LIBOR Manipulating Banksters Get a Slap on the Wrist

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Heaven can wait.

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

Bankers see it.

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

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

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

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

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

Yeah, about that "justice" thing…

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

But, hey, you know, they're sorry and all that. Sorry they got caught, that is. And they're not alone.

There will be a bunch of other big banks paying for this gross game of manipulation. And all of them are household names.

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

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

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

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

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

How Barclays Manipulated LIBOR (and Why It Stinks)

Libor is really, really, really important.

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

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

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

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

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

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

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

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

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

What's the big deal?

There are tons of ramifications. Some real and some theoretical. "Theoretical" meaning they can't be proven.

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

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

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

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

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

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About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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  1. paul sykes | July 1, 2012

    I have demoes to prove what the next amazing breakthrough in technology will be !
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  2. Charles Yenian | July 1, 2012

    Please sign me up for all that is offered. Thanks.

  3. Doug | July 1, 2012

    Mr. Giliani, of everyone I read in the world of finance and politics (and that's more than I likely should be spending time on) you offer the the most focused, keen insights to how the game is continually manipulated by the world's banks. (with much help and complicity it seems on behalf of various world governments) I would love to know how you envision that we ever bring about a change. Perhaps I am simply too cynical, I just don't seem to be able to visualize how we manage to enforce compliance and finally level the playing field.

    Thank you, Shah! – Doug Nelson

  4. ted plottner | July 2, 2012

    Shah……..your info. is not news to me———–while i was investigating why the government won't investigate or prosecute the people that stole all of my families money[siver scam]…….I came across a big bank in Charlotte N.C. that had been laundering bunches of mexico drug money[hundreds of millions]———they received a fine……with no arrests or charges filed against anyone—————–Some people in gov. were stunned…but not me……………the Gov has lost control…..the whole system is a criminal enterprise—-IT'S SICK………………………….

    • Shroomduke | July 3, 2012

      I agree Ted, the SELECTIVE ENFORCEMENT must stop!

      I don't knwo what more the American people need to see before they realize the depths of corruption in our Department Of Justice…

  5. Fern Chagnon | July 2, 2012

    I just want to sign up for the money morning newsletter

  6. Shroomduke | July 3, 2012

    Prison for Economic Criminals!

    Banking fraud, Corruption, International Economic Disasters will continue untill these people are investigated, tried and put in a REAL prison for their crimes!

    They prosicute people for smoking pot yet let criminals like these reoffend without real consequences…

    These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power. Our allegiance to American institutions requires the overthrow of this kind of power. In vain they seek to hide behind the flag and the Constitution. In their blindness they forget what the flag and the Constitution stand for. Now, as always, they stand for democracy, not tyranny; for freedom, not subjection; and against a dictatorship by mob rule and the over-privileged alike. -Roosevelt-

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