Lying About LIBOR? Cui Bono?
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With news that the LIBOR has been under serious manipulation since at least 2008 for the benefit of U.S. and European lenders at the expense of the U.S. and European taxpayers, the opinion of bankers could not be at a lower ebb. This is a real shame, because banking (responsible community building through pooled savings banking) is the cornerstone of modern civilization and foundational to the structure of efficient and constructive capital markets.
Unfortunately, just about everywhere you look you see bankers getting away with taking inordinate risks and placing the burden of those failed bets on the backs of not only their depositors but everyone the world over. Bailouts in Europe and the U.S. have ripple effects that destroy the lifestyles of those living at the margin of the global economic system.
As impossible as it is for central bankers to have accurate knowledge of the economy to steer it with any degree of accuracy, so it is that we will never fully appreciate the human toll and suffering engendered by the profligate actions of those who walk the corridors of power, utilizing the banking system as their personal playground to extract wealth from their customers in a classic case of rent-seeking nee optimizing behavior.
Individuals at Barclay’s (NYSE: BCS) were involved in little quid pro quos via e-mail, and management changed the terms of loans to cover the real interbank borrowing rates while presenting rates between 3-4%(!) lower than the printed rate; but this is just the beginning of the scandal. Already the Bank of England itself has been fingered in the price fixing scheme.
That this was likely done as a consequence of the interbank markets seizing up in September 2008 is no surprise. The real question is who was behind the orders to do so. Was it necessary to avoid a catastrophic meltdown? Of course it was. But at what cost? How many millions of people holding paper tied to LIBOR and getting crushed by non-existent interest rates are there? How many people can tangibly prove that they have been materially harmed by this situation?
Again, the number is unknowable but you can be sure that there are a number of lawyers out there right now sharpening their class-action lawsuit pencils and having their research assistants firing up Excel as I type this.
Not Just European Banks
This situation is not contained to Europe. So much of what is behind the bailouts of Greece, Spain, Cyprus, etc. and the drive towards European integration is due to the exposure and complicity of the major U.S. banks in allowing so much of this problem to germinate. We now have reports that JPMorgan (NYSE: JPM) is under investigation for Enron-style price fixing in the California energy markets, a direct consequence of the failed privatization schemes created early in the century. Morgan-Stanley (NYSE: MS) has been fingered during the lawsuit filed by Abu Dhabi Commercial Bank to have not only created the algorithms used to determine the ratings on the SIV’s but then also to have pressured both Moody’s and S&P to rate them higher than the underlying assets.
It doesn’t matter in the end if they are proven to be faultless or not. The questions that should be on your lips should all have to do with why this information is coming out now and who benefits from it doing so?
From my perspective on the other side of the world the answers are obvious. The financial centers that are not at the heart of all of this potentially market-busting news will stand to gain an influx of fleeing capital. The Singapore Fund (NYSE: SGF) is weighted 47% towards financials. Three of Singapore’s major banks were recently rated by Bloomberg as #1, #7 and #8 in terms of the quality of their assets. The fund is still trading at a significant discount to NAV and with the advent of major money printing right around the corner, the Straits Times Index should continue up to and through 3,000 in the next few weeks. The Singapore Dollar is now appreciating quickly versus the Big Three of the U.S. Dollar, the Euro and the Yen, pushing through resistance on the evening of July 2nd.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of JPMorgan Chase & Co. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.