Sunday, July 15, 2012

The Wheels are Falling Off


The wheels are falling off the financial system as seen by this post from the NY Times ...

Barclays manipulated the most widely used benchmark rate, the London interbank offered rate. But Barclays is just one member of the cozy club that sets the Libor, which is supposed to be based on the average rate at which large banks can borrow money overnight. It’s not based on actual transactions, however — and that leaves room for mischief.



And mischief there was, according to e-mails and other documents that Barclays has turned over to regulators in the United States and Britain. The upshot: traders colluded by posting rates that either helped their bets in the markets or their bank’s perceived financial strength during the harrowing days of 2008.


Manipulating the Libor is a big deal because it affects the cost of money for almost everyone. The Libor is used to set rates on mortgages, credit cards and all manner of loans, personal and commercial. The amount of money affected by the phony rates is at least $500 trillion, British regulators have estimated.

So, where does that leave the US regarding the Fed's stewardship over maintaining valid interbank lending rates in this country, particularly when viewed in the light of another quote from Gretchen Morgenson's in depth article.

“Dirty clean” versus “clean clean” pretty much sums up Wall Street’s view of cheating. If everybody does it, nobody should be held accountable if caught. Alas, many United States regulators and prosecutors seem to have bought into this argument.

Ah, this is where it gets most interesting according to Matt Taibbi.

When the rest of this scandal comes out, and it turns out that up to 15 more of the world's biggest banks (including Chase, Bank of America, and Citi) were doing the same thing as Barclays, our regulators better start "inflecting their eyebrows" pretty damn vigorously. Because if it comes out that these other banks were all involved with this scandal (and it will come out that way, almost for sure), and their CEOs and COOs get to keep their jobs, that'll be a sure sign that the fix is in. Let's hope Ben Bernanke, Eric Holder, and Tim Geithner are listening.

New wheels anyone? Maybe now, transparency becomes the law of the land regarding finance because without it, this kind of nonsense will continue to go on ad nauseum thanks to tech, obfuscation and government collusion with the banks and the Fed to keep this unsustainable system going
no matter the cost.
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