In the financial crisis, LIBOR rates soared due to payment uncertainty (recall Bear Stearns, Lehman, etc).
Banks lowballed their borrowing rates so as to make their financial conditions look better than they were.
LIBOR stands for London Interbank Offered Rate, the average of interest rates estimated by each of the leading banks in London that it would be charged were it to borrow overnight from other banks.
In June 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions. The LIBOR rigging admission cost Barclays’ CEO, Bob Diamond, his job. Two traders went to jail.
The Bank of England officer who was in talks with Bon Diamond at the time, Paul Tucker, denied to the parliament in 2012 allegations that he put pressure on Barclays to rig LIBOR to ease funding tensions.
Today, However, the BBC reports Bank of England Implicated in Secret Recording.
A secret recording that implicates the Bank of England in Libor rigging has been uncovered by BBC Panorama.
The 2008 recording adds to evidence the central bank repeatedly pressured commercial banks during the financial crisis to push their Libor rates down.
The recording calls into question evidence given in 2012 to the Treasury select committee by former Barclays boss Bob Diamond and Paul Tucker, the man who went on to become the deputy governor of the Bank of England.
In the recording, a senior Barclays manager, Mark Dearlove, instructs Libor submitter Peter Johnson, to lower his Libor rates.
“The bottom line is you’re going to absolutely hate this… but we’ve had some very serious pressure from the UK government and the Bank of England about pushing our Libors lower.”
Mr. Johnson objects, saying that this would mean breaking the rules for setting Libor, which required him to put in rates based only on the cost of borrowing cash.
His boss Mr. Dearlove replies: “The fact of the matter is we’ve got the Bank of England, all sorts of people involved in the whole thing… I am as reluctant as you are… these guys have just turned around and said just do it.”
Mr. Dearlove declined to answer questions from BBC Panorama.
The phone call between Mr. Dearlove and Mr. Johnson took place on 29 October 2008, the same day that Mr. Tucker, who was at that time an executive director of the Bank of England, phoned Barclays boss Mr. Diamond. Barclays’ Libor rate was discussed.
Mr. Diamond and Mr. Tucker were called to give evidence before the Treasury select committee in 2012. Both said that they had only recently become aware of lowballing.
Peter Johnson, the Barclays Libor submitter, was jailed last summer after pleading guilty to accepting trader requests to manipulate Libor.
However, the jury could not reach a verdict on two other traders then on trial, Ryan Reich and Stelios Contogoulas. The Serious Fraud Office requested a retrial which concluded last week. Both Mr. Reich and Mr. Contogoulas were unanimously acquitted.
Panorama also played Mr. Contogoulas the October 2008 recording. He said he believed that if it had been played during the criminal trials it might have affected the outcomes.He said: “That’s the thing, you know in these trials that we went through they separated everything, separated trading requests and lowballing. So anything that has to do with this they don’t go in. So you’re asking me do I think that if all this was in would it make a difference? Probably, is the answer.”
So, they jail one pressured trader but not the CEO nor anyone at the BOE. Lovely.
Mike “Mish” Shedlock
These “private for profit” central banks are the largest “Insider Trading” scams the world has EVER known.
“Mr. Diamond and Mr. Tucker were called to give evidence before the Treasury select committee in 2012. Both said that they had only recently become aware of lowballing.”
…
yeah, well … you know the drill
Cue up Mr Juncker:
‘When it becomes serious, you have to lie’
Battle of Stalingrad today on the 10 yr yield @ 2.30%
The Germans, er, Reflationists gamely trying to keep the yield >.
But, we know how the story ultimately plays out …
There is only 1 unfilled gap on the weekly $TNX chart, which dates back FIVE YEARS.
One.
It is between 2.117 and 2.189.
And it will soon get filled, like every other gap on that chart eventually did.
I am not sure who would have been hurt by the low balling. It would seem that it was done to quash a contagion of panic and to make things appear better than they were. You really can’t blame them for trying to calm the waters even if it was “illegal”. There are many more things that the banks have done to screw the public that I would like to see them held accountable for this just doesn’t seem like that big of a deal
Agreed. Lots of folks have adjustable rate loans based on Libor. Manipulating it up would be a problem, down, not so much.
Manipulating in any direction is a problem. The retirement funds on other end of those ultimately packaged up and sold “loans,” are no less worthy of consideration than some idiot who borrowed a million to buy an outhouse in the California dessert because “poppeti just goes up…”
And neither are all those who got robbed out of a decent deal of a house, due to the fire sales that would have occurred in an unmanipulated market, being prevented from happening. Just so that existing insiders could, once again, rob those not on the inside with the aid of government.
Manipulating is wrong period.
Er @hmk what? any business with an interest rate swap would be wiped out
this has already happened in the UK
so the bank steals someone’s business when in fact the swap should have been called in to protect businesses?
Agreed!!
Unless central bank meetings, emails, and other forms of communications are held to absolute milspec TEMPEST/EMSEC standards with meetings held in a SCIF with NO personal electronics allowed, I have no doubt whatsoever considering the potentially huge economic value of listening in to their plans for monetary manipulations that there are all kinds of “secret recordings” that we never hear.
OT – A viral video showing an army of little orange robots sorting out packages in a warehouse in eastern China is the latest example of how machines are increasingly taking over menial factory work on the mainland.
http://www.cryptogon.com/?p=50783
So Mr. Johnson was thrown under the bus. I’m shocked!
He should have resigned rather than caving to the pressure. Looking for a new job is way better than doing time, at least in Britain. In America, of course, such a move would have led to his suicide…
Not at all surprising if this occurred. Rule book went out the window during that time, if rules were ever really applied.
It was all hands on deck at the time, do as you’re told.
Question – what consequence if they hadn’t held LIBOR down?
An even worse contagion and credit contraction event.
Ends justifies the means?
I don’t envisage this was done for personal gain but more like systematic protection.
Ultimately, was it worse for individuals than blatantly bailing out too big to fail at tax payer expense?
Not fessing up to the Select Committee is the bigger crime in this case. Sometimes ends do justify the means, fire breaks were necessary and easing tensions via LIBOR was one of those breaks.
Hat tip to BoE for acting quickly, decisively and getting the job done.
What about sleeping at the wheel in the run up to the crisis. Can they be slippered for that?
These arsonists had simply put out a fire they had created. Since when such arsonists are praised. The right thing to do would have been to jail these rascals for having created the fire in the first place. But then doing the right thing is not in vogue.
“Question – what consequence if they hadn’t held LIBOR down?
An even worse contagion and credit contraction event.”
What are the consequences of setting up an even greater financial bubble? An even worse contagion and credit contraction event.
You’re NEVER going to hear about the 1/10th of 1% who OWN this system and who no doubt consistently “front run” every nuanced change in policy. You’re never going to hear about it because you are a bottom feeder. And if you think the scum you elect are looking out for your interests, well, all I can say is go back to sleep, and put all of this out of your mind. No doubt you will be happier, and more apt to believe all the other bullshit that’s beamed into your soul.
“So, they jail one pressured trader but not the CEO nor anyone at the BOE. Lovely.”
There is no longer any pretense that we are “equal before the law”. President Obama will be handsomely rewarded for his lack of prosecutions. I have little hope Mr. Trump will be in any way different.
The only workable response is to vote out your incumbent politician. If you’re a democrat, vote Republican. If your a Republican, vote democrat. The people have to drain the swamp.
The only workable response is to realize that even after a violent bloody revolution sacking the lot of these vampires, it would probably take all of about 1 to 2 years for the next set of blood sucking vampires to take their places. Greed is immortal.
Bill Clinton repealed the Glass-Steagal Act, allowing Wall Street banks to merge with (and borrow from) regular commercial banks. Clinton did so because Sandy Weill was a big campaign contributor, and had already decided to merge Citi with Smith Barney knowing his campaign bribes would work.
Bill Clinton also appointed Franklin Raines, a political bureaucrat with zero banking experience, to be the CEO of FNMA. Under Raines, FNMA was transformed from a sleepy mortgage insurer, to a massive over-levered MBS hedge fund (and without any of the risk controls a hedge fund would be required to have).
John Snow, Bush II’s first Treasury Secretary, had the temerity to point out that FNMA was insolvent. That got Snow fired, and prompted then Senator Barney Frank to screech at the top of his lungs that FNMA was fine, and even it it somehow failed it could never cost taxpayers more than $3 billion (which FYI is still a lot of money, even if that is “all” it would cost). FNMA collapsed, destroyed thousands of homeowners dreams, and cost the taxpayer tens of billions to bail out.
None of the thousands, yes THOUSANDS, of Federal regulators who’s only job is to regulate banks bothered to do so. They got paid as though they did their jobs, but under both democrat and republican presidents, they failed again and again to do anything but demand cost of living increases and job security. They never raised a finger about no-doc loans, or zero down loans, or home equity abuses — if anything the regulators encouraged more and more debt until consumers couldn’t afford any more.
The media told the gullible public that this was 100% “the banksters” fault. Not saying the bankers were without blame, but any honest assessment that doesn’t mention the problem was caused by failed government policies is simply misinformed.
The US government caused the mortgage mess, and some (not all) unscrupulous bankers took advantage of the US government’s corruption. The public screamed at bankers for taking advantage, but never held their corrupt government to task for causing the collapse in the first place.
So we got the government we deserved. Corrupt to the core.
Ahhh yes. The Clinton legacy continues. Not that Cox wasn’t complicit, or GS, or ‘The Maestro’ or Congress, or Bwawney Fwank, or the DNC, or the RNC, or the British Royal family, or the BOE, or the (enter your candidates here)
All designed to turn all peoples into serfs, TGU’s (tax generation units), and financial Soilent Green.
Oh no! Tell me it isn’t true. What next, the Fed buying trillions of dollars worth of unsalable crap from banks to keep the elites solvent?
Oops – I gotta take this call from a hookah smoking caterpillar.
People in High Office Lying and Escaping Prosecution = Business as Usual. I would be Shocked into Disbelief and have to be hospitalized for life in the Shock Trauma Ward if Donald Trump, Crude Oil Tillerson, War Nut McCain, the Media Propaganda Whores, USA Intell, et al. actually said “We do not know for sure what happened in Syria and will not know until we investigate and gather the facts.” Enjoy and savor the LIBOR scandals, as these may be looked back upon as the Good Old Days before the swamp went nuclear.
Oh no! Tell me it isn’t true. What next? The fed buying trillions of dollars worth of unsalable crap from banks to keep the elites elite? Oh yeah that’s old news
Excuse me while I take this call from a hookah smoking caterpillar
Wouldnt worry about LiBor and necessary fire breaks from 2008.
This is now and the links are in plain sight. Forces are at work to make their ideas/plans ocme to fruitiuion no matter what the masses want.
https://www.thesun.co.uk/wp-content/uploads/2017/02/tp-composite-obama-and-branson.jpg?strip=all&w=750&h=500&crop=1
https://twitter.com/A_Liberty_Rebel/status/851880570149892096/photo/1
How many people have boycotted the big banks? In addition to boycotting these thugs (see STEP-2 at TwistedLittleThings), why aren’t people boycotting Dr’s (STEP 4), and of course politicians (STEP-1).
All of this BS continues because of brain dead, complacent people, and human nature that tends to not fix things until they’re broken, which means we must first crash and burn before real change is possible.
Talk of giving a thief the house keys.. The synonym for central bankers should be Scoundrels!
they also jailed Tom Hayes who was “manipulating” LIBOR UP (to a more normal level) on those days it was manipulated down by BOE and co…
Given libor and eurobor don’t trade, purposefully setting the rates lower at times of once in a lifetime market stress is understandable. And, I would argue, acceptable.
If you don’t agree, pray tell what rate should be submitted if there is no offer of cash in the market? Infinity? Futures traders and most of the finance industry fret about libor futures price moves from (e.g.) 98.105 to 98.115 … if one day the rates sets at infinity, these futures would of dropped to below zero… utter madness. It would have created many more systemic market events at that time.
So if you don’t think the rate should be infinity when there’s no cash offer, and the fixing definition is that the rate doesn’t need to trade, why get all upset when policy makers make moves to stabilise a systemic index at a once in a lifetime systemic event?
Truth is finance (particularly structured finance) was lazy when it came to indexing.
A “Serious Fraud Office”. Seriously? … The CEO goes free. Good to know it’s the same in UK. Remember MF Global’s Jon Corzine. The name should have been the tip off.
As successive administrations push measurements toward self-serving results, they erode metrics before knowledgeable eyes. Old economists know GDP growth and inflation have lost ties to standards of living. New economists have no frame of reference in which the ties were tighter. LIBOR is just another number.
This moit be abit unpleasant sir ( with your best cockney accent)