The System Itself Is Corrupt: The Case of LIBOR

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Most cases of financial fraud are presented to the public as cases of individual crimes, committed by individuals or small groups of individuals—as corrupt acts by elements within an otherwise honorable system. But every once in a while as case comes along that blows that fiction out of the water and reveals that it is the system itself that is corrupt. Rather than rotten apples spoiling the barrel, a rotten barrel is spoiling the apples. The corruption comes from the top.

On June 27, British banking giant Barclays reached an agreement with U.S. and British banking regulators to pay at least $450 million in to resolve charges of manipulation of the London Inter-Bank Offered Rate (LIBOR) and the less significant European Inter-Bank Offered Rate (Euribor—to which the great majority of Spain's mortgages are tied, for example). Barclays will pay at least $200 billion to the CFTC, $160 million to the U.S. Dept. of Justice, and $92.8 million to Britain 's Financial Services Authority. Marcus Agius, the Rothschild in-law and former Lazard banker who chaired Barclays, resigned today. More heads will fall—Barlcays is but the first bank to settle, out of more than 20 banks under investigation.

The LIBOR—controlled by the British Banking Association and the rate at which banks supposedly loan money to each other overnight—is effectively the imperial interest rate, used to set interest rates in transactions all over the world. It serves as a reference rate, with interest rates often quoted as "LIBOR plus a specified percent." LIBOR is used in calculating interest rates on a wide variety of loans—mortgages, credit card loans, student loans, government and corporate bonds—and in the derivatives markets. The Financial Times puts the level of contracts using LIBOR at $360 trillion, and that is probably far too low.

The big international banks make their money largely by skimming from financial flows. The more money that flows through them, the bigger their cut. And when they manipulate the interests rates in their favor, that cut increases. Huge profits can be made by small increases in the skim. To manipulate interest rates in this way requires all the major players to be part of the crime, from bankers to regulators to the so-called "people above suspicion" who steer the system from above. What the LIBOR case shows, then, is that the British Empire's monetary system is a global criminal enterprise, run from the top, which manipulates markets, and lies, cheats and steals from the peoples of the world.

Rather than simply fining individual banks, the U.S. Government should declare the whole system a criminal conspiracy under the RICO statute, and shut down every bank involved. These banks are worse than the mafia, and should closed, with the banking system being reorganized under Glass-Steagall to prevent such corruption in the future and to return banking to its proper role in serving the General Welfare.

See Article.

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Karolina
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Seems to have all the elements of something fraudulent, like a grand Ponzi scheme.

I'm trying to figure out where this fits exactly in the scheme of free enterprise and personal responsibility, and why people who believe that free enterprise without government regulation is possible don't see that this is the sort of mafioso type results that will occur when the powerful people weasel their way into a people's government. (Of course it's never really been a people's government, has it?)

Below I'm quoting from Karl Polanyi's The Great Transformation: Political and Economic Origins of Our Time. In Chapter Nineteen he talks about the relationship between the evolving notion of popular government and the setting up of market economies. In this particular paragraph starting on page 233 he draws out connections between the setting up of systemic controls in the 1700s that would put limits on the degree to which popular government would be able to keep the rich and powerful from developing the necessary power to control the markets. He points to the elevation of property rights as one of the key factors:

Quote Karl Polanyi:

A hundred years later not commercial but industrial property was to be protected, and not against the Crown but against the people. Only by misconception could seventeenth-century meanings be applied to nineteenth-century situations. The separation of powers, which Montesquieu (1748) had meanwhile invented, was now used to separate the people from power over their own economic life. The American Constitution, shaped in a farmer-craftsman’s environment by a leadership forewarned by the English industrial scene, isolated the economic sphere entirely from the jurisdiction of the Constitution, put private property thereby under the highest conceivable protection, and created the only legally grounded market society in the world. In spite of universal suffrage, American voters were powerless against owners.*

Polanyi, Karl (2001-03-28). The Great Transformation: The Political and Economic Origins of Our Time (pp. 233-234). Beacon Press. Kindle Edition.

I am inclined to agree with Polanyi here, given all that I've examined in our global historical evolution up to now. Property rights seem to be the key underlying factor for the sort of potential for systemic corruption you've brought out in your post, Karolina, and perhaps understanding that can help to illustrate why any attempts we make to change it, like by instituting a replacement with a publicly-owned banking system, will be an uphill battle for any popular governing efforts on our part as long as our Constitution contains this seed of elevated private property rights. I think if we look closely we'll find private property rights to be at the heart of all arguments favoring the notion of free enterprise, government deregulation, anti taxation and the like -- that is, at the heart of nearly all of today's major conservative/libertarian issues regarding markets. Just mention something that threatens private property rights and watch the flames erupt. After all, markets are at the center of their politics, and controlling them is at the core of controlling the world.

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.ren
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Apr. 1, 2010 7:50 am

From The Wall Street Journal:

BARCLAYS SHOULD SPLIT INTO TWO
Commentary: CEOs could come from Canada, Australia, S. Africa

July 03, 2012|Michael Lafferty

LONDON (MarketWatch) — Barclays’ troubles and Bob Diamond’s resignation have not come as a surprise to experienced London bank-watchers. They have been brewing for years and came to a head last week when the LIBOR-fixing scandal broke.

It was very clear which bank Sir Mervyn King had at the front of his mind when he called for leadership of an unusually high order and changes to the structure of the industry. He then went on to blast the banks for “excessive levels of compensation, shoddy treatment of customers, deceitful manipulation of one of the most important interest rates and… yet another mis-selling scandal.”

The gloves were clearly off and by the weekend it seemed only a matter of time before Diamond would go. This morning’s splash story in the Financial Times with the headline “Diamond threatens to hit back”at the Bank of England put his demise beyond any doubt. Diamond had resigned before most people had read the FT. Read MarketWatch’s news coverage of Diamond’s resignation from Barclays.

Barclays should immediately split itself into two separate banks with their own, independent CEOs and float each on the stock market as soon as possible. This is the best possible way for the bank to get ahead of recent disastrous events and regain the initiative with the public, politicians, regulators, competitors and markets in general. Ideally, both new CEOs should be recruited from outside Barclays, perhaps from Canada, Australia or South Africa — countries where the reputation of banks has not been damaged in the way it has been in Europe and the U.S.

The worst possible outcome would be to put another investment banker in charge of the unified banking group. This is because the often cut-throat culture and practices of the securities industry (nowadays referred to as investment banking) do not serve society well, are seriously damaging to the service culture of retail banking and have undoubtedly contributed to the host of mis-selling scandals that has plagued banking in the U.K. and many other countries in the past 20 years.

Without doubt, the clients of Barclays and many other banks have suffered great damage from the culture of investment banking as it is practiced within universal banks. The time to rebuild post-Glass-Steagall banking has now arrived. It cannot be done within what Sir John Vickers calls the current under-capitalized, over-leveraged, taxpayer-supported universal banks. It needs to be about structure, ethics, the provision of products and services that benefit society, and the elimination of all forms of corruption, decadence, and greed at the expense of customers.

In due course, stand-alone investment banks will re-emerge. In London, we might even see the return of great names from the past like Warburg, Schroders, Morgan Grenfell and Hambros.

Yes the banksters of London are frightened and walking on eggshells, but still they dare not admit: Glass-Steagall needs to be re-enacted word-for-word to start any kind of calm to this now-global chaos.

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Karolina
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Nov. 3, 2011 7:45 pm

Funny, last week I just read the following article. Very interesting read.

http://pragmaticwitness.com/2012/06/25/ge-capital-bid-rigging-conspiracy...

It detailed a 40 year long conspiracy by various American/European banks to price fix bids on municipal contracts in America. Billions of dollars were stolen in this manner. Of course, only the small bank got in any trouble. JP Morgan, Wachovia, Bank of America, UBS, Lehman Brothers, and Bear Stearns all managed to escape criminal charges.

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JoyceFinnigan
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Jan. 10, 2012 8:40 pm
Quote JoyceFinnigan:It detailed a 40 year long conspiracy by various American/European banks to price fix bids on municipal contracts in America. Billions of dollars were stolen in this manner. Of course, only the small bank got in any trouble. JP Morgan, Wachovia, Bank of America, UBS, Lehman Brothers, and Bear Stearns all managed to escape criminal charges.

Of course they did. They're too big to fail (i.e. oligachical, imperial systems supported by a silent imperial government).

Karolina's picture
Karolina
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Nov. 3, 2011 7:45 pm

PS. I forgot to put in the link, so here it is:

From The Wall Street Journal:

BARCLAYS SHOULD SPLIT INTO TWO

Commentary: CEOs could come from Canada, Australia, S. Africa

July 03, 2012|Michael Lafferty

Karolina's picture
Karolina
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Nov. 3, 2011 7:45 pm
Global Glass-Steagall Response to Eurozone Collapse

Beyond the U.S., the debate over Glass-Steagall is hottest in Britain, where scandals around Barclays Bank and the LIBOR interest rates, have heightened awareness of the issue, not to mention the death-throes eminating from the continent beyond. In the Guardian, financial consultant Terry Smith titles his piece, "Traders are the Ruin of Banking." Not only were the arguments against bank separation always thin, he says, now, as a result of the scandals, they are "unanswerable." "The UK and the U.S. must enact a Glass-Steagall Act (the 1933 banking act passed in the wake of the Great Crash, which separated commercial and investment banking) and separate retail and investment banks. Ringfencing, as proposed by the Vickers commission, will not work."

While managing to never actually mention "Glass-Steagall" by name (the "rope" in the house of the hanged?) the Financial Times writes a defense of separation, by staff writer Johathan Ford. After first cautioning that "It may be too late to push the investment-banking genie back into the bottle," Ford says,."if this is to be tried, a rigid and formal separation between the two halves of the business will need to be reimposed. Sir John Vickers' report on the future of UK banking proposes they have internal firewalls from each other. Something more brutal may be required."

Financial commentator Hamish McRae of the Evening Standard writes, "Banking Collapse Will Bring Caution," in the wake of the LIBOR scandals. "In America the development of combined commercial and investment banking is relatively recent, mostly following the easing of the 1933 Glass-Steagall Act in 1999. The argument for a split in operations has usually been made on the grounds that depositors money — and the explicit or implicit guarantee of governments — should not be risked on casino banking."

Also notable is another well-thought-out argument for G-S by a reader of the Independent: "For sixty years, the Glass-Steagall Act of 1933 in the United States separated commercial banks from investment firms... The liberalisation years of the Reagan and the Thatcher administrations of the 1980s, the repeal in 1999 of the Glass-Steagall Act... removed the protective wall surrounding commercial banks... To protect national saving, Glass-Steagall Act provisions should be reinstated."

Outside the English-speaking world: The LaRouche movement international call for Glass-Steagall was published yesterday on the Brazilian blog run by a group of professors from the University of Sao Paulo, ContrVersia, along with the announcement of the Cheminade-Zepp-LaRouche webcast next Sunday. The Canary Islands internet paper, Noticanarias, today published Lyndon LaRouche's June 29th statement on the collective insanity of world leaders, and two LPAC stories on London's 'Weimarista' drive and Austrian resistance. Last Friday, Noticanarias published Helga Zepp-LaRouche's Introduction to EIR's "There Is Life After the Euro!" report, as well as the Spain' chapter of that report.

See article.

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Karolina
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First Columbia took on their drug lords, now they're taking on their billionaires...why can't we?

America’s billionaires are driving this nation’s poverty epidemic. But it doesn’t have to be that way.

As we speak, working-class Americans are getting screwed over by policies that favor the wealthy elite, and leave everyone else in the dust. As a result, more and more Americans are living in poverty.

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