The Big Banks On Trial, Again

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You want to know why the entire global financial system almost collapsed in 2008?

There seems to be a simple answer. Not encouraging, but simple: The European Commission is exploring the possibility that there was a conspiracy among 13 of the world's major banks that colluded to keep the entire house of cards a secret.

In a press release Monday the European Commission announced it sent a "statement of objections" to Bank of America Merrill Lynch (BAC), Barclays (BARC), Bear Stearns , BNP Paribas (BNP), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), HSBC (HBC), JP Morgan (JPM), Morgan Stanley (MS), Royal Bank of Scotland (RBS), UBS (UBS) as well as the International Swaps and Derivatives Association (ISDA) and data service provider Markit.

This statement of objections is a formal step in EU investigations that charges the banks, the dealers' association, and the swaps pricing agent and index controller of "colluding to prevent exchanges from entering the credit derivatives business between 2006 and 2009."

The companies are then expected to answer the charges.

"If, after the parties have exercised their rights of defence, the Commission concludes that there is sufficient evidence of an infringement, it can issue a decision prohibiting the conduct and impose a fine of up to 10% of a company's annual worldwide turnover."

Part of the antitrust behavior of the accused, besides controlling pricing of derivatives to their exclusive benefit, would likely address their complicity in veiling the entire market to deflect fears of counterparty exposure, concentration of risks and leverage in the financial system.

Behind the Veil: Where the Elite Meet

The ISDA, the trade and lobbying group for users of over-the-Counter (OTC) derivatives that was named as a colluding partner, said last August that after eliminating more than $200 trillion in notional value of interest rate and credit-default swaps by cancel ing offsetting trades, on an adjusted basis interest rate swaps totaled $262 trillion.

According to the ISDA's website it has 840 members. There are 196 "primary members" that include all the big banks in the statement of objections and most of the world's trading banks.

Associate members include banks, corporations and some of the most powerful law firms around the world. Among them: Washington power lobbying firm Patton Boggs LLP, bank and securities law firms Davis Polk & Wardwell, Wachtell, Lipton, Rosen & Katz, and Weil Gotshal & Manges.

The ISDA's "subscriber members" include the 12 Federal Home Loan Banks, Freddie Mac and Fannie Mae, the Student Loan Marketing Association (Sallie Mae), New York Life Insurance Company, Intel Corporation (INTC), the Bank of England, Luxembourg and GMAC Inc. are all subscriber members.

Markit, according to its website, "is a private company headquartered in London. The company is owned by employees, private investors, private equity investors and numerous buy-side and sell-side financial institutions."

But Markit wants to change that. The company, which competes with Bloomberg and Thomson Reuters Corp, has been planning a public offering to raise $1 billion.

Outrage Upon Outrage

A Reuters story on June 25 quoted a source saying, "A registration statement for the deal could be filed with U.S. regulators during the fourth quarter of this year, although timing is still in flux and could change depending on market conditions."

The story names Goldman Sachs as the lead coordinator for the deal, but points out Markit's other large stakeholders, including JPMorgan Chase and Bank of America Merrill Lynch want to be lead syndicate partners.

An IPO may be a long way off if Markit, in large part owned by the big banks who also are all primary members of the ISDA, are all accused of antitrust violations and face potential multi-billion dollar fines.

In addition to its current woes, Markit would have to disclose that back in July 2009 the Justice Department's antitrust division had sent civil notices to banks that own Markit to find out if they had unfair access to price information.

Justice, or Just Cold Comfort?

A July 14, 2009 New York Times Dealbook post pointed to William Cohan, a former investment banker and financial crisis commentator, who said any potential investigation into Markit and its owners was overdue.

"The fact that they control Markit and it provides information about the prices of credit default swaps and they've benefited from this for many years without any challenge or investigation was outrageous," he was quoted as saying by Bloomberg News.

To date, nothing has come out of the Justice Department's investigation.

Yet again, the world's biggest banks, those principally responsible for driving the global financial system off a cliff, are being exposed for what they've done and how they did it. That's the bad news – for them.

The good news – for them – is they still have the earnings power to pay whatever fines are levied against them and that no one at the top of any of these criminal enterprises has gone to jail.

Join the conversation. Click here to jump to comments…

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. Matt G | July 3, 2013

    Thank you for your insight, Shah. I have interviewed with Wall Street On Demand a couple times, and always left with a very bad taste in my mouth. Your article prompted me to finally research the relationship between them and Markit, since I had heard once or twice of "MarkitOnDemand," and found that Markit acquired WallStreetOnDemand a few years ago. So now the bad taste in my mouth makes sense – a match made in Hell. I hope they rot there, along with Madoff, Ebbers, Lay and Skilling!

  2. Helmut | July 3, 2013

    Shah, how do you do it?
    It would take me hundreds of hours to unearth the facts you recite in this article.
    The implications of the facts are so widespread the mind boggles.
    What a world we live in.

  3. Steven Harding | July 3, 2013

    Drugs in the side panel of your Porsche? They take your car. Dealing from your house? You lose that too. Drug money in your bank account? All of your money, it's gone.

    The same should apply to banks that violate their trust.

    • Jeff Pluim | July 3, 2013

      Steven, your idea has great merit. Take away all profits from their criminal activities and then also fine them as corperations, and then also fine the principals involved. If we cannot put them in jail, maybe we can put them in the poorhouse.

  4. JERRY | July 3, 2013

    THIS DOESN'T SURPRISE. WE HAVE KNOWN FOR YEARS THE BANKS ARE UNDERHANDED.
    AND THE FACT THAT THE US JUSTICE DEPT HASN'T MOVED ON IT IS ALSO NO SURPRISE.
    HOW MANY LIGHTS NEED TO BE TURNED ON BEFORE PEOPLE CAN SEE JUST HOW CORRUPT THE BANKS AND GOVERNMENT ARE. THIS TRUELY MAKES ME SICK.

  5. spinrbait | July 3, 2013

    i just think this is just one of many shakedowns by gov'ts to legally steal money from the banks. when they go after fanniemae, freddieac, s&p for rating mbs's triple a. then come clean with the gov't policies, and gov't malfeasance, about warning investors the housing crash could happen, then they will be getting to the bottom of this. and if the gov'ts of the world were too ignorant to know this might happen, then shame on ourselves for electing such ignorant people. cnbc had a special back in 2009, where one person was going to all the banks and warning them of the house of cards falling. none of the banking models believed him. why didn't our gov'ts warn us it was at least a possibility? carl rove is on tv all the time saying the bush administration knew, and were warning congress. yet all i remember is politicans bragging about such high home ownership rates. i was looking to buy a house in 2007, but everything was so high, i told everyone it was crazy. people looked at me like i was crazy. they don't now. heck shah, why didn't you warn us? you're so smart and all.

    • Mannstein | July 3, 2013

      It's all the government's fault that bankers are gangsters. Give me a break.

  6. Skipper | July 3, 2013

    Shah, thanks again for putting the balanced facts out there in front of us. It is a sad day that there has been no action taking from the US Justice Department. Your prediction that no one person in leadership will be charged with anything either. But something is much, much better than nothing.

  7. Peter King | July 3, 2013

    I sincerely hope the CFTC has nothing to do with this legal process. They are as corrupt as the banks. To take nearly 5 years to investigate the criminal manipulation of the Silver market by JPMorgan, smack of collusion. May the heads of these manipulating criminal empires, rot in hell!

  8. PHIL@STEINSCHNEIDER.COM | July 3, 2013

    This proves that the economy, like a system in nature, tried to shake these banks off its back by tipping them into failure. Instead of taking our medicine and allowing creative destruction to take place, the government and central bank flooded the system with liquidity. But it's not nice to fool Mother Nature, so it's only a matter of time before a new crisis is upon us that is virtually impossible to control—at least with money-printing.

    If we'd just allowed these banks to fail, suffered the consequences, and let the free market take its course, the pain would certainly have been great. Plus, there's no doubt that so many of these exotic financial instruments would no longer be in existence. After all, if interest rates were set by the market, and currency not created by fiat, it's unlikely these things would even exist—in this form, at least—in the first place.

    The longer we keep plugging holes in the wobbly structure without destroying the underlying rot, the worse the flood when the dam finally breaks.

  9. Edouard d'Orange | July 3, 2013

    The Justice Dept abets the crooked banks. The Attorney Gen has said while testifying in Congress that the financial system worldwide would be adversely affected by any attempt to prosecute the colluding banks who are guilty of antitrust violations.

  10. Pamela Fife | July 3, 2013

    Wells Fargo did a unfair home Modification on are VA home.False Documentation via mail, are Modification ended up costing us 4,500 also told us we had to be 3 months late,before they could do a Modification.I also know for a Fact, that Wells Fargo was hiding houses that had been foreclosed, under US Bank. WE have a VA home its old underwater. I do not like Wells Fargo or any of these banks as they mislead people lost there homes then they hid them under other banks. And then let brokers buy them fix them up now there back on market.

  11. Derek | MoneyAhoy.com | July 3, 2013

    Don't hold your breath that anyone will get anything more than a slap on the wrist.

    It isn't going to happen. 99% of Americans have moved on. The bankers tentacles control everything!

    Many belong in jail for a long time, but they write the rules.

  12. DD | July 3, 2013

    I read that if it were not for the 2008 bailouts at the tax payer’s expense, a lot of Warren Buffett's fortune would have been wiped out! Apparently at that time, Buffett was heavily invested in Goldman Sachs and AIG who as we all know stood to lose very much.

    Google Buffett’s Betrayal by Wolf Winkler Dated August 2009 for more info.

    • RePete | July 11, 2013

      No doubt. Just because he's a nice guy doesn't mean anything. Buffett is neck deep in crony capitalism also.

  13. Tim L | July 3, 2013

    I am not surprised to read of more criminal activity from the crooks that run the banks, but it still makes me sick. The banks and the criminals in government will face justice – sooner or later… everything will come out in the wash as it always does. It's just too bad that so much damage has been done. Manipulation in order to take advantage of so many people is truly evil, and the piper will be paid.

    At the end of the day though it is all of our faults for letting them get away with it for so long. We were too busy enjoying the easy money – Just as they planned it.

  14. Phil Johnson | July 3, 2013

    I concur. I have tried to send similar exposes' to MSNBC and Fox News alike and have never gotten either to acknowledge them. Has MMN ever been interviewed for a story on such issues?

  15. Kevin | July 3, 2013

    There is a Government above Governments that we never elect
    It is out of control and will show no respect
    To those we've appointed, who fail to perform
    the duties set forth, as a Government Norm
    Now who is the Master and who is the Slave?
    Can the Slave become Master, when the Master is a knave?

  16. robert | July 3, 2013

    Wealth is power and those who have it rule the world.
    It has always been that way and it will never change.
    That is not cynicism, the history of the world proves it is a fact.
    Almost everybody has a price, and those who cannot be bought can be eliminated, for a price.
    By eliminated I do not necessarily mean killed, just nuetralized.
    Our Supreme Court majority has now made buying political power entirely legal.
    Nothing really new there, the power of wealth continues.

  17. RePete | July 3, 2013

    Too much money, too much power, in too few hands. It's time to bust em up and split em up.

  18. Leslie Belden | July 3, 2013

    Why did it take seven years for the "Commission" to figure out it didn't get its commission? This is straining out a gnat in the camel meat–it's never going to be kosher.

  19. Bill S | July 3, 2013

    And if you, or any other member of the media or analyst community, fail to demand action or fail to continue to broadcast these findings the rest of us will continue to be victims of the idiots responsible for prosecuting the offenders. Why won't someone be held accounable for this mess?

  20. stewart short | July 5, 2013

    insatiable indulgent greed
    penalise their miscreant deeds
    fascism is their thing
    take away their right of kings
    send them a message that stings
    close investment and deposit accounts
    individual action still counts

  21. charlie | July 7, 2013

    zero will happen never does BANKS ARE "IT"

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