International Forecaster Weekly

The Unravelling of the LIBOR Lie

LIBOR in the news, Barclays Bankster in the hot seat, LIBOR manipulations amount to the largest scam ever perpetrated through the banking system. Of course, we wont expect a thorough crimnial investigation, JP Morgan again over manipulating energy prices in California and the Midwest, whistle blowers calling down the IRS.

James Corbett | July 7, 2012

What do you get when you cross a banker and a gangster? A bankster, of course. The temptation might be to think of this as colorful hyperbole, but it's not. Exactly as the gangsters of old colluded to buy off the regulators, rub out the competition, and swindle the public, so too do the big banks cheat, steal, lie and swindle to support their corrupt practices. Although there is no dearth of evidence to support this thesis, this week was particularly ripe with examples of just how the banksters run their racket.

Libor is the London Inter Bank Offered Rate.

The biggest news, of course, was the unraveling of the Libor lie. Even more amazing than the scandal itself is the fact that people are hearing about it on mainstream television. Everything you've heard is true. It is, dollar for dollar (or, more accurately, pound for pound), the largest scam ever perpetrated through the banking system. Or at least the biggest scam unearthed so far. For those who don't know (and somehow managed to miss the multiple explanations in the commercial press), Libor is the London Inter Bank Offered Rate. It represents the average lending rate between banks for a number of currencies and maturities. The reason the fixing of this rate is so monumentally important is that so many loans and derivatives are priced off of Libor. Some estimates place the value of Libor-linked loans and securities (interest rate swaps, syndicated loans, currencies, variable rate mortgages, forward rate agreements, etc.) at 800 trillion dollars, or about 10 times the GDP of the entire planet. To say that small changes in these rates can have large knock-on effects in the economy at large is an understatement. This isn't to say that the rates were always manipulated upward to maximize profit. They can and were manipulated downward at times, too, to convey a confidence in the stability of the banks that the banksters weren't necessarily feeling on the street.

Here's the rub: the Libor scandal can't be swept under the rug by blaming “one bad apple.” It's the go-to excuse whenever the banksters are caught with their pants down, but it won't hold this time. The Libor isn't set by one bank, but by a number of them; eight, twelve, sixteen or twenty depending on the currency involved. The top and bottom quartile are thrown out and the middle 50% of values are averaged out to arrive at the final figure. In order to actually effect manipulation of the rate, over a quarter of the banks would have to be committed to skewing the numbers. And the whole thing requires, needless to say, a generous helping of governmental consent. And so it was that after the Barclays $455 million smackdown and the resignation of CEO Bob Diamond, Barclays itself released a memo detailing a conversation between Diamond and the Deputy Governor of the Bank of England, Paul Tucker, which seemed to suggest that the BOE was pressuring Barclays to drive the Libor down during the height of the credit crisis in October 2008. Cue Bob Diamond, ex-Barclays CEO, who resigned earlier this week and then sat down to testify before Parliament. Diamond claimed that Tucker and the BOE wasn't trying to pressure Barclays into manipulating Libor, but he did reveal that he had been trying to blow the whistle for years on the collusion of other banks in fixing the rate. According to him, senior Labour MPs knew full well what was happening but nothing was ever done about the practice. Current British Chancellor George Osborne has opined that Gordon Brown's cronies were “clearly involved.” The regulators failing to regulate? Why, I never!

If this is all too follow-the-bouncing-ball for you, the short and skinny is this: banks around the world were in on the fixing of Libor. Government “regulators” knew and didn't step in.

Well, then, this seems pretty open and shut. The largest rate fixing scandal in the history of the world. Hundreds of trillions in loans and derivatives effected. Banks all over the world allegedly involved. Government regulators looking the other way. Surely this is the start of the Great Banking Bust-up of 2012 that we were pining for last week, the turning of the tide against the banksters and the beginning of public arrests, trials and convictions of the multi-trillion dollar racketeers and scamsters populating Wall Street, Washington, the City and London?...

Not by a long shot. So far Barclays has had to pay its fine, and it has lost its chairman, CEO and COO in the scandal. But what of all of those other banks around the world? What about the MPs who were allegedly in cahoots with them? When will they be rounded up? I know this is going to shock you, but the answer is: likely never. As of press time, Cameron has proposed a joint MP/peer led “investigation” into the scandal that will propose “reforms” to be implemented by the start of next year. This despite the fact that his own Attorney General has advised that any inquiry will likely prejudice criminal proceedings against the offenders. Ironically, the larger the scandal turns out to be, the less likely we will see criminal prosecutions and class action lawsuits. When the rot is exposed as systemic, the “reformers” will step in to make sure that this type of scandal “never happens again.” And so it is that the likelihood of seeing real, substantive, criminal investigations into the matter becomes less and less likely as the public gets suckered once again by platitudes about “reform” and “looking forward.” If you're not sure how that works, just ask an Obama supporter who believed the Obama administration was going to investigate the criminal activities of the Bush era; they can tell you all about it. Meanwhile, Tom Cruise and Katie Holmes are divorcing, so the public won't be asked to think too deeply about this whole largest-scam-in-history thing for very long.

One is tempted to just shrug one's shoulders and move on, but perhaps the story deserves more than a few pithy paragraphs. A single bank being hit with a half billion loss on what amounts to the largest racketeering scheme in the history of the planet is hardly proportional. Why is it that a woman in Houston can be thrown in jail for holding up a sign warning drivers about a speed trap up ahead, but banksters who literally siphon untold billions out of the economy cannot be charged with anything? And why can a public that can be infuriated by Tour de France doping scandals not bother to hold the banksters to account? These should not be rhetorical questions.

But wait, there's more. Much less reported is how the same Libor-fixing scandal is playing out in the US right now. Citigroup, BOA, and a dozen or so other banks are facing a suit by a group of institutional investors alleging that they participated in the exact same type of Libor-fixing that Barclays just got dinged for. The banks have motioned for dismissal, but given the attention on the case and the nature of the scandal, it's unlikely to be dismissed so easily. Instead, market watchers note that an admission of criminal wrongdoing is unthinkable, so the only question is what size will the eventual payout be and how much leniency will banks get for playing ball with investigators. Which leads us to the ongoing JPMorgan fiasco. (You know it's a busy news week when the story of a $9 billion trading loss gets relegated to the ninth paragraph.) When their initial $2 billion trading loss on credit derivatives was announced in May, CEO Jamie Dimon was predicting that number could double as the bank unwinds the trade and clears its position. That number may actually be closer to $9 billion. The new figure comes from an internal report from last April that showed a worst-case scenario of the loss could mean the bank will lose much more than it bargained for. The real test comes next Friday when they release their second quarter results. The smart money is on the bank losing as much from the trade as they made in profit in the quarter.

But as if that's not enough, now Dimon and the boys at JPMorgan face a fresh scandal. J.P. Morgan Ventures Energy Corp. is being sued by the Federal Energy Regulatory Commission over allegations that Morgan had tried to manipulate energy prices upward in California and the Midwest. Now a federal judge is ordering the company to explain why it shouldn't turn over emails that will shed light on its role in the scandal. Another week, another black eye for the JPMorgan crew.

And in some ways that's the point. What better sign of the bankster nature of those in the hot seat than that they take beating after metaphorical beating in full view of the public, from rate-fixing scams to historical trading losses to market manipulations and yet nothing ever seems to change? The “investigative journalists” get a chance to break a big story, they play it out in the back pages of the newspaper for a few months, politicians get on their high horse and make wonderful sounding speeches about the need to rout out the rot at the heart of the system, a gold star panel is appointed to look into the problem, an ineffectual and toothless new regulatory regime is rolled out to placate whatever of the general public still remembers the problem in the first place, and everything is patched over until the next scandal erupts. Who else but organized criminals with bought-and-paid for “regulators” in their back pockets could possibly get away with such crimes?

Oh, and the piece de resistance? A certain European market rag that shall remain nameless (the third most read in Europe behind FT and The Economist, we're told) just bestowed its Awards for Excellence 2012. Any guesses on the Best Global Flow House, Best Global Debt House, and Best Investment Bank and Risk Adviser in United States? Just a little outfit called Barclays. To coin a phrase: It's good to be a bankster.


By Matt Gillotti, Staff Writer

As has been brought to light lately a bit of irony as the IRS who normally strikes fear into the hearts of many a hard working American at the thought of or better worded as threat of receiving an audit is receiving one themselves from the Inspector Generals office in Washington, DC, as we see a group of whistle blowers have brought to light an extreme flaw within the Internal Revenue Service, which management had knowledge of and were continually telling employees to look the other way while pushing through falsified returns filed with ITIN’s. The false returns were mostly from illegal immigrants exploiting a loophole within the Internal Revenue Service system through the use of and lack of verification of those using Individual Taxpayer Identification Numbers (ITIN) which consist of a nine digit tax processing number assigned by the IRS to individuals who are obligated to file federal tax returns but are not eligible for or do not have a Social Security Number. It would seem that Illegal Aliens have with the help of others and Spanish speaking tax preparers have to date been bilking the system for billions of undeserved monies by obtaining ITIN’s through the use of easily forged documents such as fake birth certificates, voter ID cards, school records, driving records and more, which are all easily forged and fill the IRS requirement to receive an ITIN. With a huge portion of illegal immigrants taking advantage of the easily obtainable ITIN’s coupled with heavily falsified dependants being claimed some in the tune of ten to fifteen family members or relatives most that do not even reside in the US and a great majority of others that do not even exist they have been able to reap the benefits of huge tax refunds in the sum of $10,000.00 plus per return. In the 2010 tax year by itself the Center for Immigration Studies reported that more than three million returns were filed using the easily obtained nine digit ITIN with approximately 2.3 million paying no federal income tax while collecting around four billion in tax refunds, absolutely astonishing. It would seem that the group of displeased whistle blowers within the Internal Revenue Service finally had enough of business as usual after bringing the easily noticeable flaw and abuse to upper management’s attention over a period of years only to be told time and again to overlook the issue, process the return s, and move on. As if it hasn’t been said before there would be nothing better then to see the Internal Revenue Service dismantled and shut down, but we all know as we have seen in other government debacles most upper management will receive a slap on the wrist while a few lower middle management will be sacrificed for the greater good of the public showing so as the IRS may push forward with business as usual. With the Inspector Generals final audit reports expected release sometime this summer it would be of no surprise to see it almost completely brushed under the Big Government carpet.

With the current extreme weather conditions in the Midwest, fears of food price inflation due to a big surge in US crop prices is not without merit. The recent hot and dry weather conditions are sure to further damage the already struggling corn crops forcing the rise in the price of corn and wheat above the ten percent increase we have already seen in the last week. As we saw just a year or so ago the failed peanut crops due to extreme uncontrollable weather conditions cause a shortage of peanuts affecting everyday products like peanut butter as they nearly doubled in price over the period of a few weeks in which their price still remains today. With the price of gas lower in recent weeks it would not be inconceivable to think that the affect of a poor corn crop for the summer would cause the price of gas to halt its decent and maybe even climb slightly higher then we have seen as of late over its corn based ethanol, how bad the summer corn crop is along with where fuel demand will land could be the greatest deciding factors. As the hopes of replenishing the US inventories which are at near record lows are readily dashed by the current weather extremes plaguing the Midwest we should be taking into consideration the many products affected by a poor producing corn crop as we head to the grocery store. We would only be conceivably more intelligent if we planned for the future of inflated prices of any product we use on a daily basis that contains corn or wheat in some form or other by taking the time now to stock our pantries with as many of these products as one can afford to do so. With the current economic struggles plaguing the great many of us, stocking up on everyday staples we see summer prices reflecting the current inflation fears from poor or failed corn crops may be the best measure we can take at this point to ensure less pressure on ourselves during these already tough economic times. As we have seen with past corn crop production issues the price of wheat or products containing wheat will be affected as the price of wheat runs in tandem with corn due to its ability to be substituted in animal feed in times of higher corn prices. There is more to corn and wheat then corn and wheat themselves, beef, pork, chicken, cereal, flour, gas and the list goes on.

We should expect to see the price of gas to start rising in the coming week’s, compounded by struggling corn crops in the US and newly arisen tensions with Iran.