Sunday, July 8, 2012

Conclusion: Collusion

Why is there a "Lie" in LIBOR? 

Several months ago I had the good fortune of sitting down with some of the senior team at the U.S. Department of Justice's Anti Trust Division in Washington D.C.  For several months, we had been meeting with U.S. Attorneys to educate them on their own anti-competitiveness laws with respect to a growing illegal practice of building 'blind patent pools' for the purpose of extorting money from legally operating businesses.  As momentum built from a number of U.S. Attorneys who, when presented with the evidence we provided insisted we meet with the DOJ in Washington D.C., we were somewhat disheartened by a statement made by one of the senior officials when he said, "Well, we need something more than extortion to build a case.  We need to prove that the extortionists are also colluding."  No sooner than the words had come out of his mouth than he looked as us rather dryly and said, "I guess that sounds bad, doesn't it?"  Fortunately, this week the collusion piece was announced in a press release so, hopefully the DOJ was actually paying attention to the now multi-billion dollar violation of not only the Sherman Act and Clayton Act but now the Racketeer Influenced and Corrupt Organizations Act of 1961.

The current administration has its hands full with Attorney General Eric Holder's civil and criminal contempt of Congress issues - a matter made more distressing by President Obama's frequent assurances that his administration was going to actually break from the Bush Administration's tradition of thumbing its nose at the Constitution.  So it's going to be interesting to see how the Law-Enforcer-In-Chief gets in front of what could very easily be a trans-Atlantic scandal that is erupting as I'm writing this blog post.  Collusion!

A little history is important.  LIBOR or the London Interbank Offered Rate is an inextricable warp in the fabric of our global economy.  The magic carpet woven on that warp includes momentarily values for currencies, short term credit and over $800 trillion in financial products such as derivatives, swap agreements and a host of other debt instruments (according to the Economist while the Washington Post reports the LIBOR linked instruments to $360 trillion).  The LIBOR is supposed to reflect the liquidity of market acceptance for money, the credit risk associated with financial institutions and their primary constituents, and the nature of currency confidence reasonably expected to support monetary instruments.  If you have ANY investment, any money, or any debt, this story not only directly impacts you - your pocket has been picked and you didn't even know it! 

By definition, LIBOR is an agreement between parties.  So when Barclays Plc was assessed a record setting £290 million fine ($455 million if you believe that a dollar is actually worth a dollar) I'm sure that the regulators were hoping that nobody actually paused to think about the "I" in LIBOR.  You see, if the "Inter" is in the name, that means that there is more than one party involved.  And the more Robert Diamond and Jerry Del Missier open their mouths to investigators, the more trouble is likely to unfold.  As we see, Barclays was not alone in this racket.  According to recently released information, Bank of England deputy governor Paul Tucker not only was aware that this was going on but was consuming advice on how to appropriately fix the fix.  Ah, for those nostalgic days when the rule of law actually meant…, oh, that's right, it must be the heat getting to me - those days have NEVER existed!  The Financial Services Authority, the U.S. Department of Justice, and regulators and law enforcers will seek to put several hapless CEO's and mid-level minders into the stocks for public ridicule and rotten vegetable hurling - now being considered for an Olympic sport in London (don't I wish).

But, I want to get out in front of the story that will one day be the real story.  This LIBOR fixing nonsense is only a week old but there are now at least 20 banks that are reportedly under some form of inquiry.  And this number is going to grow.  But here's the tricky part.  It's not just banks that should be under the Klieg lights.  Thomson Reuters proudly states that it is the "official calculator of more than 120 benchmark fixings" on their website.  In other words, what Thomson has told the world is 'calculated' by them is either not, or they, like their rating agency brethren are implicated.  Someone at Thomson should e-mail their webmaster and tell him or her to pull down this page really fast.  Because one thing that this scandal will show is that the arbiter of calculated just got shown to be a rather naked king!  If they were actually measuring things and calculating things they should have easily detected the same anomalies that I detected in 2006 at the Arlington Institute giving me the ability to see the 2008 collapse two years before it happened!  But it gets worse.  Oh yes, much worse. 

As has been the case in public scandals in which the public is legally robbed by government-sanctioned holders of Letters of Marque (legalized piracy), the inquiries are going to run into a much bigger problem that neither side of the Atlantic can politically stomach.  You see the financial institutions implicated in this LIBOR scandal were doing a public relations service for the governments who give them favor.  Had the banks, in October 2008, actually reported the condition of credit and currency, a politically unacceptable reality would have surfaced.  The public would have realized that there is much deeper problems facing the economy than anyone had previously been willing to confront.  So, in classic fashion, they kicked the can down the road.  Bad news here is the road is a cul-de-sac and there are some really big bullies at the end.

What we'll find (as we are already seeing) is that public officials desperate to see their political fortunes surf the tsunami of financial illusions made the very predictable mistake of inquiring of banks how to manipulate public confidence.  "How do we get credit flowing…?" will be in some e-mail to which a bank executive will reply, "In exchange for some government guarantees, we can tax the public a few pence or pennies at a time through subtle manipulation of LIBOR and, voila, problem solved," to which the response was, "I don't know what that means but if it works, do it and we'll back you up."  Credit guarantee schemes - those wonderful manipulations that pass public funds to private investors - have been, and will continue to be the lubricant in a debt-based currency system until we invert the alchemy!

Which leads me to the following.  You've been robbed.  To be sure, there will be no public dividend slated for the massive fines that the FSA and DOJ assess against those they publicly decide to scapegoat.  And, if YouTube videos of kids with toothaches and KONY2012 can go viral to millions, than do yourself a favor and let your neighbors, your friends, and your colleagues know that adding public racketeering to collusion is dangerously close to treason - only this time, it's the sovereign acting against the people!  Maybe Eric Holder's Justice Department will wake up but it will only happen if enough of you who read this decide to stop the bank robbers!  Send this blog post to as many of your acquaintances as you can and let's see if the people's voices can actually propel the investigation past the banking executives all the way to the place where the Buck Stops!

To Form a More Perfect Union, we must return to economic systems which are built upon transparency, productivity and bounded scale.  We don't need more scandals to prove that the Creature from Jekyll Island - uncannily the island governed in the 16th century by Ponce de Leon (seeker of the Fountain of Youth) - is ready for the Museum of Unnatural History with other lumbering reptiles that had voracious appetites and very small brains devoid of cortices.  LIBOR's ubiquity gives We the People an opportunity to efficiently unwind what hasn't worked and lay down the warp threads for a new, publicly accountable system of value exchange. 


  1. David -

    As usual, a remarkable fabric of story and fact, with no less remarkable a point of view, however, can you tell me one thing? The Barclays folks were apparently paying too high an interest rate for the BofE's taste. Tucker was inquiring if they weren't paying too much interest on incoming capital. If anything, he was asking them to decrease the interest rate, rather than increase it. Would that not inure to the public's interest in so much as the public is interested in less debt slavery?


  2. Arlington Institute link to your talk in 2006 is dead. Live link is here:

  3. Bill Black's take on LIBOR and what the Fed should have done.

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Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave