The Market Has Spoken – And It Is Rigged

By Simon Johnson

In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.

This is a big mistake, in terms of both the economics at stake and the likely political impact.

The behavior at Barclays has all the hallmarks of fraud, pure and simple – intentional deception for personal gain, causing significant damage to others.

The Commodity Futures Trading Commission nailed the detailed mechanics of this deception in plain English in its “Order Instituting Proceedings” (which is also a settlement and series of admissions by Barclays). Most of the compelling quotes from traders involved this scandal come from the Order, but too few commentators seem to have read the full document. Please look at it now, if you have not done so already.

Barclays has acknowledged that its staff took part in a wide-ranging conspiracy (or perhaps a set of conspiracies) to rig markets – including, but not limited to, any securities for which the price is linked to a particular set of short-term interest rates. The collective term for these rates is the London InterBank Offered Rate, known as Libor, but the use of this nomenclature sometimes hides the fact that there is currently a separate Libor daily for each of 10 currencies at 15 maturities, from overnight to 12 months, according to the British Bankers Association. The notional size of the derivatives involved is on the order of $360 trillion.

Barclays could not have manipulated those rates by themselves – and that is not what the C.F.T.C. found or the basis of the Barclays settlement. Rather, some Barclays employees colluded with people at other banks in a way that, over a period of years, moved Libor rates up and down – depending on what would favor the trading positions of the people and organizations involved.

Each Libor “panel” of banks involves 7 to 18 banks. Participating banks submit the rate at which they can supposedly borrow at a particular maturity and in a specified currency, and an average is calculated (taking out high and low values). No one bank is likely to be able to move the calculated Libor rates by itself.

Once the global financial crisis began to bite, there appears to have been a more systematic manipulation of Libor reporting by Barclays management in a particular direction – downward, to make it seem that the bank was healthier and therefore able to borrow from other banks at a cheaper rate.

George Osborne, Britain’s Chancellor of the Exchequer (the equivalent position to the Secretary of the Treasury) and a Conservative Party member, said recently, “Fraud is a crime in ordinary business; why shouldn’t it be so in banking?” The answer, of course, is that fraud is not allowed in any well-run country.

Anyone who takes personal responsibility seriously should want all those involved to be held accountable – to the full extent of the law in all jurisdictions. Anything that lets individuals escape consequences will further undermine the legitimacy that underpins all markets. Bankers should be leading the charge to clean up their industry.

Nevertheless, five arguments put forward in the last 10 days, singly or collectively, attempt to provide some sort of cover for what happened at Barclays. None of these arguments have any merit.

First, it is argued that this kind of cheating around Libor has been going on for a long time. This may be true, but it is a sad and lame excuse that is unlikely to get anyone off. The bigger question must be: Is the financial sector crooked at its core? Statements about a pattern of behavior only strengthen the case that incentives, culture and organizations are all badly broken at the heart of the world’s financial system.

Second, it is also asserted that “everyone does it.” This is not any kind of defense – try it next time you are accused of fraud. But the perception that many people could be involved is part of the reason why this scandal has legs. A broad range of involvement across the financial sector is consistent with what is in the C.F.T.C. Order – although the full scope of the conspiracies has not yet been made clear.

There are three United States banks involved in Libor panels: JPMorgan Chase, Bank of America and Citigroup. Are they also implicated in some aspect of rigging interest rates and therefore securities prices?

Barclays was the first to settle with the C.F.T.C., presumably enabling investigators to gain better access to information about who else is involved. It would not be a surprise if bigger fish are still to come.

Third, Libor-rigging is defended as a “victimless crime.” This is untrue. Traders at Barclays and other banks gained from this series of manipulations, so someone else lost. That may have been investors, who received lower returns than they would have otherwise. Or it may have been borrowers, who paid higher interest rate and related costs than would have been necessary in an honest market. Other losers are presumably everyone who was effectively overcharged by all the intermediaries involved in crooked behavior.  Some local governments have also lost heavily – and at a time when these losses put pressure on essential services and will tend to increase taxes.

Honest people in the financial sector should be up in arms about the behavior of Barclays and other mega-banks.

Fourth, some contend that it is the regulators’ responsibility and fault that there was cheating on Libor. It is certainly the case that there was regulatory capture at work, i.e., officials in Britain, the United States and perhaps elsewhere should have been paying closer attention. I made exactly this point on National Public Radio, in a discussion with Guy Raz and Matt Taibbi, last Saturday.

The mystique of the financial sector wowed many people – including many prominent policy intellectuals, Democratic and Republican – in the years before 2008. But who does the capturing in regulatory capture? Big banks work long and hard and lobby at many levels to push regulators toward paying less attention.

Fifth, the weakest argument is, “It was only a few basis points, here and there” (where a basis point is a hundredth of a percentage point, i.e., 0.01 percent). Either the Libor reporting process and, consequently, the pricing of derivatives has been corrupted by a criminal conspiracy, or it has not. There is no “just a little” in this context for the enormous global securities market.

Robert E. Diamond Jr., who resigned last week as chief executive of Barclays, reportedly said: “On the majority of days, no requests were made at all” to cheat on Libor. The Economist, which does not make a general habit of criticizing prominent people in the financial sector, observed, “This was rather like an adulterer saying that he was faithful on most days.”

Mr. Diamond has fallen. Who is next? How will this play in American politics? There is still time for politicians on the right and on the left of the political spectrum to get ahead of the issue. Digging in around specious arguments in favor of price-fixing cartels is not the way to go.

Power corrupts, and financial market power has completely corrupted financial markets. Barclays and the other global mega-banks involved in fixing Libor have brought their own industry very low – completely destroying the legitimacy on which sensible financial intermediation needs to be based.

Who trusts a banker at this point? The collateral damage is enormous. Who in their right mind would buy a complex derivative product from Barclays or anyone else implicated in this growing scandal?

An edited version of this blog post appeared this morning on the NYT.com’s Economix; it is used here with permission.  If you would like to reproduce the entire column, please contact the New York Times.

105 responses to “The Market Has Spoken – And It Is Rigged

  1. Libor. Hah ! They rigged the overnight interbank lending rate to save the world. Got it.

  2. i haven’t seen anyone mention that municipalities that bought interest rate derivatives as “protection” against an interest rate rise have been killed by the progressive drop in interest rates over the years as a direct consequence of Libor rigging.

  3. “Who in their right mind would buy a complex derivative product from Barclays or anyone else implicated in this growing scandal?”

    Unfortunately, there are huge incentives for pension fund managers and other investor agents to buy these fraudulent products. Is there a better way to add a digit to your salary than to buy some toxic products on behalf of investors and then take a comfortable job with the creators of these products? After buying the fraudulent product, the investor’s agent has established qualifications for the new sell-side job.

    I’ve seen plenty of commentary on “regulatory capture” but very little on the revolving door between relatively poorly paid “muppet” investor agents and the creators of the opaque financial products. You might call this “investor capture.”

    As long as investor capture exists, there will be a market for complex financial products – trusting bankers is not necessary.

    A: “Is the financial sector crooked at its core?”
    B: “Honest people in the financial sector should be up in arms about the behavior of Barclays and other mega-banks.”

    If nobody in the financial sector is “up in arms about the behavior;” what does that imply about the answer to question A?

  4. SJ: “The notional size of the derivatives involved is on the order of $360 trillion”

    Global GDP is $78.95 trilltion (just looked it up on Wikipedia).

    Does this mean the banks bet $360 trillion at a gambling casino ?

  5. What about Mr. Diamond’s contention that the Bank was pressured to adjust the rate by the Exchequer? Do we just take the government’s word for it that this was not true?

  6. Per Kurowski

    @cypherdoc You write about “the progressive drop in interest rates over the years as a direct consequence of Libor rigging”

    For your information the drop in interest rates over the recent years have absolutely nothing to do with that. Do you really believe that some clerks or trades reporting on the borrowing rate in London between banks have the power to do that? This is really a case of confusing the message with the messenger.

    That the rate is dropping like a bomb is mainly because central banks are injecting huge amounts of liquidity, and no one wants or dares to use it for anything else than to take refuge in those soon to be dangerously overcrowded havens of US treasury, Bundesbank, and some few other sovereigns .

  7. Who trusts a law firm for the past 20 years?, certainly not I.

  8. Per Kurowski

    @Simon Johnson “The behavior at Barclays has all the hallmarks of fraud, pure and simple – intentional deception for personal gain, causing significant damage to others.”

    Of course that is entirely true… but, to promote the Libor Scandal to such an extension that it might distract the attention from much more serious problems, problems which, perhaps without intention of any personal gain, have already caused far larger net damages that any of these Libor manipulation, is, as I see it, also a criminally irresponsible behavior.

    And Simon Johnson knows very well, as an economist, that there are plenty of more important and harmful sources of interest rate manipulations… the problem though is that arguing about these manipulators does not produce the same juicy ratings, as for instance accusing some banksters.

    And by the way, the document Simon indicates we should read, speaks clearly about Barclays “lowering between August 2007 through early 2009 its LIBOR submissions in order to manage what it believed were inaccurate and negative public and media perceptions that Barclays had a liquidity problem based in part on its high LIBOR submissions relative to the low submissions of other panel banks.”… and, any lowering of Libor, cannot produce as victims, “borrowers who paid higher interest rate and related costs than would have been necessary in an honest market” as Simon Johnson suggests.

  9. The global financial system is a rigged casino whose primary purpose is to extract wealth from productive society.

    Is this not yet common knowledge?

    But don’t worry; the politicians will save us.

  10. I doubt any politicians will come to the rescue, you can only pass the buck onto so many generations before the consequence queen reminds one of their insignificance.

  11. @Nemo

    But $360 trillion at the gambling casino ? To call this a tad excessive would be an understatement.

  12. @Per Kurowski, you are vindicated.

    Here is the economist Mark Blyth giving the bigger context to the Libor events. At 35:30 he says: 70% of the special investment vehicles designed to pump and dump mortgages belong to European not American banks … Euro banks listed their periphery debt as Tier One Capital under Basel. That’s hilarious. The most risky assets are your 2% safety valve for your 50 times leverage.

  13. The notional size of the derivatives is $360 trillion or more than four times the size of global GDP. They can’t let these hedges (ad infinitum) unravel because it would take down the world economy. Truth indeed is stranger than fiction.

    The irony (according to Mark Blyth) is that governments took on massive debt to bailout the banks. While the right wing believe it is social program that causes government over-spending.

  14. Everyone should listen to the ATC broadcast, everyone. First of all, it’s fantastic to hear Matt Taibbi and Simon Johnson, two people from such diverse backgrounds, harmonizing so well on the failings of this broken financial ecosystem.

    Secondly, as I was familiarizing myself with the implications of this over the last week or so – the impact on mortgage lending, credit cards, retirement funds and more – it became obvious that LIBOR was just one more process where guesstimates offered an easy target for corruption. The answer is to take this silly people poll out of it since it is, after all, about what the banks are really paying to borrow money.

    Mervyn King’s statement, and Simon’s follow-up hammered this point home. This is exactly where real information must be brought to bear. Use transaction data to set interest rates.The current process, grandfathered into the present from a distant past, was nothing but low-hanging fruit for the greedy fools and the toadies – pardon me the submitters – whom they manipulated.

    It should be obvious to everyone that the last 5 years mark an inflection point in financial markets. Layer upon layer of corrupted practices, stale business models, and the thoughtless application of endless amounts of computing power, have been peeled away. We will either have a better system or we will bust.

    Now, if we could just get some of those Armani suits swapped out for prison duds…

  15. …And the Treasury is pushing market-determined exchange rate at the WTO? A last ditch effort to prove that our system can still function? In the face of this fraud, we need stronger regulation, but if the international market will be determining the exchange rate, and not central banks, won’t that just change the rules and make deregulation that much easier?

    http://www.treasury.gov/press-center/press-releases/Pages/tg1505.aspx

  16. David Donald

    Financial activities existed long before government had the will or power to regulate them. Following each crisis (e.g., 1907, 1929, 1970, 2001, 2008) there has been a call for more government oversight, although the political will gradually weakens as markets improve. This trend is different than, say, in the regulation of pharmaceuticals: although no one would argue that pharmaceutical companies do not have strong lobbies, no cries for innovation have overcome public concern for safety.

    Aside from the agile intelligence of many leaders in finance, which is truly impressive, a reason why the financial industry can duck control and roll back existing restraints (as with Glass Steagall) is that they have been supported by an idea that the market itself had an inscrutable truth bordering on the divine (the invisible hand of the efficient market), so that innovative ways to tap the market’s dynamics take on an aura of respected, mystical rituals. In the past, these rituals gained even more respectability because their sworn enemies, like the Soviet Union, were clearly lost in the woods. After the fall of communism, the (very) free market took its place in the hall of heroes, with its license expanded still further.

    That’s why it is so important that over the last decade people like Joseph Stigliz and Simon Johnson have used their considerable intelligence and inside understanding of finance to expose both the little man behind the wizard’s curtain and the ideological texture from which the curtain itself is woven. Indeed, the “market has spoken” and been well interpreted by Prof. Johnson.

  17. Take out the word “Barclays” and insert “Penn State.” The bankers should be penalized like the latter.

  18. Do you really believe that the people who buy this crap from the bankers trust them? They do it because they think they are smarter than the bankers and will continue until they figure out that the bankers are not smart, they are criminals who fraudlently sell things they know are rigged to fail. This may be the straw, but…. I doubt it. What is the alternative? They have a monopoly on large scale investments. It is not just that they are too big to fail, they are monopolists when it comes to really large investments.

  19. @Per: well, a difference in kind but perhaps not in scale (my comment, the previous blog post). And unfortunately it does prove to most that the system, however we might try to gently unwind the regulatory mistakes of Basel, cannot do so with the present actors still in place at the banks and exchanges. I agree with Norm Cimon that without a massive increase in the transparency of transactions and ratings that removes the ability and incentive to profit via information asymmetries developed by sheer scale we will continue to have massive gaming. Ultimately, though, Norm’s attractive vision assumes perfectibility of an inherently imperfectible system. It presumes that markets are efficient and become fairer with perfect information. If you agree with Schiller and other behavioral economists, such markets have never existed. They’ve always been asymmetric. I fear a disorderly transition to a new order as much as anyone else, but I doubt there can be one without a lot of unplugging. Perhaps all we will be able to do is reduce the asymmetry, if we can keep the two goals of linearization and justice in our head simultaneously. Unfortunately, we need a criminal scandal of this scale to point out the rot at the core.

  20. Mr. Johnson, I have a question. We know that derivatives are what the term means, something whose value is derived from something else… like an interest rate, a LIBOR rate, etc… We also know that where the basis for derivatives is fraud will prevail. So why are so many surprised when a value that determines other values is getting rigged? That is where we should expect fraud. could you please identify other sources of value that determine many other returns, and then look into whether they are also rigged. This seems obvious to me though I do not have the exspertise to identify where those base values are, but you do.

  21. Well done Simon.
    Guts, brains, and honesty are becoming a rare combination.
    Thank You.

  22. @tippy “The notional size of the derivatives is $360 trillion or more than four times the size of global GDP. They can’t let these hedges (ad infinitum) unravel because it would take down the world economy. Truth indeed is stranger than fiction.”

    You would think austerity could be applied evenly instead of asymetrically – guess not. So doing the math, that means that everything that the entire planet does for the next four years is interest on debt?!

    I guess there is always a Plan B:

    http://rt.com/usa/news/war-sub-drone-iran-066/

    Empty out 4.5 million homes to pay the mercenary army…

  23. Hey folks, Wake up – business is warfare and the job of the warrior is to win not to play by the rules.
    What went on is duplicated by every merchant in every city of the world every day. The scope was big but the behavior was normal.
    If you think anyone is in business to be fair and give you a break so you can make money at their expense I have a bridge to sell you.

  24. TonyForesta

    Who in their right mind indeed? And this this is the cutting point. These monsters are NOT in their right mind. They only care about personal gain and immense otherworldly wealth regardless of the criminal activity involved in obscounding – I mean gleaning – I mean earning it . How are these shatains and fiends any different from drug cartels and operators. They both control and manipulate markets. They both use the otherworldly profits of their criminal enterprises to bribe – I mean purchase politicians, regulators, and respective enforcement agencies . They both are equally ruthless. What’s the difference? The suits? The yaughts, jets, mansions, – what?

    Unless and until the fiends, shatains, and den of vipers and thieves in the finance sector (who are responsible for, and cause far greater harm and injury globally) to the exact same government reprisals and fierce punishments as their kindred spirits in the drug trade or weapons or slave trades – there will NEVER be an end to their criminal activity, and the manifold horrors (slave labor, poverty, lack of access to basic commodities, {affordable housing, healthcare, education, et al} and ruthless oppression will continue unabated and matasticize until the entire globe ignites in fury and destruction.

    Criminals must be held accountable for crimes, – or in practical reality there are no laws. In a world where there are no laws – there are no laws for anyone predatorclass biiiiiaaatches !!!

    There will be a reckoning and a balancing, and there will be blood!!!

  25. TonyForesta

    Back at you Jerry. You want war? War is what you will get, and don’t expect any mercy or rules (since by your own admission – there are no rules). We’re on the same page but opposite sides.

  26. So not only the banks indebted whole populations by offering cheap credit, but they were also manipulating the rates. When we talk about home prices in Vancouver we talk about the bubble. But how to name this? I think that fraud would be appropriate. The biggest problem is that the banks allow their employees to work in this way. There is no moral code about protecting interests of ordinary people. They operate in a completely distinct environment and they think that what they do won´t influence anyone. The current obsession with moneymaking makes me sick.

  27. @ If you think anyone is in business to be fair and give you a break so you can make money at their expense I have a bridge to sell you.

    Hey man, we are up:
    This statement is just not so, perhaps in your world it is, but the real world does have players who can give you a break which is not at their expense. If you save money from my product and therefore don’t have to spend money to replace it, you have both made and saved money by simply completing the transaction. The loser is the guy or company who’s product you did not have to additionally buy because you saved money by buying my product. Now if you wanted to flip some drugs or a portfolio quickly to make money you might get into that expense equation with bridge for sale, but otherwise the statement does not hold water.

  28. How can you trust the governments who suppose to oversees these banks ?

  29. @Tony – they are, by definition, SUB-human if their philosophy for living is “everything is a war”. Told you that the only math they know is: “More misery for others = More $$$$ for ME ME ME! DUMB criminals – they always are.

    People who you would least expect to be concerned about the systemic genocide of good people have now joined the conversation. No one likes a modus operendi where the basic RIGHT of every HUMAN BEING to make their lives less miserable through honest work is sneered at and systemically thwarted through violence, fraud, and rank criminality.

    The presence of such people on this blog who pridefully snark at the “stupidity” of people who ARE human (BELIEVE in the goodness of the rule of law and have EARNED the right to LIVE like a human being) means that a carefully planned and orchestrated Just War should be in the works – it’s a duty at this point to clean out the gene pool of such retrogressive and rank depraved savages.

    They basically KNOW that they can’t compete with talent and honest effort, among other superior human traits – so they ganged up and mowed down everyone GOOD. It’s ridiculous to tolerate this situation any longer. This is hell on earth. We can do better.

  30. @Oregano
    “Norm’s attractive vision assumes perfectibility of an inherently imperfectible system”

    I’m not a financial analyst, or a philosopher and I wasn’t thinking of information asymmetries at all, though it’s obvious that line of thought plays into this. As someone who’s worked with information for many, many years, I simply understand that not using real data when its available for a given process is a recipe for disaster.

    And I’m not implying that it will cure all the world’s financial ills, not at all. There will always be those trying to game whatever system is put in place. That seems to be one of the key features of life on the planet. But we’re either going to have a system for global finance or we’re not. If we choose the latter, then we trash the computer networks and send everybody home. That is why this is even an issue right? We’ve tied everything together. The only message from the Internet is a very, very simple one. There are no borders, no physical barriers, no map boundaries any more. It will take a long time for that obvious fact and all of its implications to play out, but that’s what it means. If we don’t like that then we make it all go away.

    If we choose the former, a global financial system with a framework that, at the very least, is constructed under the assumption of the free flow of real data, we at least have a fighting chance of building this thing so that it won’t eat us alive. It’s simple. Real companies borrow real money in real transactions. Polling bankers – who have a direct stake in biasing that process for real financial gain – to intervene in this process by having them tell you what they paid, when you have the wherewith-all to figure it out yourself, is tantamount to bashing yourself in the head with a rock because it feels so good when you stop.

  31. @Tony F – this analysis of the power factions is lucid and accurate.

    Irreconcilable differences – no doubt about it.

  32. @Norm:
    I agree with you that we should at least have a system in place that allows true discovery and minimizes gaming. My training also tells me this is the way to go. My somewhat disjointed and poorly worded commentary was more a note to Per that we’re going to have a hard time putting into place the structural reforms if there’s no one left in the system that we can trust to run it. At least what this Barclays scandal has done, hopefully, is to change the nature and urgency of the discussion which has seemed to stall out. But we have to get away from proprietary information systems that only serve to increase asymmetry, and these are the purvue of the largest institutions.

  33. Conscience of a Conservative

    The bid rigging scandal was atrocious and represents fraud and collusion, but the American public’s indifference in this case is understandable at least in part if not in whole. As borrowers we benefit from lower rates and no all too well that the interest rate market is rigged by the Fed or should I say controlled. So while we pay the price when our pensions, local government’s are on the wrong side of a swaps trade with the big banks, these are not instruments most of us understand.

  34. Simon, what a great article. The part I especially love, regarding the five “defenses” of the cheating: “It is a victimless crime.” What???? That is such a wonderful absurdity. Let’s face it, anytime there is something going on on one side of any financial transaction, the transaction is corrupted, and the warpage of any part of that “transaction” stand to echo in all other related transactions. Anyone who knows anything about the “high” end of banking (rate setting, etc.”) knows that this kind of warpage is massively destructive within that marketplace to such an extent that it is nearly impossible to calculate the tsnametric effects to be found across the financial waters on any shoreline. Remember that a tsunami is generated in such a way that until it reaches a coastline, it is nearly impossible to detect or predict its magnitude and destructive effect. Such would be true with any rate manipulation at this policy making level within the financial markets. There is only one guarantee, and that is that the mere fact of its existence makes it completely and unalterably corruptive to all other fruits of this poisonous tree (and old legal concept). There can be no acceptance, foregiveness or pardon to be had by participants. All should be imprisoned without passing “GO” in our Monopolistic world.

    As to regulators not doing their jobs, OMG, who actually believes that those regulators, many of whom have offices within the banks they are tasked with regulating, could even detect such malpractice without far greater investigatory authority and incentives. Sad but true. Who is warming up the piper, and when will he be paid? If at all.

  35. That’s the 64 dollar question, and with the uncertainty of the group at the top, the biggest spenders, we below are subject to their will as decayed as it has become. The mind and body work hand in hand and so far, any ending, is better than a mending.

  36. ‘The notional size of the derivatives involved is on the order of $360 trillion.’

    It’s a sad, sad day when an MIT economist is this naive. The notional value is simply obtained by counting the same thing over and over and over again. It’s meaningless.

    As is LIBOR, it’s like ‘bar time'; the clock on the wall is set ten minutes fast so the bartender can clear the place out before legal closing time. Everyone knows it and acts accordingly. Mervyn King told everyone that back in 2008;

    “It is in many ways the rate at which banks do not lend to each other, and it is not clear that it either should or does have significant operational content. I think it is convenient, very often, for people to justify what they do for other reasons, in terms of Libor, but it is not a rate at which anyone is actually borrowing. It is hard to see how it can actually have much of an impact.”

    Simon is shocked…shocked, to find bankers gaming a few basis points on each other!

  37. ‘i haven’t seen anyone mention that municipalities that bought interest rate derivatives as “protection” against an interest rate rise have been killed by the progressive drop in interest rates over the years as a direct consequence of Libor rigging.’

    Explain how that happened.

  38. TonyForesta

    The US spent some $24+billion on a failed warondrugs campaign that incarcerated millions of Americans, and fattened the offshore accounts of the private prison industrial complex. And there is noendinsight. Wouldn’t half that money be better spent investigating and prosecuting the den of vipers and thieves in the financial sector who are responsible and culpable for causing FAR more grevious harm to innocents and societies globally???

  39. Moses Herzog

    Hey look, Romney has created a NEW business model (well maybe new outside of TBTF banks). A business model where you are the CEO, yet take no responsibility for your company’s (Bain Capital) actions, including making profit on body parts and human fetuses kept in unmarked storage containers.

    Bain Capital jointly held $75million shares of a company called Stericycle which was in the medical waste industry. From David Corn’s article in MotherJones magazine:
    “Another SEC document filed November 30, 1999, by Stericycle also names Romney as an individual who holds ‘voting and dispositive power’ with respect to the stock owned by Bain. If Romney had fully retired from the private equity firm he founded, why would he be the only Bain executive named as the person in control of this large amount of Stericycle stock?”

    And more lifted verbatim here from the David Corn article in MotherJones magazine related to Bain Capital’s ownership in Stericycle:
    “Despite the firm’s regulatory run-ins, the deal worked out well for Bain. In 2001, the Bain-Madison Dearborn partnership that had invested in the company sold 40 percent of its holdings in Stericycle for about $88 million—marking a hefty profit on its original investment of $75 million. The Bain-related group sold the rest of its holdings by 2004. By that point it had earned $49.5 million. It was not until six years later that anti-abortion activists would target Stericycle for collecting medical waste at abortion clinics. This campaign has compared Stericycle to German firms that provided assistance to the Nazis during the Holocaust. A Stericycle official told Huffington Post that its abortion clinics business constitutes a ‘small’ portion of its total operations. (Stericycle declined a request for comment from Mother Jones.)”

    You can read the entire David Corn article here: http://www.motherjones.com/politics/2012/07/romney-bain-abortion-stericycle-sec

    Also the two related SEC documents filed by the Bain Capital owned Stericycle, are here: http://www.motherjones.com/documents/392937-stericycle-13d-1999
    and here:

    http://www.motherjones.com/documents/392936-stericycle-s4-1999

    I wonder how Cath*lic conservatives (or other “pro-lifers”) are going to “rationalize” this one when they go to vote for Romney??? Will Cath*lics send Romney’s campaign headquarters some “red envelopes” or will fetuses in unmarked containers be forgiven when in the context of the Romney’s “profit motive”???

  40. @Patrick R. Sullivan
    I was expecting just this. What Johnson said is just that, that the notional value is $360 trillion. He said nothing else about it. Nothing. Though he could have. So whatever you think you see in those words is coming out of your dark corners, not his.

    Let me fill in some of those blanks, with help from the other posters. Someone correct me if I’m wrong, but even though the $360 trillion is built up from many of the same assets being insured and/or flipped over and over again, nonetheless each of those transactions may be constructed out of borrowed money, am I correct? And each of those borrowings is done at some interest rate, right?

    You can figure out where I’m going with this. I’d like people to fill in the blanks for me if I’m off the deep end. Otherwise it comes down to this: the same asset is irrelevant to the amount of interest paid to borrow, insure, and re-borrow that asset.

  41. It’s a Ponzi operation Norm and in the old world – illegal. Now in this fetid noxious systemically criminal market – it is the status quo. We’ve crossed the rubricon. There is no balm in Gilead. There’s blood in the water and sharks are circling. There are no rules. There are no laws. It’s kill or be killed. Get stocked, locked, cocked, and ready to rock brother.

  42. @Oregano, “…My somewhat disjointed and poorly worded commentary was more a note to Per that we’re going to have a hard time putting into place the structural reforms if there’s no one left in the system that we can trust to run it….”

    Unwinding the Ponzi is not that hard to do – is it?

    It’s the mathematical equivalent of “hot-spotting” – in this case, disconnect the lines sucking up all the power – think people who tap into the cable lines to get it for free…

  43. ‘Someone correct me if I’m wrong, but even though the $360 trillion is built up from many of the same assets being insured and/or flipped over and over again, nonetheless each of those transactions may be constructed out of borrowed money, am I correct? And each of those borrowings is done at some interest rate, right?’

    Consider yourself corrected. Insurance doesn’t have to be bought with borrowed money, and usually is not.

  44. no annie, we lost a lot of recruits back there, as a matter to be factuated, only 3 people and 4 names were ever able to accomplish the task you so eloquently describe as “hard to do”. And until it is done, there is no utopia for the remaining 97% of the populated world. I know, just the facts, sweety.

  45. The Bond Man

    Where the is smoke there is fire. Albeit the arcane formula these large banks use, absent from Simon’s otherwise admirable exegesis was the role of the Bank of England in the LIBOR fraud. Complicity in this regard by the BOE would only foul the situation to a new nadir of incorrigibly rotten conduct by a vast network of co-conspirators.

    And the heart of this current debacle was a massive CONSPIRACY< as much as this term makes opposition cringe in near apoplexy.

    Simon's correct, in pointing out the real arduous labor that would need to be brought to bear to regulate this most foul and corrupt of industries. Most certainly, we now all SEE how any thought of self-regulation in this industry, as Mr. Jamie Dimon advocates, is borderline delusional and wrong-headed in the extreme.

    All these ZOMBIE Banks which are insolvent attributable to their off balance sheet derivatives holdings, are required to undergo resolution, dissolution, and a large "OUT OF BUSINESS" sign stuck to every last vestige of a prior going concern, as these clearly are anything but.

    As Annie correctly noted above, REMOVE the lines of power into these morbidly sick institutions, one by one, if required, and get on with the business of healing the world through the ordinary transition that marks a bankrupt entity, or series of same.

    Simon's voice in this is an important one, and I urge others similarly situated to come out strongly opposed and appalled by this latest outrage……law suits GALORE are now in process, incidentally.

  46. The Bond Man

    As for disrupting and annoying markets, what markets, exactly>? What passes as a “market” is nothing but a rigged shell game where insiders possess all the requisite knowledge and insider information to forever tilt the outcome to a pre-determined favor.

    This is some helluva market, and I wouldn’t give five cents to any of these banks for any “product”, because of all the crazy fraud and manipulations.

    So, when you hear ostensibly serious people talking about “markets” who ought to know better, rest assured the speaker is a co-opted quack, on the dole of the institutional forces seeking message control and manipulation, and thus, completely lacking in credibility.

    Take your “markets” because the cheaper the crook, the gaudier the patter, a la Sam Spade.

  47. No one’s patter is gaudier than yours (except maybe Annie’s), Bond Man.

  48. The Bond Man

    Pat. and you sir, are the master of the ad hominen attack.

  49. @Moses Herzog – you didn’t push everyone’s button, yet. Remember, it’s a micro-niche herding of cats. Throw in some more moral meat – like, how much is invested in the global porn market, and especially any connections to snuff porn movie producers who get rid of the excess in sex slaves mistakenly sent over? It’s just good capitalism to make a profit snuffing out the excess stock through the art of porn movies – right?

    Getting rid of ALL medical waste properly definitely takes self-inflicted adherence to the SOP – if only in self-interest. That Bain targeted such a REAL industry with – ahem – “venture capital” – more scary than anything else. Maybe there is a cut off point for making it a “cheaper” operation and it doesn’t look like Bain had the expertise to make that call (know when to stop squeezing).

  50. @Bond Man – “…on the dole of the institutional forces seeking message control and manipulation, and thus, completely lacking in credibility….”

    yup, they’re having a tough time – Paddy’s reduced to calling a butterfly “gaudy” from the pulpit…

    Easiest way to sell the Ponzi as something that will “always be with us” is to just call it “financial porn” – they do it because they can.

    Would like to hear Prof Johnson have a much deserved moment of mirth knocking down the only excuse still not deployed – it’s “financial porn”.

    :-))

  51. Bruce E. Woych

    This is a very expensive way to fix Economics! Imagine a core thinking entrepreneurial economist actually able to address the idea of rigged market! The next thing you know they’ll be teaching rigged market economics 101 at Harvard! I mean the critical version, not the normative one they’ve been teaching all these past years.

  52. Speaking of “expensive”, Woych – does anyone know what the billion $$$$ Homeland Security apparatchiks are geared up to accomplish these days?

    Who’s the Number One threat to Homeland Security now? Some brilliant unknown strategist in the slammed-below-global war/drug/slavelord “lower” middle class USA born and bred citizen with an air-tight case against invading Iran?

    At least give The Patriot Act a different name – too Orwellian to be believable at this point in time. Seems to me that there’s a lot more seriously p-ssed off people getting radicalized against financial porn than there are bearded ones appalled at seeing a naked female wrist in public walking the streets of Anywhere, USA.

  53. I believe its putting a pay check in their pocket and feeling superior over the common citizen. Once you have made your rules, you need to enforce them, and their patriotism to their cause is where the act was derived from. You can read homeland security’s interests like an open book.

  54. @Moses – moral meet to throw on the barby:

    http://www.reuters.com/article/2012/04/03/usa-campaign-romney-wife-idUSL2E8F2I2G20120403

    Funny how pornographers are never targeted for a Ponzi rip-off – they must be too smart, right?

  55. Here we go – the regulators working in a regulatory agency who were using all the strings they had to pull to actually regulate were hunted down as trouble makers. We need to do away with allowing the President to appoint the heads of these regulatory agencies. It’s a circus of changes that leads to the utter insanity of endless “conspiracies”:

    http://www.nytimes.com/2012/07/15/us/fda-surveillance-of-scientists-spread-to-outside-critics.html

  56. ‘Pat. and you sir, are the master of the ad hominen attack.’

    Could you provide me one example?

  57. Sure,

    Mcdonald
    Vohman
    Chambers

    How’s them apples for ya Mr. Pat no Dolan.

  58. Just to rub some salt in the wound. The story of Shay’s rebellion.

    Shay’s Rebellion happened two years after the Revolution was won and the Peace Treaty ratified. Shay’s Rebellion was begun by veterans of the war, who had not been paid for their service. There was no money in circulation, no mint to make money, and these farmer-veterans could not pay their debts. In those days the sheriff would imprison a person who owed money if the creditor asked. A person also needed “hard money” (actual coins) to pay the taxes on their land, and since “hard money” was almost impossible to come by, they could not pay their taxes and faced losing their farms. So here were the veterans whose blood won our national independence, and who werent even paid the pittance they had been promised, in jail for owing money and about to be made homeless because they could not pay their taxes, because the government was so ineffective it could not even get money into circulation, but was effective enough to have laws providing for imprisonment for debt and for foreclosure for unpaid taxes.

  59. Your nurse hasn’t been around with your meds, eh, filbt.

    Paul Gigot reports on the Great Conspiracy to Rig Libor;

    http://online.wsj.com/article/SB10001424052702303933704577530630389408696.html?mod=WSJ_article_MoreIn_Opinion

    Back in 2008, NY Fed official Fabiola Ravazzolo had this telephone conversation;

    ————————quote————————
    Barclays executive: “[Y]ou know we, we went through a period where we were putting in where we really thought we would be able to borrow cash in the interbank market and it was above where everyone else was publishing rates. And the next thing we knew, there was, um, an article in the Financial Times, charting our Libor contributions and comparing it with other banks and inferring that this meant that we had a problem raising cash in the interbank market.”

    Ms. Ravazzolo: “Yeah.”

    “And, um, our share price went down.”

    “Yes.”

    “So it’s never supposed to be the prerogative of a money market dealer to affect their company share value.”

    “Okay.”

    “And so we just fit in with the rest of the crowd, if you like.”

    “Okay.”

    “So, we know that we’re not posting, um, an honest Libor.”

    “Okay.”

    “And yet—and yet—we are doing it, because, um, if we didn’t do it . . . it draws, um, unwanted attention on ourselves.”

    “Okay, I got you then.”

    The conversation proceeds for perhaps another 10 minutes before Ms. Ravazzolo signs off with “Have a great weekend. Bye.”
    ——————–endquote—————

    Yet, Simon Johnson is supposedly afraid to go for a walk for fear of being mugged by a banker.

  60. So the Old Lady of Threadneedle Street and Tax Cheat Timmie at the FRBNY didn’t seem to think that the LIBOR process needed any remedial action back in 2008. Gives one a lot of confidence in the FSOC and the like.

  61. Another med guy huh? Done that been there, see ya, don’t want to be ya.

  62. “Honest people in the financial sector should be up in arms about the behavior of Barclays and other mega-banks.”

    Not a single peep in 3 years. Absolutely disgusting.

    Enough said.

  63. @Sullivan
    I said may, and you wrote usually to correct me? What about the hedgers, what do they do it with? No leverage, huh? No borrowed money in those notionals at all? None? Because even if there’s a minor percentage that is, then it makes perfect sense to know what the total on those flipped instruments is, right?

    You’ve got a real problem with exact language don’t you? Or maybe its just how you make your living.

  64. That’s what I thought, he definitely is up to no good some where, but it’s only a matter of time before the consequences will have to be paid. Remember that today, it is a very small world where you can’t hide.

  65. Lady in Red

    @Tippy Golden…..I finally watched Mark Blyth’s presentation, which was excellent. I may need to do it twice.

    I’m pretty right wing…. I swim in an intellectual pond with others of my political persuasion. I know of no one, there, who thinks overspending on “social programs” caused this mess. It was and is a banking mess, the fault of a system which attracts the most evil and greediest to its bosom.

    I do *not* believe that more govt is the answer, however. Our oversized govt problem is feeding the banking crisis. The evil vision of Barack Obama will have all Americans enslaved in thrall to bureaucrats and banksters, forever. Unless we do something drastic to break the spiral. And 4200 pages of Obama care ain’t it, just for starters.

    Thanks for sharing. ….Lady in Red

  66. The FRB merely re-engineered the rivers of FIAT $$$$ to flow in support of perpetual war in the Middle East. That meant manufacturing poverty – 4 years to suck out 20 years of savings (“collateral damage”).

    http://rt.com/usa/news/war-sub-drone-iran-066/

    Every human being has the RIGHT to make their lives less miserable through HONEST work. This past weekend, our Planet caught a wave of nuclear energy hurled from the sun that triggered beautiful auroras – pics available everywhere on the internet. Then yesterday, 15,000 cloud to ground lightening strikes were recorded in a monsoon storm over the city of Tuscon, AZ. Science in service to LIFE instead of death does not need to become savage over “energy” sources, or “my God is better than your God” delusions.

    Indeed, the war that’s started is not going to finish up as the same war:

    http://rt.com/programs/keiser-report/episode-315-max-keiser/

    It’s always some kind of genocide – this time it’s full tilt on making sure not a single GOOD person is left standing.

    Bend your knees to the global war/drug/slave lords. Glory be to them.

  67. ‘You’ve got a real problem with exact language don’t you?’

    No, but you sure do. Which you compound with;

    ‘No borrowed money in those notionals at all? None? Because even if there’s a minor percentage that is, then it makes perfect sense to know what the total on those flipped instruments is, right?’

    Note in my;

    ‘Insurance doesn’t have to be bought with borrowed money, and usually is not.’

    that I say ‘doesn’t have to be’, and, ‘usually is not’. Which obviously makes your, ‘No borrowed money…at all?’, wrong.

    But, tell the nice group why ‘knowing’ a number that is several multiples of what is actually ‘at risk’ is useful.

  68. FIAT $$$$ distributed through a fraction reserve banking scheme means it is all debt that is briefly in circulation and then sucked back into the Ponzi.

    Considering that half the crop is gone this year due to drought, we’ll also find out how the legit derivatives have been corrupted.

  69. @Sullivan
    Easy, since you dug yourself that nice hole let’s push you in. The original post was about the LIBOR. The interest rates were set so that skimming could take place, just like the mob. That skimming would affect any purchase, re-purchase, hedge, credit swap, anything that used borrowed money. It doesn’t matter if it’s the same instrument that’s being flipped. What matters is that the skim takes place whenever money gets borrowed. The value of the notionals gives us a ballpark figure to use when computing how much vigorish was paid to the mob, sorry I mean Wall Street, whenever they take their cut.

    See? It’s easy, no matter how hard the BS artists try to make it.

  70. Well, you do seem to be an expert on BS artists.

    Libor isn’t the price of credit default swaps, and everyone knows it. There are all kinds of ratings of bond debt out there for sellers of insurance to rely on that are actual market rates. Since these are the most sophisticated investors around, it’s unlikely any of them rely on Libor to price CDS.

    Can you find for me ANY market transactions that use ‘notional value’ as a benchmark?

  71. Ha ha, it didn’t take long to find an example;

    http://www.bloomberg.com/news/2012-05-13/barclays-libor-decline-conflicts-with-swaps-corporate-finance.html

    ——————quote—————
    Barclays Plc (BARC), Britain’s second- biggest bank by assets, says the interest rate it pays for short-term dollar loans is the lowest ever relative to rivals even as other measures of its credit deteriorate.

    Barclays says it can borrow for three months at 0.3 percent in its submission for the London interbank offered rate, compared with the 0.466 percent composite level of the British Bankers’ Association’s measure. The 17 basis-point gap is a record after Barclays reported the biggest decline this year in the rate of the 18 banks contributing to the benchmark for $360 trillion of global securities.

    While Barclays says its credit is getting better, the cost of insuring the U.K. lender’s debt has risen 16 percent since Feb. 24, when its Libor contributions started diverging from the combined rate. Prices of credit-default swaps tied to London- based Barclays are worsening as the 10 biggest prime U.S. money- market mutual funds cut their holdings in its short-term debt by $6.65 billion in April, the biggest drop in dollars of any bank.
    ——————endquote————–

    Translated: the CDS market ignores LIBOR in pricing insurance of bonds.

  72. The Bond Man

    Another big bank engaged in MASSIVE CRIMINAL OPERATIONS:

    http://www.dailymail.co.uk/news/article-2174785/HSBC-scandal-Britains-biggest-bank-let-drug-gangs-launder-millions–faces-640million-fine.html#ixzz20wBOUDlW

    Should be: launder BILLIONS, not millions. No one indicted; no one gone to prison. This means respective governments actually CONDONE the illegal conduct, which means in turn, these respective governments are no good and corrupted to the max.

    Only the true guppies of the money laundering world have a chance at jail time. TRUTH.

  73. @Bond Man, “..Am I looney tunes for saying, “Bend you knee in submission to the gloabl war/drug/slave lords”…?

    There’s a whole lotta guppies who are WAITING for the chance to take out their brutal “financial” Massa….

    You can tell by what is going on right now on the propaganda channels (AKA media). PUSH PUSH PUSH for invasion to begin right when the Olympics begin? OBVIOUS that the merchants of death aren’t remotely interested in the financial and diplomatic success of a peaceful worldwide tradition….

  74. Perhaps here Pat, but in the halls of congress it is just the opposite. They use internal documents to justify outsourcing jobs and CD’S, then they throw the whole mix into a blender and wonder why they can’t separate the parts. It’s a ponzi ready to collapse, as the freshmen rush forward to the fiscal cliff to save the day. It’s a rinse and repete operation that you apparently are stuck in the middle of, juggling too many balls. And that comes before the river of denile stage which you obviously have not reached yet. I got your crystal ball right here as if I could read your mind.

  75. So if no trader or banker has any use for LIBOR rates, why in the world are we playing this game of calculating and reporting them?

  76. Michael Rulle

    Fraud is bad. Dishonesty is bad. Barclays appears to have engaged in both. How it may have impacted the Libor settings is unclear, although one presumes it lowered it on average (since they claimed to have feared market perceptions of bank weakness), however infinitesimally small. It appears they have been punished. This should not be allowed to happen, as in any crime. Perhaps in his next blog Simon can excoriate the regulators for not having realized this was happening.

    But Simon, in his unquenching thirst to find evil almost exclusively in “for profit” Financial Institutions (as opposed to the IMF, for example) has permitted and promoted to his readers an inference/implication which is disturbingly misleading.

    While $360 trillion sounds about right for Libor linked swaps, he knows that the overwhelming percentage of these cancel each other out in the interbank market. Derivatives are created instruments and for every buyer there is a seller. The fixed side of the swaps create the preponderance of mark to market exposure and these are cash collateralized above a certain exposure, as in the repo market. The Libor side of swaps also cancel each other out with a materially lower mark to market exposure.

    Now it is clearly true that some banks will be net long Libor in their Swap books at certain times, while other banks will be net short Libor in their Swap books at certain times. Swaps with external (outside the banking system) counterparties will also have net long and net short positions in Libor, as will their counterparties. But the net impact on any one bank at any one point in time is virtually impossible to to determine as setting occur daily on both sides of the market..

    However, what we can be sure of is that overall impact is not in the trillions, not in the billions, and not in the hundreds of millions. Perhaps it is in the 10s of millions. And those 10s of millions are highly likely to be randomly distributed residuals, (relative to what would have been the “true rate”—the otherwise average of the 30 banks polled daily), with regard to their impact on any single entity, and with an expected value of zero for almost all entities, over any reasonable length of time.

    Now I cannot prove this of course, nor can anyone. But my guesstimate is a lot closer to the truth than whatever is placed in one’s imagination by the number “$360 trillion”. Derivatives are zero sum instruments which overwhelming cancel each other out in the first instance with regard to the financial sytem. The idea that Banks are lining up to receive fixed net (or pay fixed assuming Barclays was trying to raise Libor rates!) on swaps to benefit from an almost invisible net benefit in the Libor market is absurd on its face.

    The crime related to Barclays presenting themselves as solvent or more credit worthy than perhaps they were. For Simon to toss in the red herring of the “$360 Trillion” Swaps market as major collateral damage in this affair is to play the willful conjurer with his auduence; as he well knows.

  77. @Michael Rulle, appreciate the explanation. If the 360 trillion is simply a measure of the transactional flows in a system that largely passes financial instruments back and forth – like the circulating current in a resonant electrical circuit – then the net effect would be small. The concern arises as to what happens if the resonant current flow were interrupted – as happened in 2009. What would a collapse like that imply, and who would it effect? Just the traders involved, or a broader group?

  78. @oregano – good questions!

    I’m still trying to figure out Mr. Rulle’s (pun intended?) comments in toto – for instance he wants Prof Johnson to:

    “Perhaps in his next blog Simon can excoriate the regulators for not having realized this was happening.”

    But then Rulle explains further down in his post, “Now I cannot prove this of course, nor can anyone.”

    So I wait with bated breath for the answers to your question. Maybe not from Rulle since he is obviously communicating from the Death Star in orbit somewhere and I just hope Prof Johnson is not about to be abducted and probed by aliens who will eliminate the “regulator” gene in the human species.

  79. Michael Rulle

    @oregano and @Annie

    Back from the Death Star–hot up there. I admit to liking the extra poke here and there on this blog.

    Oregano is in fact spot on with his question. Lets keep in mind what my criticism is—which is relatively narrow in scope. I agreed with Simon about Barclays. But Simon also tossed out that giant derivatives number and left it hanging in space (which I could see from the Death Star) as if it somehow spoke for itself. Hence, clarification was in order. I will answer Oregano’s question to the best of my ability. I believe that the question I am answering is valid but in fact is only tangentially related to my commentary on Simon’s Blog. I will repeat what my main point was about at the end of my answer to your question.

    To Oregano’s point: yes, to use your metaphor, if the resonant currant were interrupted, it can cause more havoc. The prime example is AIG. Another example is LTCM. Derivatives are zero sum, just like a Vegas bet. But the system can be kept in order by letting “cash be King”. Futures exchanges (people sometimes forget Futures are Derivatives too) and Casinos require, from their counter parties, that cash always be posted in realtime, or trades can be unwound at the exchanges discretion. The systemic value of this requirement is substantial. It effectively permits anyone, who is dumb enough, to lose as much much as they wish, but without impacting the financial stability of any other entity. (As an aside, please do not confuse this point with brokers stealing from their clients as was the case, for example, with Refco and MF Global, to name two).

    A wonderful example of the protective quality of cash collateral is the bankruptcy of the $9 billion hedge fund Amaranth in 2006. A group of 5 traders lost $9 billion in the natural gas market and the only injured party were the limited partners of Amaranth. The reason is they had to continually post cash—-until they ran out—at which point their positions were unwound.

    In the interbank OTC derivatives market, banks actually do require this same kind of cash collateral—about 99.9% of the time. But it is the .1% of the time that can cause damage—and break the resonant currant. AIG and LTCM (1998) somehow managed to persuade the street to not require them to post collateral in real time. The impact of this was two fold. First, it enabled both firms to leverage themselves at multiple levels of what they would have otherwise been able to do if they were required to post cash in a timely fashion. Secondly, once the market moved against them, they had not enough cash to post, thus causing their counter parties to experience substantial mark to market losses (though, interestingly, not necessarily cash losses—but that is another topic for another time).

    So when banks extend substantial amounts of uncollateralized credit to counter parties in the OTC derivatives market this can and does create the conditions for distress. 2008 was such a time.

    Now to the main point in my initial post. The answer to Oregano’s question relates to credit risk in the OTC derivatives market. My comment on Simon’s post had nothing to do with credit risk. It instead was a critique of his comments implying there are large amounts of money to be made in the DERIVATIVES market by manipulating Libor. Simon was effectively stating that there was substantial collateral damage in the financial markets because $350 trillion of derivatives are tied to Libor. My point is that these overwhelmingly cancel out as I attempt to describe in the original post. Hence the damage was overwhelmingly limited to Barclay’s fraud and not to implied collateral damage in the derivatives market.

    In other words, I believe Simon exaggerates the issue unnecessarily. He never misses a chance to demonize the financial industry. I agree with many of Simon’s diagnoses of the financial sector. But I generally disagree with many of his solutions and dislike in particular his visceral dislike of the financial industry, as if it were some unique beast among mankind having arrived with Darth Vadar on a Death Star.

    While he is often critical of government proposals, he seems to have a blind spot to the damage caused by many micromanaged regulations proposed by entities like his former employer, the IMF.

    I like more simple “Occam’s razor” solutions to most financial problems. Use current laws to arrest people; apply a “cash as king” approach to the OTC derivatives market; let banks fail—or force them to collectively solve their own self inflicted credit wounds; stop subsidizing financial institutions and their clients; and stop promoting Rube Goldberg solutions (e.g., Volcker rule, Dodd-Frank) which serve only to exacerbate
    problems. He might even agree with some of these points.

    Finally, do not exaggerate just to make a point, which I think he did in this post.

  80. That was just it, the Fed promised that THEY could , and would, raise interest rates at the appropriate time. Once that time arrived, the Fed was in fact collapsing and the only response they could offer was to delay the inevitable and create negative real rates. The mkt could raise interest rates, but then the Feds response would be further intervention to keep rates low by dropping the 30 year to historic lows. Politics and anything that surrounds it is one big cesspool of wasted money.

    @ oregano 6:15: That answer would be the greed for money.

  81. ‘Perhaps in his next blog Simon can excoriate the regulators for not having realized this was happening.’

    Don’t hold your breath, Michael.

  82. As it happens there is an indicator of the real exposure that is grotesquely overstated by the ‘notional’ value. Lehman supposedly had over $70 billion of notional risk in 2008, but when the dust settled only about $5 billion changed hands.

  83. Thanks, @Michael, a very informative commentary, and a clearly argued rebuttal of Simon’s polemics on this topic. I detect some agreement in philosophy between your “Occam’s Razor” prescriptions and Per Kerkowski’s.
    These, coupled with Norm Cimon’s ideas about public-database driven financial transparency are all excellent ideas to which we need to return. The financial sector is not inherently destructive to society if its goals and metrics are properly designed and policed, but the myopic finance sector we now have certainly isn’t so constructed.

  84. Reduce the $5 billion to about $500 and now we are talkin money.

  85. Michael Rulle

    @oregano

    thanks

  86. @Sullivan
    Man, you’re either dumber than a post, or you’re being obtuse on purpose. The notionals are perfectly relevant to determining how much skimming was going on, not for setting interest rates. And you know that, don’t you?

  87. Is Michael Rulle also ‘dumber than a post’ for writing;

    ‘Simon was effectively stating that there was substantial collateral damage in the financial markets because $350 trillion of derivatives are tied to Libor. My point is that these overwhelmingly cancel out ….’

    because that’s what I’ve been telling youse guys. Maybe you’re too close to being a post to have noticed?

  88. Michael Rulle

    Norm
    It is possible I am also dumber than a post (but a smart post), but in 30 plus years in the financial business, buy side and sell side, in listed and OTC derivatives, at junior levels and senior levels, I never once heard of anyone caring about libor settings for the purpose of “skimming”. It would have struck me as absurd. I suppose it possible that Treasury in various banks were colluding—-but that is only because anything is possible, however improbable.

    As Patrick pointed out, where is the incentive? It all cancels. I really do not think you understand the issue. I am open to a reasonable discussion, but you dont appear prepared to make one. This is one reason Simon is exasperating; he sees evil everywhere in the financial world, but never in his own backyard.

  89. Derivatives are not a zero game, here is just one example.
    Since Washington is so confident and comfortable with themselves and their policy’s. They determined that a years woth of storage for grains was absolutely not needed, for every season balances its self out there in this land o plenty, and because they were that good with decision making. Now that we come up short, for just even one year, we will have to import grains at a significantly high cost and/or go with out feeding some animals. The net result is higher consumer prices for many items until the grains can be replaced. But those lost grains were also insured and traded on the derivatives mkt where the gambling of such commodities goes on, on a daily basis. We don’t need people behaving in such a fashion trying to make money. We need a storage and transportation of grains facility to lessen the burden of having a bad growing season or 2, instead we have useless experts gaming the system that should be in place to begin with. This goes on in so many different economic situations that just a few straws can break the back tax payers who end up footing the bill for this trading. A Greek default, an ethanol shortage, a large enough ME war, any of a host of things can now bring a crisis which can only be met with heartache from the shrinking middle class. As they see no one defending their ability to save and increase their standard of living while the rich run rampant over the derivatives mkt. The Trillion dollar figure was probably used as an example of something that, once applied, comes full circle with nothing of importance having been accomplished, yet money has some how been made/spent or accounted for. So basicly what I am saying is the derivatives mkt is really not a necessity, a long term security system for feeding our animals and keeping consumer prices low is a one, and another example where democracy took a wrong turn to benefit a war between the classes.

  90. Michael Rulle

    @filbt

    Not sure how the above demonstrates that derivative contracts are not zero sum. You seem to believe the Government entered into a grain deal with a counter party that was a bad deal. I have no reason to not believe you. Zero sum basically means one persons gain equals another persons loss in the contract. I am not sure what you are getting at. If you are saying financial transactions can lose money for one side or the other, I certainly agree.

    “Derivatives” are multifaceted to the extreme. They are a means of risk transference. They can be easily misused like any risk transaction in a market based system or a socialist based system.

    I don’t know what mankind “needs”, but if you believe derivatives are the cause of our problems, you simplify greatly.

  91. Its just an additional complication that needed not to be performed in the name of money, interest and turning what should be cautious endevours into a casino like operations where the deck is stacked against the agreeing player. The ones profiting somehow are the same ones who caused and created the mess of lies to begin with. They profit one way or the other from the increase in costs passed on to the consumer in the form of higher prices. They don’t get to gamble as much, except when deciding what to buy at the store with the limited amount of funds they do have, a risk they did not ask for and would probably rather avoid if actually given a choice Which the players at the top have no problem with cause they can afford it, for now.

  92. I might add that when your philosophy is “just take it” there is lot of room to abuse the system, especially when you can also create the games too, make them look attractive, and then throw a bunch o lawyers at to cushion the books. It a true packet of moral sins, aint it?

  93. It really is amazing to happen, I can not believe. And more amazing is that these days pass, I think Barclays employees have some of the blame … at least I think so. I wish someone share what I think. I am happy to come to a blog where people Opinen interesting things, that does not look much now, congratulations.
    regards,
    Joe Hobbs – Recetas Faciles y Rapidas

  94. The Bond Man

    Interesting primer on LIBOR manipulations:

    [audio src="http://nwopodcast.com/fetz/media/jim%20fetzer%20real%20deal-Eveleine%20Gilbert%20re%20LIBOR.mp3" /]

  95. Information regarding the plans at the Death Star:

    http://www.paulcraigroberts.org/2012/07/16/war-on-all-fronts/

    Briefly worked in accounts at a small manufacturing plant that made a couple of gizmos for the military. The cost was never expected to be paid. The zero sum game was that everything else that the company made had to be equal to the cost of the military contract.

    Re-tooling the USA economy for perpetual war in the Middle East to protect the Welfare Queen was something only certifiably insane people could dream up – which is pretty much what all the comments from the peanut gallery decided was the case. They’re NUTZ on the Death Star…

    Again, what the heck is the billion $$$$ Homeland Security apparatus set up to do? Help the banks identify who to foreclose on next? Which jobs to ship out? Prepare Romney to convince the Poles that he is their next Holy Father?

  96. The Bond Man

    @ Annie. That Romney zinger was funny!

  97. @BondMan – reducto absurdum…

    Here’s the not-funny assessment:

    http://www.msnbc.msn.com/id/3096434/#48309120

  98. The Bond Man

    @ Annie just what USA DOES NOT NEED, an return ascendancy of neocon-ism. But Willard’s camp is largely infiltrated by the neocon cabal, in fact.

  99. @Bond Man – how about the FAIRNESS of this on Willard’s part – see clip…?

    Meanwhile god-knows-who at Homeland Insecurity can do anything they want in trolling through my bank records and phone records and internet activity without cause – just because they can! Unacceptable brute force and Williard et al would be a nightmare beyond belief when it comes to YOUR “secrets” – makes one long for the olden days when the predator was in your face and you had a chance….

    http://www.msnbc.msn.com/id/3096434/#48311707