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The NYTimes finally puts LIBOR on the frontpage

It took long enough.  This article even starts poking around the edges at the Federal Reserve Bank of NY:

As big banks face the fallout from a global investigation into interest rate manipulation, American and British lawmakers are scrutinizing regulators who failed to take action that might have prevented years of illegal activity.

Politicians in both London and Washington are questioning whether regulators allowed banks to report false rates in the run-up to the 2008 financial crisis and afterward. On Monday, Congress stepped into the fray, requesting information about the role of the Federal Reserve Bank of New York, according to people close to the matter.

 […]

On Monday, the oversight panel of the House Financial Services Committee sent a letter to the New York Fed seeking transcripts from at least a dozen phone calls in 2007 and 2008 between central bank officials and executives at Barclays.

“Some news reports indicate that although Barclays raised concerns multiple times with American and British authorities about discrepancies over how Libor was set, the bank was not told to stop the practice,” Representative Randy Neugebauer, a Texas Republican and the head of the House oversight panel, said in the letter, which was reviewed by The New York Times.

Tim Geithner was the head of the Fed in NY during the time frame in question.  It is hard for me to imagine that he didn’t know that LIBOR was being manipulated.  We have already heard the panic defense, that if the true LIBOR rate was known, a financial apocalypse would have swiftly followed.  But it’s the aftermath of the manipulations when the panic had subsided that intrigue me.  Tim Geithner gave a lot of advice to Obama that was very friendly to bankers.  But he must have known that a couple of banks, like Citigroup, were insolvent.  Yet instead of nationalizing those failed banks, we merely stress tested them, bought their toxic assets and bailed them out.

Much of our current unemployment woes and struggling economy can be traced back to those early days of the Obama administration when we saved the bankers and ignored everyone else’s needs.  There were many smart people who were in favor of being more aggressive with the bankers and making a strong case for a bigger fiscal stimulus package.  They were ignored.  You can blame the Republicans, if you are so inclined.  But let’s remember that the Democrats were in charge in the first two years.  We can only speculate how they might have come together to push financial reforms and New Deal programs if we had only known how serious the situation was.

Hiding the true nature of the financial collapse from our elected officials amounts to a coverup, in my humble opinion.  It’s a coverup that cost many of us our houses, jobs and security.  Heads have got to roll for this one and THIS time, we have to demand that the parties responsible are held fully accountable.  There has to be real reform and perp walks or our present economic environment will never get better.

Yes, it sucks for the White House that it all comes to light in an election year.  What can I say? When you sell your soul to a bunch of people who have more money than God, they usually expect something significant in return. It looks like they got it.

Has someone found a smoking gun?  Reuters reports that Geithner had a “Fixing LIBOR” entry on his calendar in 2008.  Does that mean fix the rate or fix the problem with banks manipulating the rate?  Such ambiguity.

In early 2008, questions about whether Libor reflected banks’ true borrowing costs became more public. The Bank for International Settlements published a paper raising the issue in March of that year, and an April 16 story in the Wall Street Journal cast doubts on whether banks were reporting accurate rates. Barclays said it met with Fed officials twice in March-April 2008 to discuss Libor.

“FIXING LIBOR”

According to the calendar of then New York Fed President, Timothy Geithner, who is now U.S. Treasury Secretary, it even held a “Fixing LIBOR” meeting between 2:30-3:00 pm on April 28, 2008. At least eight senior Fed staffers were invited.

It is unclear precisely what was discussed at this meeting or who attended. Among those invited, along with Geithner, was William Dudley, who was then head of the Markets Group at the New York Fed and who succeeded Geithner as its president in January 2009. Also invited was James McAndrews, a Fed economist who published a report three months later that questioned whether Libor was manipulated.

It doesn’t look like LIBOR got fixed.  But clearly, Geithner knew what was going on.  And if he didn’t have a come to Jesus meeting with politicians right after he took office to explain how dire the situation was, then what can we conclude except that he was operating in the bankers’ interests at the expense of ours?

This s^*( is serious.  It affects mortgages, credit card rates, student loans and economic health and every decision that has been made in the past 4 years.  The timing is even crucial.  These meetings were taking place in the middle of the primary season when money was pouring into Obama’s campaign coffers from Wall Street and crazy Obots were screaming for Hillary Clinton to quit the race even as she was still winning big state primaries.  We know from other sources that the meltdown started in 2007.  So, even our primaries might have been affected by the shaky bank situation.

Darrell Duffie, a Stanford University finance professor who has followed the Libor issue for several years, said that he believed regulators were “on the case reasonably quickly” after questions were raised in 2008.

“It appears that some regulators, at least at the New York Fed, indeed knew there was a problem at that time. New York Fed staff have subsequently presented some very good research on the likely level of distortions in Libor reporting,” Duffie said. “I am surprised, however, that the various regulators in the U.S. and UK took this long to identify and act on the misbehavior.”

Surprise!

One last thing: If Geithner want to fix LIBOR in April of 2008, why did it take the CFTC to launch an investigation about it in March of 2011?  You’d think something as big and potentially litigious as a LIBOR scandal would have prompted swifter action. The fact that that didn’t happen suggests there is some bigger thing that is being covered up.  I can’t imagine what it is but it must be huge.

LI(E)BOR

We have used the word “evil” to apply to bankers so often in the last four years that it’s become trite.  Nevertheless, the level of austerity imposed on us by the financial establishment in order for them to continue to seize money and power without accountability is so destructive that there’s really no other word that applies.  Once again, we have to go back to Hannah Arendt’s comment about the “banality of evil” to understand what we’re talking about here. It is the normalization of the unthinkable.  It’s not that these financiers are people who beat their wives or sell their children into sexual slavery.  I’m sure that some of these people are perfectly fine to socialize with.  You can play a few rounds of golf, have dinner, go sailing with them.  They seem like such nice, intelligent, clean-cut people, if a bit more ambitious than the average Joe.  OK, insanely more ambitious, but you know what I mean.  They don’t look like gun toting SS droogs in jackboots who will conduct you to the edge of the pit where they will shoot you in the back of the head for inconveniently living on land they had their eyes on.

And yet, isn’t that what they’re doing, in a so far non-violent way?  They’re leading hundreds of millions of people to the edge of the pit of financial instability and a lifetime of precarious existence and pushing them over with a swift kick to the back.  When you lose your job, your house, your marriage, everything but the clothes on your back and the student loans you will be paying off forever, and it’s all because some wealthy bankers need to preserve their bonuses, isn’t that evil?

Check out this unbelievable interview about LIBOR from the BBC with Harvard professor Niall Ferguson.  The second part is particularly outrageous.  Essentially, we are being pressured to turn generation against generation and Ferguson implies that Obama will sell us out at the end of this year:

Part 1:

Part 2:

(Roberto Unger’s call for the left to defeat Obama makes a lot more sense now.  Ahh, I see that Ferguson is one of the original Confidence Fairies that Krugman is always referring to.  What’s more, he’s married to Aayan Hirsi Ali, the Somali born former Dutch MP who works for the conservative American Enterprise Institute.  She has taken Christopher Hitchens’ place in the Four Horseman dialogues.  Man-o-man, no one is safe from the creepy thoughts of extreme right wing philosophy.  I can’t take the Four Horseman dialogues seriously now.  Not until she’s replaced.  She jumped from ultra religious conservatism to ultra right wing conservatism and is not a good ambassador for the New Atheist movement.  Sorry, Richard.  She’s going to damage your credibility.  You’ve got to be very careful about these people because in this country, the political right wing is inextricably tied to the religious right wing.)

The LIBOR scandal took me back to the fall of 2008 when Planet Money popped up on NPR.  At first, Planet Money was a good resource for non-financiers to get a grip on Credit Default Swaps and Collateralized Debt Obligations.  A few months later, that began to change subtly as the hosts of Planet Money got pulled into the realm of the serious people.  But in October 2008, they were on top of LIBOR.  I remember them talking about the TED spread and LIBOR and getting the sense that the LIBOR number, the interbank interest rate showing how willing banks were to lend to one another was an indicator of the global scale of the catastrophe.  No joke.  The higher the LIBOR number creeped, the more likely we were to spin off to a Depression that was bigger than the world had ever seen.  The thing is, according to the Commodities Futures Trading Commission (CFTC), the banks were manipulating LIBOR starting in 2005, affecting rates on adjustable rate mortgages.  And the downstream effect of LIBOR was felt in just about every interest rate on every act of borrowing by every individual in the world.  We are talking about hundreds of trillions of dollars.  In this Planet Money snippet, Adam Davidson discusses the effect of LIBOR and the TED spread and what it means for global markets around the world.  Throughout October, Planet Money followed TED and LIBOR and the effect of the bailout money.  For some reason, LIBOR numbers should have gone down a bit after the infusion of money but they didn’t, probably because the LIBOR rate, as high as it was, wasn’t real and wasn’t high enough to reflect reality.

But reality might have set off a global panic, triggering much more severe regulation of the finance industry so it had to stay hidden.  In the meantime, we’ve been carrying the weight of these behemoth zombies for four years and if we don’t do something now, we will be carrying them for years to come- at our expense.  And they’ve gotten off with minor slaps on the wrist.  The CFTC fined British banks a paltry $450 million for their manipulations.  That’s an insult to American taxpayers and totally inadequate.  Democratic lawmakers should be outraged and demanding accountability.  Where are they??

In another Planet Money episode from October 2008, we find out what LIBOR meant to the little people:

Justin asks us today:

“I saw you mentioned student loan availability, but what about existing loans? Since many student loans have their interest rates tied to LIBOR or Prime, what does LIBOR hitting all-time highs this week mean for students? And, perhaps more ominously, graduates who are in repayment? How long can this go on before they start to see some effect on their loans?”

Even if Congress passes the bailout, many students across the nation will begin to see higher costs for loans in the coming months or could be turned away by banks altogether as the credit crisis intensifies.

The goes the same for graduates. The big issue is what kind of loans you have.

Most direct government-backed loans such as Federal Stafford and PLUS loans have fixed interest rates. This means the interest rate will remain constant for the life of the loan.

If you took out private loans, which have become increasingly common as students look for new sources to finance the soaring costs of college, they typically have variable rates and are projected to jump this year. Sorry.

Sorry, student.  Sucks to be you.  In the light of the LIBOR manipulation details, that seems particularly callous, along with Davidson’s subsequent attack on Elizabeth Warren for caring about homeowners and consumers and not being “serious”.  It was the influence of the serious people on Davidson (by the way, who was he referring to as his serious sources anyway?  Her colleague Niall Ferguson at Harvard, perhaps? And do “penis years” have something to do with why his word may have carried more weight than hers?) and on our elected officials that lead to the gouging of the taxpayers to pay the bankers’ unconscionable debts on bad bets.  We are talking about trillions of dollars of OUR money, OUR retirements, so that the weekend sailors and golf buddies would not feel inconvenienced.

I used to think my outrage meter was pegged but I have never seen such corruption go unchecked in my lifetime.  What we have here is a bunch of extremely irresponsible and unethical people playing with people’s livelihoods like it wasn’t real money to them.  And it isn’t real money to them.  The tens of thousands of dollars we’ll be collecting each year in measly pensions and social security, that’s nothing.  They can burn through that in a matter of minutes.  If it were several million dollars in Social Security payouts affecting their retirement packages, that might get their attention and they’d be furiously lobbying Congress to save Social Security at all costs.  Social Security and pensions would become holy sacraments. But because we are talking about such piddling amounts that amount to pocket change to the wealthy, it has no real meaning to them.  We might as well be flood victims in Bangladesh, clinging to a few square meters of dry land while the water rises all about us.  Those poor people.  Well, that’ll learn them to farm in a flood zone.

The careers we have lost? Not their problem.  Our children’s college funds, the roofs they have over their heads, the food we put in their mouths, barely registers.  On an individual basis, none of us make enough money to get their attention.  The significance of the figures of our incomes does not arouse their concern.  They are so caught up and preoccupied with making their numbers that they don’t have the time to care about your little problems.  They have jumped to a new level in the game where the sheer volume of money being swapped is intoxicating.  They’re not playing in the real world anymore.

It’s got to stop.  The manipulation of LIBOR was uncovered by the US CFTC.  That means, we’ve been aware of it for some time.  We probably knew about it when Occupy Wall Street was protesting last fall and we probably knew about it when their camps were broken up and they were hauled off to jail and when the DHS sent in their riot troops.  Yep, the Obama administration has known.  And so far, not one banker has been hauled off to jail.  No one has been penalized.

Think about that.  The scope of the LIBOR scandal affects every person who has ever dealt with a bank in the past 7 years.  It’s so outrageously immoral and has caused so much destruction and continues to wreck havoc in Spain, Ireland, Britain, the US, everywhere that if it isn’t prosecuted as a the criminal enterprise that it is, then I can only conclude that our elected officials are complicit.  They had to have known that the banks that are now too big to fail were in fact failing and were disguising the scale of the catastrophe from the public.  Those banks are still in business, thanks to our largess, and no one in the Obama administration, particularly Tim Geithner, has dared to declare them insolvent and break them up as Sheila Bair suggested in 2009. They are now bigger and more dangerous than ever and they are calling the shots about our jobs, retirements and money supply around the world.

Our money went into their bottomless gullets and continues to go in, and yet, they and their political arms have the outrageous gall to insist that we, the hardworking taxpayers who paid in advance for our social security benefits, WE have to take a haircut.  That is what the so-called Grand Bargain is all about, ladies and gentlemen. That’s why we must lose our jobs.  We cost too much.  They think they can dump the blame on us for having to eat and getting old and needy.

We are living in a world that is run by criminals.  You may think that’s they way it’s always been but this is now institutionalized criminality.  No one can be trusted.  And when no one can be trusted, all hell breaks loose.

More on LIBOR:

Boston Globe- How a LIBOR scheme works and what it means to consumers

Joe Nocera- LIBOR’s Dirty Laundry

Yves Smith- Yes, Virginia, the real action in the LIBOR scanda was in the derivatives

Here’s an interesting take on LIBOR from 2007 when banks were manipulating the rate up: Why LIBOR won’t hurt that much.

Also, this Fresh Air interview with Paul Krugman in Oct 2008 is very revealing.  He was right about almost everything except the unemployment rate. (his prediction was too low).  But even more striking is the last 5 minutes of the interview when he talks about the two presidential candidates and why Ben Bernanke was struggling to get a handle on this.  Could it be that the measures were inadequate because the LIBOR rates had been artificially lowered?

Matt Taibbi’s most recent posts in the Rolling Stone:

A Huge Break in the LIBOR Banking Investigation (6/28/2012)

Another Domino Falls in the LIBOR Banking Scam: Royal Bank of Scotland (6/29)

Why is Nobody Freaking out about the LIBOR Banking Scandal? (7/3)

LIBOR Banking Scandal Deepens: Barclays releases damning email, Implicates    British Government (7/4)

Matt Taibbi discusses the LIBOR scandal with Eliot Spitzer: