As our earlier article explains, the deviation for some of the other banks reporting their LIBOR interest figures were worse those of Barclays. Robert Diamond, the former CEO of Barclays, has been making that point too.
His response is a little petulant: the others were also naughty, so why are we being punished?
Perhaps because in Barclays’ case there’s irrefutable proof.
But he does have a point. What is being done about the other banks?
The conversation between Mr Diamond and Paul Tucker of the Bank of England on October 29, 2008 that Barclays figures were higher than the others also raises some questions. Manipulation of LIBOR was already an issue after the Wall Street Journal published it’s proof in May 2008.
In that context, it seems improbable that Tucker’s query about the higher rates would be an attempt to induce the manipulation of LIBOR.
So far we don’t have the notes from the conversation between Mr Diamond and Jerry Del Missier, the former Barclays executive who took Tucker’s question as an instruction to manipulate the LIBOR figures.
Perhaps they don’t exist – anymore.
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Did bank greed cause the crash?
America is trying to get back the tourist trade it lost since 9/11.
In reminds one of the Barclays marketing case study in South Africa. Barclays had been losing its market dominance. The market research revealed that people don’t like being treated like dirt, and that the arrogant Barclays staff were driving them away.
The Barclays ad campaign told its customers that things had changed. But Barclays forgot to tell their staff. Customers found that nothing had changed, and the decline in market share accelerated.
In America, it’s not the beautiful vistas, the people, or the diversity that’s changed since 9/11. It’s the duress of travel, particularly when going through security. Often business travellers make sure that all the critical components for the trip are in their hand baggage. One lost item can determine the success or failure of the trip. And all those critical and often expensive items have to be unpacked making them susceptible to loss or theft while passing through security. It’s a little stressful, and signs of stress are what the security officers are looking for.
Travelling from different European destinations to America provide good examples of how it can be handled, and how it shouldn’t. In Switzerland, ready compliance with the requirement to unpack evokes reassurance that one’s goods will be taken care of and are secure. In France the same understanding is nowhere in evidence.
Perhaps the French are just trying to protect France’s status as the most-visited-country in the world.
America, in second position, will just have to try harder.
Brand of dreams
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On May 29, 2008 the Wall Street Journal published an article “Study Casts Doubt on Key Rate” substantiating its doubts published on April 16, 2008. In it they questioned why the rates of 5 of the 16 banks used for the calculation of LIBOR differed significantly from rising default insurance costs.
At that stage, the authors speculated that one of the possible causes was that the banks were lying.
Now we know that for Barclays that was the case. Interestingly, Barclays was not among the five banks originally exposed in the research, being ranked further down the list.
The two components making up an interest rate are the risk free rate and the borrowers risk premium. Not only were the banks benefitting financially from the misstatement, they were misrepresenting the market’s assessment of their risk, at a time when this was critical.
Immediately after the article on April 16 was published, the anomaly disappeared. LIBOR rose dramatically, and the shocks of 2008 started to take effect.
Did the banks cause the crash or were they just the catalyst?
Either way, they have some questions to answer.
More at: Move Over Subprime? Financial Institutions and Brokers Face Increasing Concerns Over Allegation of Improper Libor Manipulation
LIBOR Manipulation: A Brief Overview of the Debate
Study Casts Doubt on Key Rate
Banks are different from other business. Money is their stock in trade. A big part of the huge profits that they make is the difference between the interest that they charge (their income) and the interest that they pay (their cost).
The banks dishonestly adjusted the interest that they pay by manipulating LIBOR. The system of setting LIBOR, simply canvassing the banks by asking them what rates they were paying, with no checks and balances, opened it up for manipulation.
The traders who are responsible for working in the derivatives market worth $554 trillion in 2011 (37 times U.S. GDP) are not supposed to communicate with the people being canvassed for the LIBOR rate. They did. The traders asked their colleagues to manipulate the figures submitted for LIBOR, and the response was a positive “done for you big boy“.
Barclays has just been fined $93 million by the UK’s FSA and $450 million by the U.S. DoJ after owning up. Now they face law-suits from the people they ripped-off, which will certainly amount to a lot more. The time frame of the “crime” – 2005 to 2009. The FSA and DoJ may have settled for too little.
Barclays are not the only ones. Other banks are being investigated.
Watch this spot.
Q&A: Barclays and bank rates
Barclays Bank PLC Admits Misconduct Related to Submissions for the London Interbank Offered Rate and the Euro Interbank Offered Rate and Agrees to Pay $160 Million Penalty
Barclays fined for attempts to manipulate Libor rates
Barclays ‘attempted to manipulate interest rates’
More banks face interest rate rigging investigation
‘Systematic dishonesty’ at Barclays, says former boss
Q&A: Barclays and bank rates
Inter-bank interest rates Cleaning up LIBOR
The LIBOR probes An expensive smoking gun
Inter-bank interest rates Fixing LIBOR
BANKERS GONE WILD