlapping jurisdictions/too many conflicting agendas

    Why do your stories always come back to questions of leadership and morality…duh, because both are sorely missing in many walks of American life!

    • LD

      Dear Chancellor,

      No doubt that the regulators were complicit BUT, BUT, BUT…we know this manipulation of Libor goes back to at least 2005. How do we know it did not start even prior to that. We don’t.

      Would love to see the email exchanges from that period.

      Large popcorn please…

      • coe

        LD – many simply cannot resist the urge to say things in emails – the “e”, as they say, stands for “evidence”…consider the pervasive culture as the Wall Street shuffle became the paragon of success…some civil servant making probably less than $200K/yr was contemplating getting in the grille of the “Masters of the Universe” – people a whole lot smarter, a whole lot more entitled, and certainly people making 10x what the lowly regulator was earning…it was a perverse reversal of “I fought the law and the law won!”

        yes, things have been going wrong for decades, especially so in the arcane but nonetheless corrupt world of Wall St…yes, you are dead on correct – there are huge numbers of honorable and ethical folks both toiling in obscurity and making boatloads of money in the center ring of this circus…and yes, there are many more venal and evil and self serving criminals who mysteriously found a way to grab the brass ring, who don’t care a hill of beans about clients, about colleagues, or about regulators or law, and they have found tons of loopholes to get away with what is sometimes viewed as white collar crime with no victims – only, as we have come to realize way too late, there are always victims…and yes, there are good regulators, and there are bad regulators…

        I would make book that both the LIBOR scandal or something like the LIBOR scandal have been going on as long as Partners’ capital risk was replaced by shareholder exposure, and probably before that.

        One thing I always appreciate about you is that at some point, the facts are the facts and we must look to the future and to solutions…that’s where reform must be framed and pursued…navigate accordingly?

  • Bud in PA

    Count me in!!!!!!

  • James

    here is a great read that hints strongly that the manipulation of Libor likely began shortly after the repeal of Glass-Steagall…

    In the United States, interest groups, including the investment banks, fought the repeal of the Glass-Steagall Act for decades, warning that the incentives to tactically tie the lending and deposit businesses of commercial banks with the trading markets were so great that they could not be resisted. The opposition succumbed to the banking lobby in 1999 and the barrier to manipulation and the associated Too-Big-To-Fail risks melted away. Manipulation of LIBOR was never contemplated in the debate, but the potential for tying the functions of lending and trading certainly were. We now know that the new, deregulated financial structure ushered in a period of repeated manipulation of basic funding costs and trading market prices that probably commenced soon after the Glass-Steagall repeal.

    This is intolerably risky. The larcenous purpose of manipulating LIBOR is only the tip of the iceberg. When markets are manipulated at this level, it is widely known. The disease spreads like an aggressive virus. Unregulated traders are susceptible to the notion that gaming the markets is acceptable. Their incentives are always to generate cash now. The traded markets are inherently short-term oriented. A system that allows traders license to rig outcomes through lax regulation and enforcement is unstable and financial crises are the inevitable result of exploiting anomalies and information asymmetries caused by gaming.

    Lessons from the Libor Scandal

    • Peter S.

      Spot on!

  • Barry

    You da man!

  • Larry,
    I agree the regulators critique of the banks rate-manipulation is hypocritical. Interested in your thoughts on what I wrote last week, especially the second half.

    What Is Libor Rigging? Why You Should Care?

    • LD


      I like your site and your writing style. Nicely done. My motivation in launching Sense on Cents sounds very similar to yours for launching Bankers Anonymous.

      In regard to your commentary. In terms of explaining the Libor situation, I thought it was excellent, especially for the general public who has an interest but not a real knowledge of this situation.

      I agree with what I think you are saying about the complicity of the regulators. Manipulating markets is wrong no matter who is doing it and for what reason. The costs that are paid for market manipulation may be initially hidden but are ultimately paid and can be exorbitant and long lasting. I personally believe we are just now entering into that phase of the crisis.

      Thanks for writing and best of luck with your biz and your blog.

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