The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”
LIBOR

LIBOR Scandal

Since the 2007-2009 crisis, we have written about market manipulation by many of the world’s largest banks and financial institutions. The subprime mortgage scams were miniscule in comparison.

Here is an interesting flashback of the LIBOR rigging scandal which involves manipulating interest rates. LIBOR rates affect over $300 TRILLION worth of contracts and financial derivatives around the world. If they can rig that market, imagine what they do with stocks!

Here is an excerpt from an interesting article from MishTalk, written by the excellent analyst Mish Sherlock.

LIBOR Discussion

LIBOR is the “London Interbank Offer Rate”, the interest rate at which banks are willing to lend US dollars to each other, overnight. It is a stated rate, not necessarily reflective of any real transactions.

During the crisis, it was rigged. The New York Times article Tracking the Libor Scandal details the scandal.

Barclays, UBS, Royal Bank of Scotland, ICAP, Rabobank all pleaded guilty or paid fines. In December of 2013, in one fell swoop, Citigroup, JPMorgan Chase, Deutsche Bank, Royal Bank of Scotland and Société Générale were all found guilty of manipulation. In 2104, RP Martin, Lloyds, and four other banks were implicated.

In a set of rare convictions of anything that happened during the great financial crisis, a former Citigroup and a UBS trader were convicted in 2015.

Select Quotes From NY Times

  1. Barclays trader to an official: “We know that we’re not posting, um, an honest” rate.
  2. Bank of England official in an email: “They will obviously have to remove the references to us and Fed”
  3. Barclays email: Traders seeking favorable rates received a welcome reception from bank employees who set the benchmark. “Always happy to help,” one employee said in an e-mail.
  4. UBS: “I need you to keep it as low as possible,” one UBS trader said to an employee at another brokerage firm in 2008, according to the complaint. The trader promised to pay “whatever you want. I’m a man of my word.”
  5. ICAP: One trader resorted to begging, invoking a plea of “pretty please.” Another trader, after pressuring a colleague to submit a certain rate, offered a reward of sorts: “I would come over there and make love to you.”
  6. Rabobank: When one trader requested a specific rate and then expressed concern that the submitter might encounter resistance, the submitter replied: “Don’t worry mate — there’s bigger crooks in the market than us guys!”
  7. Deutsche Bank: “I’m begging u, don’t forget me,” one Deutsche Bank trader wrote in an online chat to an employee at a rival bank, seeking to influence rates. “Pleassssssssssssssseeeeeeeeee … I’m on my knees …”

Pay particular attention to point number 2. The Fed and Bank of England were involved in the scandal and/or cover-up of the scandal.

Who was convicted? Two lowly traders.

Read the full article here: https://mishtalk.com/2016/08/07/ted-spread-widening-significant-or-not-libor-scandal-revisited/