Libor scandal goes global

Published on World Socialist Web Site WSWS, by Robert Stevens, August 3, 2012.

The UK Conservative/Liberal Democrat government this week announced the terms of a review into the deepening London Interbank Offered Rate (Libor) crisis. The review was commissioned by Chancellor George Osborne, and will be led by Martin Wheatley, managing director of the Financial Services Authority FSA and chief executive-designate of the Financial Conduct Authority.

Libor is a daily rate covering 10 currencies and is supposed to measure the average cost of short-term loans between major banks. It is set in London by 16 banks and is run by the British Bankers’ Association. The interest rates for tens of trillions of dollars in home mortgages, student loans and credit cards are pegged to Libor, as are derivatives valued at $350 trillion and eurodollar futures worth $564 trillion.

Last month, Barclays Bank was fined a total of £290 million ($455 million) for illegally manipulating its daily Libor submissions between 2005 and 2009.

The Wheatley Review is a damage limitation exercise, proposing only to “undertake a review of the framework for the setting of LIBOR.”

While it is to examine “The potential for alternative rate-setting processes”, the interests of the banks will be prioritized, as its remit will also consider “The financial stability consequences of a move to a new regime and how a transition could be appropriately managed” … //

… The banks could only have engaged in such illegal practises because they were given carte blanche to do so by the political establishment and the so-called banking regulators internationally. As the June report indicting Barclays demonstrated, the UK’s Financial Services Authority was nothing more than a facilitator for whatever practises the bank deemed necessary to make a quick buck. On Monday Osborne told Parliament that the FSA’s criminal powers did not actually extend to Libor, or the trading in derivatives by financial institutions.

With public anger toward the banks growing, the UK’s Serious Fraud Office SFO was forced to acknowledge Monday that it had the powers to act against the banks involved in the rigging of Libor. The SFO said it was “satisfied that existing criminal offences are capable of covering conduct in relation to the alleged manipulation of LIBOR and related interest rates.”

As investigations over Libor continue into many banks, by at least 10 financial regulatory authorities across three continents, it is expected that a number of them will face accusations of criminal activity.

On Sunday RBS’s chief executive Stephen Hester told the Guardian that he expected the bank to soon face allegations relating to Libor and to be hit with a fine. An investigation of the bank by the FSA was underway, he said, adding, “RBS is one of the banks tied up in Libor. We’ll have our day in that particular spotlight as well.”

RBS is deeply implicated in the speculative and criminal activities of the banks that resulted in the 2008 global financial meltdown. In November 2009 the British government completed the world’s largest bank bailout, with the total cost of its takeover of RBS reaching £53.5 billion.

(full text).

Links:

Closing the Divides – First things first, on PolicyFix.ca, by Errol Black, July 27, 2012;

Video: LIBOR FOR DUMMIES 2012, 3.11 min: LIBOR, The London Interbank Offered Rate, is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks …

Video: 【世代党を創る会】第2回経済指標・市場指標分析レポート研究会 , on YouTube, 61.51 min: uploaded by sedaitowotukurukai, on August 2, 2012

Financial Services Authority FSA;

UK: Serious Fraud Office SFO;

Financial Conduct Authority.

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