These Days, Manipulating the Markets Earns You a Slap on the Wrist

32 | By Shah Gilani

Heaven can wait.

There’s a passage in the Bible that says, “The Kingdom of the Father is spread out upon the earth and men do not see it.”

Bankers see it.

The whole earth is heaven for the big banks. They rule over it like petty, greedy gods.

And that’s not because they’re too-big-to-fail; it’s because they’re too-big-to-control and have it too-good-to-ever-change their sleazy, self-serving, corrupt ways.

The latest proof of big bank’s criminal ways, that they’ve been manipulating Libor – which isn’t news, I was writing about this four years ago – isn’t an indictment. It’s a signed, sealed, and delivered verdict of “guilty.”

(Check this out, I get credit from a group of fraud lawyers for being first to call this out right here.)

Here’s the deal: Barclays, a monster British bank, was under criminal investigation for its role in fraudulently manipulating the London InterBank Offered Rate (Libor). It settled charges late on Tuesday with Britain’s Financial Services Authority (FSA), the U.S. Commodity Futures Trading Commission (CFTC), and the U.S. Department of Justice.

Yeah, about that “justice” thing…

Barclays “settled” by paying $92.8 million to the FSA (a record fine), $200 million to the CFTC (another record), and $160 million to the DOJ (a piddling amount).

But, hey, you know, they’re sorry and all that.

Sorry they got caught, that is. And they’re not alone. There will be a bunch of other big banks paying for this gross game of manipulation. And all of them are household names.

I’m not going to get all worked up over the insanity of how little the fines were on any relative basis, compared to how much Barclays made or saved (including possibly saving itself from implosion, worse than it fared in 2008).

Or how insane the “deferred prosecution” garbage is that accompanies these “settlements,” on account of the fact that they don’t really admit guilt; they just pay the pipers (regulatory extortionists who’d rather collect potty money than put criminals behind bars… oh, don’t get me started).

And I’m not going to get all over the fact that a few bigwigs at Barclays are going to forsake some compensation this year, because although they’re not guilty of anything, you know, they’re just going to take one for the team, you know.

No, I’m not going to preach. It’s not Sunday, and this ain’t Sunday school.

This is Heaven, folks… for the big banks, anyway… and here’s how it works.

What Barclays Did (and Why It Stinks)

Libor is really, really, really important.

It’s a bunch of interest rates that range from overnight rates to one-year rates. These rates are important because they are the benchmark, or “reference,” rates for some $350 trillion in OTC (over the counter) swaps, $10 trillion in loans, and $437 trillion in CME (Chicago Mercantile Exchange) Eurodollar contracts (those numbers are according to the CFTC), and trillions of dollars in derivatives contracts worldwide.

In other words, the cost of borrowing for all these loans and financial instruments is based on Libor.

Libor rates – there are 250 of them across different maturities and in different currencies – are calculated daily out of London. Generally, 18 big banks (the “panel”) post, in interest rate terms, what it would cost them to borrow (on unsecured terms) from other banks. They submit their numbers between 11:00 am and 11:10 am (London time) to Thomson Reuters. Reuters calculates the official number by throwing out the highest four entries and the lowest four entries and averaging the middle 10 posts.

What’s been going on is that Barclays and the other big banks responsible for honestly submitting their cost of money for all those maturities in the different currencies have been submitting rates that are self-serving – as in lying to make or save money for themselves.

Traders at the banks have been leaning on the designated “submitters,” who often sit within earshot of their screaming cohorts, to submit very high or very low rates because their billions of dollars of trading positions are affected by those rates.

But not only were traders trying to influence rates, senior managers were in the game in an even bigger way.

You see, when banks submit their interest rates, they’re supposed to be saying, this is what I’d have to pay to borrow based on who will lend to me at what prices. If they post really high numbers, they’re in effect saying, we have to pay more to borrow, because the other banks are charging us a higher rate, because they think we’re a higher risk to lend to.

During the 2008 credit crisis, banks weren’t lending to each other, but they still posted artificially low Libor rates. Why? Because they didn’t want to be seen as essentially illiquid or insolvent. Because if they couldn’t borrow cheaply enough, it would be “game over” for them.

So management was in on the manipulation. They were all in on saving their own butts and manipulating rates to enhance their trading books.

What’s the big deal?

There are tons of ramifications. Some real and some theoretical. “Theoretical” meaning they can’t be proven.

Here’s one. By artificially keeping rates low, did the manipulation game create more cheap lending across all mortgages and loans during the run-up to disaster? Did these banks facilitate the lending by which they all prospered across the board (until the music stopped and there weren’t enough chairs; actually there weren’t any chairs) by manipulating rates? You bet they did.

That ain’t theory, I’ll argue it all day long with any takers.

Lying, cheating, and, to put it politely, manipulating banks rule the earth. They’ve created their own Heaven. And we’re all facing Hell because of it.

It’s criminal; no, not what they do (that’s business as usual, folks). It’s criminal that regulators and governments haven’t put the guilty in jail, but let them pay fines and go back to their dirty business as usual.

That’s why Heaven can wait. But we can’t.


32 Responses to These Days, Manipulating the Markets Earns You a Slap on the Wrist

  1. ken says:

    Well said and on point. Recently the FDA approved Arena. Pharmaceuticals weight loss drug and the market action before and since has appeared to me as sinister. As an educational piece could you comment on the hows and whys an equity such as this can be price manipulated. Keep up the great work of exposing and explaining.any unfairness built into the market and thanks for your honesty

  2. Gul says:

    “It’s criminal that regulators and governments haven’t put the guilty in jail, but let them pay fines and go back to their dirty business as usual.”

    Jails are for common people not for the Bansters, Fraudsters (Corzine comes to mind), Politicians (like Wrangle, Franks, Dodd et al).

    As long as there is Progressive and Multiple Taxation the common man will suffer the Financial Murder of the Middle Class.

  3. Blair Doyle says:

    What’s amazing to me is that anyone ever trusted such an idiotic system
    in the first place. It’s like relying on the fox to manage the henhouse and then being surprised when he lies to you!

  4. siera says:

    Gul, The progressive tax is one of the few things that help promote the middle class and ensure that the rich pay their fair share of the tax burdon. Unions helped estabolish and promote the middle class and our country and the middle class thrived as byproducts from the unions such as the 40 hour workweek, vacations and medical care and public education was the norm. Now, with the middle class and unions dissapearing, are schools are hurting,medical care is rationed out, and peoples lifestyles and attitudes are deteriating rather rapidly. The rich are getting richer and the middle class is dissapearing.

    • Edouard D'Orange says:

      “Unions helped estabolish [sic] and promote the middle class, “are [sic] schools are hurting”, “deteriating [sic]”. Nice spelling and grammar. You are no doubt a product of teacher’s union schools. Does it occur to you that schools, medical care, lifestyles and attitudes are deteriorating (correct spelling) in this country because of bad union and government policies? Non-union states are doing far better than union shops. Non-union nations like China are prospering and killing us.

  5. Tom says:

    If insider trading is someone trading on information not readily available to the general public, then isn’t high frequency trading just insider trading with a computer?

  6. Art says:

    It’s all such an incestuous game. Those who regulate often come from the bankster class. Those who set the rates are those who make and recieve the loans, which is inherently self-serving and self-interested. There’s a law for us and a law for them; there’s no “rule of law”; there are multiple “rules” depending on where you sit in society’s hierarchy.

  7. Peter Coleman says:

    The ‘truth’ will out. I worked for barclays for 19 years and left them because I knew what they were doing to customers. Theye were being ‘rooked’ left and right but in those days no one would listen. I urge everyone to check the interest and charges on their accounts – I found a ‘discepancy’ on my own accounts when I was in business to their favour amounting to thousands ! I got some of it back but with a dentist’s plyers !
    This lastest episode should really sound the complete end to how banks ‘operate’. If they have to borrow from one another to keep solvent then those having to borrow should be allowed to go down. In that way, any QE should go directly to depositors and not the banks concerned. The ‘size’ of the QE would be so much less and our currency wouldn’t take such a bashing. You never know, it might just save going back to ‘gold’ !
    I wonder too where the Bar Council stands in all this, after all without them the banks would have dissapeared long ago !

    • anna says:

      Gold is used as a “safe asset” for some years for most of the people in a hidden way, Why? Because fixed-dollar investments have fallen 65% in real dollar value since 1965. So bank´s experts knew that the revelation of truth will come to the light, and they were using gold as a collateral. Basel Committee for Bank Supervision is considering making gold a Tier-1 asset, so we are going to see “nice” re-pricing of gold, And what about paper-money?

  8. Markus says:

    When will common sense and honesty come to bare and the gate keepers stop accepting bribes. The system is corrupt and broken. God help our children!

  9. Ian Shearer says:

    Blair is right, it is idiotic because it is only half the market spread of a market that does not trade. The prices at which these recording banks would lend on the same terms to any other of their 16-bank panel is not noted. And even if it were – if no lending or borrowing takes place that day who is to say that rate is tradeable?

    It is not the only example, In commodities markets there are fixing prices made every day for markets that do not trade – Malaysian Rubber for example. Eventually they all get manipulated.

    The simple solutions are two: require proof of loans struck; or if there really is no business of this type being done abandon LIBOR as a reference and choose something live. Then the market cannot be manipulated without instantly exposing the manipulators.

  10. Dr. Robert Dean says:

    What the banks and other financial institutions, including governments world wide are doing is simply evil. Evil, meaning they know better, know its wrong and causes literally trillions of people on the planet financial pain and suffering, but they still continue on with lying, stealing, and breaking existing laws. There is involved in derivatives and other financial instruments and manipulated balance sheets more debt than there is in actual cash of all nations and precious metals combined on this planet. Therefore, not all of that debt can be paid back causing government and bank defaults that will be beyond belief.

    History has always proven that those who are evil can and will dominate temporarily, but ultimately go down under the weight and gravity of their own evil doing. The evil financial system is no different. It will completely collapse under its own “evil” weight, and I think much sooner than most think. Indeed, it will not be just a surprise. It will be a world wide heavily felt shock to the bad guys and the good guys alike. What evolves out of this will be, in the end, in the best interest of the masses. Many will suffer, but at least our grand children will be able to start out with an even playing field. Meanwhile, listen to Shah, be defensive, short stocks or, better yet, buy puts in gold, oil, banks, the euro, Europe and China indexes out into late summer and early fall, have a 30 day supply of food and water, plus other necessities and you’ll actually prosper through what is most certainly to come. Remember, it will be sudden and soon.

  11. Wikiderm says:

    Will you be dealing with the CFTC’s role in JPM’s manipulation of the silver market?
    Ted Butler has recently achieved a new ‘understanding’ of the situation that is fascinating.

  12. eric taylor says:

    Why am I Libor-ishly not surprised that there is market manipulation by the
    powers that be? Get nine hours sleep, and spend some time meditating
    with Buddha!

  13. Penny says:

    I wish people were better informed as to how the banks are also working this current housing market to their advantage. My husband and I have been house hunting since the end of December in the Seattle area. We (the people who keep voting these socialists into office i.e. Patty Murray and Marie Cantwell to name only two) bailed these banks out at the tune of $600 Billion Dollars of taxpayers money only to have them turn around and sell bank owned homes to investment companies for pennies on the dollar rather than make them available to the public. They package 100’s of them together and sell to this non-profit companies. To other homeowners underwater they say, “mail us your keys, give back the house and we will release you from your loan and allow you to live in it for three years at a rate cheaper than you now pay”. Why? Because the banks know that three years from now the interest rates are going to be much higher and will sell at that time. By putting so few houses on the market to us middle class people it is forcing the price of houses to go up today. My husband and I have made offers on homes where 8 other offers came in on the same house and yes, prices are going up. Here as well as all over the country. Why should the rich get these bank homes for pennies on the dollar and not make them available to us? It annoys me how the American public is so unaware of what is really going on in the housing market. The senate, congress and this White House administration are all in bed with the banks. Everyone of them needs to be voted out. Regardless of party. Start fresh for the good of America and the middle class.

  14. Ben says:

    I think that these banksters need to be reminded of the story about the golden goose who layed the golden eggs. The unparralelled prosperity of the last 60 years can be attributed to one thing-the continuing growth of the middle class-and when they forget this fact,they do so to the economic peril of the entire system.

  15. ivo paparela says:

    A bit of mathematics take the” exposure” in one segment of “market” of a well known bank (nomina sunt odiosa) of 52 trillions in 2011. Of this amount 1/1000 yes 1/1000 i.e. one percentage point ie one percent of one percent makes 520 billions . Barclay’s pays about 500 millions. of something not far from 520 billions as a penalty . This is incentive to keep on cheating or crime encouraging penalty. On top of that CEO gives up his bonus. But it is not a loss for him it is manque à gagner ( lucrum cesans)? It means that in cheating his maximum loss is zero yes zero and his maximum gain if not “seen” …. you just guest ( in theory infinity) So CEO is also encouraged to play naive … let middle managers do dirty job as all politically well connected crooks in the Balkans do. Vae Taxpayers ie middle class ? Ming you without middle class it is Revolution or Latin America? Young students if they are not on heroin think already about Lenin

  16. ROBERT says:

    None of this will matter after the banksters and billionaires have bought themselves a new president and a new congress this fall, courtesy of the supreme court.
    No more talk of fines or imprisonment for financial crimes.
    Democracy and capitalism are both dead.
    Plutocracy reigns, now and forever.

  17. Pat the Expat says:

    Shah, I would like to have your views on the case of the “rogue trader” Jérôme Kerviel in France.

  18. SteveJ says:

    David Cameron, British Prime Minister, recently went on a tour of West Africa. On his chartered aircraft, paid by the British taxpayer, he gave a free lift to his good friend Bob Diamond.

    Now, can anyone guess why not one member of top management in Barclays has been prosecuted by the British authorities?

  19. douglas says:

    If everyone took their money out of the banks, would they still be able to profit? I got tired of the 1% interest paid and hid my money. Now, if everyone else would do the same, just maybe, “they” might get the idea!!!

  20. A Robinson says:

    These people are all liars, crooks, thieves, and pimps.
    They should all be castigated by having their personal assets seized, and jailed.
    But won’t happen, as the regulators are in cahoots with them.
    This is the problem with Reagan and Thatcher- nomics de-regulation.
    They de-coupled the commercial banks core business from all controls back in the 80’s, and permitted the Investment bankers to give free reign to what can only be called savage capitalism at its worse.
    The politicians responsible should also join them behind bars.
    They screw everyone, and when caught, just resign (if even that), and walk off in to the sunset with millions in bonues.
    When will this end?
    Probably never

  21. KEITH says:


  22. Jocadi says:

    They continue destroying our markets and mainly our societies, children, youth, olders and families in general…almost five years later still creating these problems and that are not in JAIL yet?…well it seems that politicians are well into it and do not want to press charges yet.

    Could they be organizing an ARMAGEDOM again for these actions. Thing for a moment, how many thousands of people and companies had been affected when their LOANS or INVESTMENTS were closed or signed under these FRAUDULENTS INTEREST, I believe thousand will be suing their own financial institutions for using such misleading RATES and will claim the return of their money’s, etc., etc….of course beside the co responsabilities of these UK Banks that manipulated the rates… JAIL TO THEM ALL THE RESPONSIBLES FRAUDULENT BANKERS.

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