Odin's B-Log

whatdididrink:

Libor Investigation Close To Making Arrests: Report

socialuprooting:

U.S. prosecutors and European regulators are close to arresting individual traders and charging them with colluding to manipulate global benchmark interest rates, according to people familiar with a sweeping investigation into the rate-rigging scandal.

Federal prosecutors in Washington, D.C., have recently contacted lawyers representing some of the individuals under suspicion to notify them that criminal charges and arrests could be imminent, said two of those sources who asked not to be identified because the investigation is ongoing.

Defense lawyers, some of whom represent individuals under suspicion, said prosecutors have indicated they plan to begin making arrests and filing criminal charges in the next few weeks. In long-running financial investigations it is not uncommon for prosecutors to contact defense lawyers for individuals before filing charges to offer them a chance to cooperate or take a plea, these lawyer said.

The prospect of charges and arrests of individuals means that prosecutors are getting a fuller picture of how traders at major banks allegedly sought to influence the London Interbank Offered Rate, or Libor, and other global rates that underpin hundreds of trillions of dollars in assets. The criminal charges would come alongside efforts by regulators to punish major banks with fines, and could show that the alleged activity was not rampant in the banks.

“The individual criminal charges have no impact on the regulatory moves against the banks,” said a European source familiar with the matter. “But banks are hoping that at least regulators will see that the scandal was mainly due to individual misbehavior of a gang of traders.”

The source, who did not want to be identified because the investigation is ongoing, said regulators are checking through emails among a group of traders and believe they are now close to piecing together a picture of how they allegedly conspired to make money by manipulating the rates. The rates are set daily based on an average of estimates supplied by a panel of banks.

“More than a handful of traders at different banks are involved,” said the source familiar with the investigation by European regulators.

That’s good and all, but the traders (who do need to be held accountable) are small fish. Hopefully the arrests go upstream & land some CEOs. Oh, and they need to perp walk the hell out of anyone arrested.

robertreich:

Just when you thought Wall Street couldn’t sink any lower – when its myriad abuses of public trust have already spread a miasma of cynicism over the entire economic system, giving birth to Tea Partiers and Occupiers and all manner of conspiracy theories; when its excesses have already wrought havoc with the lives of millions of Americans, causing taxpayers to shell out billions (of which only a portion has been repaid) even as its top executives are back to making more money than ever; when its vast political power (via campaign contributions) has already eviscerated much of the Dodd-Frank law that was supposed to rein it in, including the so-called “Volker” Rule that was sold as a milder version of the old Glass-Steagall Act that used to separate investment from commercial banking – yes, just when you thought the Street had hit bottom, an even deeper level of public-be-damned greed and corruption is revealed. 

Sit down and hold on to your chair.

What’s the most basic service banks provide? Borrow money and lend it out. You put your savings in a bank to hold in trust, and the bank agrees to pay you interest on it. Or you borrow money from the bank and you agree to pay the bank interest.

How is this interest rate determined? We trust that the banking system is setting today’s rate based on its best guess about the future worth of the money. And we assume that guess is based, in turn, on the cumulative market predictions of countless lenders and borrowers all over the world about the future supply and demand for the dough.

But suppose our assumption is wrong. Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them – bets that will pay off big for them because they have inside information on what the market is really predicting, which they’re not sharing with you.

That would be a mammoth violation of public trust. And it would amount to a rip-off of almost cosmic proportion – trillions of dollars that you and I and other average people would otherwise have received or saved on our lending and borrowing that have been going instead to the bankers. It would make the other abuses of trust we’ve witnessed look like child’s play by comparison.

Sad to say, there’s reason to believe this has been going on, or something very much like it. This is what the emerging scandal over “Libor” (short for “London interbank offered rate”) is all about.

Libor is the benchmark for trillions of dollars of loans worldwide – mortgage loans, small-business loans, personal loans. It’s compiled by averaging the rates at which the major banks say they borrow.

So far, the scandal has been limited to Barclay’s, a big London-based bank that just paid $453 million to U.S. and British bank regulators, whose top executives have been forced to resign, and whose traders’ emails give a chilling picture of how easily they got their colleagues to rig interest rates in order to make big bucks. (Robert Diamond, Jr., the former Barclay CEO who was forced to resign, said the emails made him “physically ill” – perhaps because they so patently reveal the corruption.)

But Wall Street has almost surely been involved in the same practice, including the usual suspects — JPMorgan Chase, Citigroup, and Bank of America – because every major bank participates in setting the Libor rate, and Barclay’s couldn’t have rigged it without their witting involvement.

In fact, Barclay’s defense has been that every major bank was fixing Libor in the same way, and for the same reason. And Barclays is “cooperating” (i.e., giving damning evidence about other big banks) with the Justice Department and other regulators in order to avoid steeper penalties or criminal prosecutions, so the fireworks have just begun. 

There are really two different Libor scandals. One has to do with a period just before the financial crisis, around 2007, when Barclays and other banks submitted fake Libor rates lower than the banks’ actual borrowing costs in order to disguise how much trouble they were in. This was bad enough. Had the world known then, action might have been taken earlier to diminish the impact of the near financial meltdown of 2008.

But the other scandal is even worse. It involves a more general practice, starting around 2005 and continuing until – who knows? it might still be going on — to rig the Libor in whatever way necessary to assure the banks’ bets on derivatives would be profitable.

This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us – whose money they’ve used for to make their bets – losers and chumps.

What to do about it, other than hope the Justice Department and other regulators impose stiff fines and even criminal penalties, and hold executives responsible?

When it comes to Wall Street and the financial sector in general, most of us suffer outrage fatigue combined with an overwhelming cynicism that nothing will ever be done to stop these abuses because the Street is too powerful. But that fatigue and cynicism are self-fulfilling; nothing will be done if we succumb to them.

The alternative is to be unflagging and unflinching in our demand that Glass-Steagall be reinstituted and the biggest banks be broken up. The question is whether the unfolding Libor scandal will provide enough ammunition and energy to finally get the job done.

I can only add that it’s a crime—I’m not liking the “scandal” euphemism