The Rotten Heart of Finance

The Rconomst ^ | JUly 7 , 2012 | Staff

[lbryce]

THE most memorable incidents in earth-changing events are sometimes the most banal. In the rapidly spreading scandal of LIBOR (the London inter-bank offered rate) it is the very everydayness with which bank traders set about manipulating the most important figure in finance. They joked, or offered small favours. “Coffees will be coming your way,” promised one trader in exchange for a fiddled number. “Dude. I owe you big time!… I’m opening a bottle of Bollinger,” wrote another. One trader posted diary notes to himself so that he wouldn’t forget to fiddle the numbers the next week. “Ask for High 6M Fix,” he entered in his calendar, as he might have put “Buy milk”.

What may still seem to many to be a parochial affair involving Barclays, a 300-year-old British bank, rigging an obscure number, is beginning to assume global significance. The number that the traders were toying with determines the prices that people and corporations around the world pay for loans or receive for their savings. It is used as a benchmark to set payments on about $800 trillion-worth of financial instruments, ranging from complex interest-rate derivatives to simple mortgages. The number determines the global flow of billions of dollars each year. Yet it turns out to have been flawed.

Over the past week damning evidence has emerged, in documents detailing a settlement between Barclays and regulators in America and Britain, that employees at the bank and at several other unnamed banks tried to rig the number time and again over a period of at least five years. And worse is likely to emerge. Investigations by regulators in several countries, including Canada, America, Japan, the EU, Switzerland and Britain, are looking into allegations that LIBOR and similar rates were rigged by large numbers of banks.

[lbryce]

Yawn. What do you mean when you say the world's trading system is emphatically flawed and does not represent capitalism, free markets as the 'Prime Directive' whereby prices are determined by the strikingly accurate, prudent and wholly honest process that has worked so well for hundreds pf years?? This system is foolproof and to believe the free market system is flawed like many have been saying then why don't you just cash a few unemployment checks to see how flawed you really believe the system to be? To malign the capitalist way of life as being corrupt, rotten has me contemplate where are how are you going to make this kind of money, so quickly and easily?

[Axenolith]

Nothing is wrong with capitalism and free markets, aside from the fact that they don’t exist anymore. What you have now is guild socialism, crony capitalism and and a system run and gamed by entrenched financial empires which farms the masses for their margin.

Andrew Jackson had it right...

[philman_36]

In one instance a trader would regularly shout out to colleagues that he was trying to manipulate the rate to a particular level, to check whether they had any conflicting requests.

Ping

[KoRn]

"Andrew Jackson had it right..."

He had some flaws, but we could sure as hell use another Andrew Jackson right about now. He won't even need to be elected. He could just go and throw the 0bama admin out of the White House, and dare them to come back.

[redgolum]

So they are admitting the game was rigged. Just waiting for the banksters to show up and say how it was a good thing.

[OldEarlGray]

       

"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission [CFTC] -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"

http://www.pbs.org/wgbh/pages/frontline/warning/view/

[lbryce]

7 AM: Alan Greenspan's wife on the phone with God.
Mrs.Greenspan: God, you've called three times already this morning.You know Alan doesn't get up until late morning. Please call back after 10:30 am.

Kafka would reject out of hand a scenario such as the ignominious fall from grace Alan Greenspan engineered for himself as something too improbable. Rod Serling thought the script on Alan Greenspan too surreal for audiences. I'm going with the "It's A Cookbook" script about aliens at the UN.

The Mess That Greenspan Made
How Eighteen Years of Easy Money Changed The World
The Mess That Greenspan Made:How Eighteen Years of Easy Money Changed the World
Friday, September 07, 2007
The Wall Street Journal reports($) on another Alan Greenspan sighting where the former Fed chairman once failed to make the connection between basic human instincts and easy money policies by the central bank.

Mr. Greenspan, Fed chairman from 1987 to 2005 and now a private consultant, said business expansions are driven by euphoria and contractions by fear While economists tend to think the same factors drive expansions and contractions, ."the expansion phase of the economy is quite different, and fear as a driver, which is going on today, is far more potent than euphoria."

The euphoria in human nature takes over when the economy is expanding for several years, and leads to bubbles, "and these bubbles cannot be defused until the fever breaks," he said.

The Comedic Genius of Alan Greenspan
http://www.tradersnarrative.com/the-comedic-genius-of-alan-greenspan-1335.html>

Speaking of Greenspan and his attempt to white wash his legacy, I found this hilariously biting cartoon (see below). It is of a penguin at a book signing, admiring the “comedic genius” of the Maestro:
Penguin: “I have to hand it to you Mr. Greenspan — you are a comedy mastermind!

Penguin: “Remember when you were helping to inflate the housing bubble with historically low interest rates — and urging people to take out adjustable rate loans? What a classic! Pure comedy gold!

Penguin: “And what sense of timing you have! I love how the pause between the setup and the punchline can last — well — years! Like when you urged Congress to social security by raising the payroll tax — which disproportionately impacts low and mid-level earners!”

Penguin: “Two decades after American workers began paying the higher rates you asked for — you used the surplus they created as an argument in favor of Bush’s tax cuts for the wealthy!”

Penguin: “And then after those tax cuts lead to soaring deficits, your response — and this is priceless — was to propose cutting social security benefits! I don’t think Stephen Colbert could have done better!”

Penguin: “And to top it off now by claiming that you were actually opposed to the tax cuts all along — what can I even say? I stand in awe of your comedic genius, Sir.”

Greenspan: “Would somebody please taser the penguin?”