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Libor fraud exposes Wall Street’s rotten core

Posted by on Jul. 20, 2012 at 10:50 AM
  • 11 Replies

By Elizabeth Warren, Published: July 19

The Libor scandal is more than just the latest financial deception to come to light. It exposes a fraud that runs to the heart of our financial system.

The London interbank offered rate is a benchmark for a range of interest rates, and the misdeeds making headlines have to do with how those rates are set. If insiders can manipulate the basic measurement of a loan — the interest rate — there is rot at the core of the financial system.

The British financial giant Barclays has admitted to manipulating the rate from 2005 to at least 2009. When the bank made a bet on the direction in which interest rates would turn, the Barclays employees who submit data for calculating interest rates would fake their numbers to help Barclays traders win the bet. Day after day, year after year, bet after bet, Barclays made money by fixing bets for its own traders.

We don’t know who else was fixing bets. Other big banks, including some of the largest in the United States, are under investigation. Barclays doesn’t appear to have acted alone, and it is clear that its fixes weren’t secret deals by rogue traders. Traders put requests to manipulate the rates in writing and even joked about delivering champagne to those who helped them.

It is also clear that many of those who didn’t have a fixer — including consumers, community banks and credit unions — lost money. Barclays padded its bottom line by taking money from everyone else. It won when it shouldn’t have won — and others lost when they shouldn’t have lost. The amount of money involved is staggering. On any given day, $800 trillion worth of credit-related transactions are linked to Libor rates.

In most markets, consumers could simply take their business elsewhere once they learned that the scales were rigged. But interest rates are different. Everyone who borrows money on a mortgage, credit card, student loan, car loan or small-business loan — basically, everyone — is affected by a crooked market on Libor. According to the Federal Reserve Bank of Cleveland, in 2008 more than half of all adjustable-rate mortgages were linked to Libor. Even those who didn’t borrow but saved for retirement or their children’s future got hit with interest rates that had been faked.

It gets worse. During the financial crisis, Barclays and other banks also appear to have consistently manipulated Libor to show lower-than-real borrowing rates to convince the world — and their regulators — that the bank was stronger than it really was. In other words, they rigged the interest-rate reports so that no one would know exactly how much trouble they were in.

With a rotten financial system once again laid bare to the world, the only question remaining is whether Wall Street has so many friends in Washington that meaningful reform is impossible.

Real accountability would mean prosecuting the traders and bank officials who violated federal laws and prosecuting the executives who knew what they were up to. It would mean forcing executives to pay back any inflated compensation that was based on padded profits.

Going forward, the rules would be changed so that Libor is calculated on actual borrowing costs, not estimated or claimed costs. And enforcement agencies would have the resources they need to launch investigations, to fight the armies of private lawyers the banks hire and to prosecute the law-breakers.

But the heart of accountability lies deeper. It rests on acknowledging that we cannot trust Wall Street to regulate itself — not in New York, London or anywhere else. The club is corrupt. When Mitt Romney says he will move to repeal all of the new financial regulations, he supports a corrupt system. When members of Congress grill regulators for being too tough on Wall Street and slash the budgets of the regulators charged with overseeing Wall Street, they prop up a corrupt system.

Financial services are critical to the economy. That’s why everyone — every family and every business — has a stake in an honest system. The fantasy that reducing oversight of the biggest banks will make us safer is just that — a dangerous fantasy. The Libor fraud exposes rot at the core. Now, who will stand up to fix it?


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If they enforced bank regulations like they do park rules, we wouldn't be in this mess

by on Jul. 20, 2012 at 10:50 AM
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Replies (1-10):
survivorinohio
by René on Jul. 20, 2012 at 10:53 AM

Rotten to the core.

brookiecookie87
by Platinum Member on Jul. 20, 2012 at 10:54 AM

For those without a lot of time. The meat of the subject can be found in these paragraphs:


Quote:

 

In most markets, consumers could simply take their business elsewhere once they learned that the scales were rigged. But interest rates are different. Everyone who borrows money on a mortgage, credit card, student loan, car loan or small-business loan — basically, everyone — is affected by a crooked market on Libor. According to the Federal Reserve Bank of Cleveland, in 2008 more than half of all adjustable-rate mortgages were linked to Libor. Even those who didn’t borrow but saved for retirement or their children’s future got hit with interest rates that had been faked.

It gets worse. During the financial crisis, Barclays and other banks also appear to have consistently manipulated Libor to show lower-than-real borrowing rates to convince the world — and their regulators — that the bank was stronger than it really was. In other words, they rigged the interest-rate reports so that no one would know exactly how much trouble they were in.


smalltowngal
by Platinum Member on Jul. 20, 2012 at 10:56 AM

Of course no one will go to jail. No one ever does. 

brookiecookie87
by Platinum Member on Jul. 20, 2012 at 11:02 AM


Quoting smalltowngal:

Of course no one will go to jail. No one ever does. 

Of course.

I think it is crazy that Kim Dotcom had an illegal raid on his house where they arrested him, and took all his computers and seized all his assets.

Our government takes all the hardrives (illegally).

And everyone (Well not everyone) supports those actions because they -think- he is behind Copyright infringement.

But when it comes to banks they could cheat the system for billions of dollars and no one does anything and everyone (Well again not really everyone) is okay with it.

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If they enforced bank regulations like they do park rules, we wouldn't be in this mess

Sisteract
by Whoopie on Jul. 20, 2012 at 11:02 AM

Another corrupt, rigged system with greed at its core.


brookiecookie87
by Platinum Member on Jul. 20, 2012 at 11:30 AM


Quoting Sisteract:

Another corrupt, rigged system with greed at its core.


The sad part is it would be simple to fix.

Arrest the people caught doing it. Seize their assests like they would a bank robbers (Or like they did to Kim Dotcom the owner of MegaUpload). If they were arrested and their assets seized they wouldn't be doing this.

But with the current system of course they will . There are no consequences for doing it. And in the off chance anything goes wrong someone is normally just fired (if that) or fined (Which is even more silly). They need to be treated like actual criminals and people will stop being so eager to see what they can do illegally for more money.

Join us on the 99% Moms group!
The Ninety-Nine Percent Moms   

If they enforced bank regulations like they do park rules, we wouldn't be in this mess

Sisteract
by Whoopie on Jul. 20, 2012 at 11:40 AM

These behaviors will only escalate as policies are made that continue to concentrate the wealth and opportunities to attain wealth (aka having a lucrative or any job at all) in a few hands.


Quoting brookiecookie87:


Quoting Sisteract:

Another corrupt, rigged system with greed at its core.


The sad part is it would be simple to fix.

Arrest the people caught doing it. Seize their assests like they would a bank robbers (Or like they did to Kim Dotcom the owner of MegaUpload). If they were arrested and their assets seized they wouldn't be doing this.

But with the current system of course they will . There are no consequences for doing it. And in the off chance anything goes wrong someone is normally just fired (if that) or fined (Which is even more silly). They need to be treated like actual criminals and people will stop being so eager to see what they can do illegally for more money.


brookiecookie87
by Platinum Member on Jul. 20, 2012 at 12:00 PM
2 moms liked this

So true. And since it is these extremely wealthy people who can 'donate' high amounts of funds, or funnel massive amounts of money via lobbyist these people can almost sculpt laws and policies.

And then turn around and tell the media that business is being hurt by rules and regulations when the pay of C.E.O. is at an all time high. And the pay of the average worker is on the other end of the spectrum.

Quoting Sisteract:

These behaviors will only escalate as policies are made that continue to concentrate the wealth and opportunities to attain wealth (aka having a lucrative or any job at all) in a few hands.


Quoting brookiecookie87:

The sad part is it would be simple to fix.

Arrest the people caught doing it. Seize their assests like they would a bank robbers (Or like they did to Kim Dotcom the owner of MegaUpload). If they were arrested and their assets seized they wouldn't be doing this.

But with the current system of course they will . There are no consequences for doing it. And in the off chance anything goes wrong someone is normally just fired (if that) or fined (Which is even more silly). They need to be treated like actual criminals and people will stop being so eager to see what they can do illegally for more money.



Join us on the 99% Moms group!
The Ninety-Nine Percent Moms   

If they enforced bank regulations like they do park rules, we wouldn't be in this mess

Friday
by HRH of MJ on Jul. 20, 2012 at 6:12 PM

I wish I could be surprised.

We are so humped.

 


Thank God......it's Friday!!!

janet116
by on Jul. 21, 2012 at 1:53 AM
And Romney and his rich cronies would plump for less regulation not more . The present regualatory system is inept , only capbale of responding to a crisis and not from preventing one .

The banks and their executives have learned no lessons from misery caused to so many people wordwide from a recession which they caused . It is time their incomptent and overpaid top executives and managers were fired . At least in the UK , the govt was able to secure the resignations of Barclays top brass .

In reality they and their ilk should be jailed for fraud and not exercising due diligence and the banks taken under government administration to clean them up and get rid of the barrels of rotten apples .

Until there is massive reform of the banking system , the financial system will remain unstable and a return to economic growth will be handicapped .


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