Friday, June 29, 2012

Why the global political class lies in fear of the LIBOR scandal


EXCLUSIVE: Why the global political class lies in fear of the LIBOR scandal

Is Bob Diamond being forced to apologise for something hatched way above his level?

A couple of Torygraph journalists were exchanging tweets this morning about Bob Diamond's cockup being "only the start" of the LIBOR scandal. It could well be that the time has come for some noisy skeletons to walk out of the Westminster cupboard.
An international investigation into the alleged 2008 Libor manipulation scandal has been necessary pretty much right from the start. Without wishing to seem too obvious here, that's because what happened was internationally arranged. On April 12th 2011, The Slog reported that Vienna-based asset management concern FTC Capital GmbH – and two funds it operates in Luxembourg and Gibraltar – announced their intention to sue twelve major investment banks. FTC accused the banks of conspiring to artificially depress Libor, and limit trade in Libor-based derivatives from 2006 to 2009. The defendants as listed in the suit were Bank of America Corp, Barclays Plc, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co, Lloyds Banking Group Plc, Norinchukin Bank, Royal Bank of Scotland Group Plc, UBS AG and WestLB AG.
Since then, federal agencies in the US have become intimately involved in what was soon being described as 'a criminal investigation'. And quickly thereafter, French Establishment paper Le Figaro claimed ‘the [British] authorities suspect that key traders [at Barcap] used [UK] Treasury information via the main branch dealing with the UK Treasury’. At the time, the Barcap investment division was headed by the Barclays CEO today, Bob Diamond.
However, much as I would love to lump every last kilo of smelly silage on the Diamond Geezer for this, it looks like even he was, on this occasion, merely a cog in a much bigger wheel. By time 2011 got under way, the LIBOR manipulation scam was being investigated by every major bourse regulatory body on the planet. And it may well be that the Treasury was willingly providing Barcap with the data it craved as a means of survival.
During the 2008 financial crisis, overnight LIBOR spiked – a sure sign banks were having trouble borrowing money, and didn't trust each other: there is, after all, no honour among thieves. But the markets heaved a sigh of relief later on, when its rates began to drop. Even the ever pro-Establishment but generally trustworthy Wall Street Journal had doubts about the veracity of that fall at the time. The 2011 FTC suit against umpteen banks around the globe raised the possibility that LIBOR's decline was simple, coordinated market manipulation: a naked attempt to falsify lending rates in order to save the banks from ruin - and (very much a poor second) boost liquidity in order to help the struggling Western economies.
In short, that it must have been a concerted effort involving several central banks.
Following this morning's Slogpost, this email content from an as yet uncorroborated but well-connected source:
'During 2008/9 I worked at a major investment bank which was advising the office of the PM [Gordon Brown] with regard to the developing banking crisis. I was told that No.10 had been calling the UK banks and demanding that they manipulate LIBOR down, as his economics department had determined that if it rose too much it would trigger a recession and he was looking at re-election."
As ever with McCavity, his concerns (if that account is true) were entirely driven by the tumescent dick in his brain. At the time, however, the British Bankers' Association (BBA) denied any of it, stating that the BBA 'observes rigorous standards in our scrutiny and governance of the Libor mechanism, and works with the industry to ensure their continued full confidence in one of its most accurate and reliable benchmarks.'
But in the four years since, the world at large has grown up bigtime about this kind of denial bollocks: it's heard how the Met Police 'has nothing to hide', how Newscorp 'has a zero tolerance policy towards hacking phones', and how Piers Morgan can't remember anything about hacking Heather Mills-McCartney's phone at all. It's listened to serial liar Tony Blair tell Parliament he had given them 'the balanced case' for war in Iraq, how Gordon Brown 'hand on heart never contemplated an election in 2008', and more recently how Jeremy *unt had given 'full and frank disclosure' to Parliament in relation to his communications about the Newscorp bid for BSkyB.
FTC Capital's original 2011 suit alleged that the 12 banks "colluded to suppress LIBOR to make them appear healthier than they were, and take advantage of trading opportunities not available to outside investors......During the most significant financial crisis since the Great Depression, U.S. dollar LIBOR rates submitted by contributor banks did not vary markedly, nor did they increase or decrease sharply. In a market not artificially suppressed, LIBOR rates should have increased significantly during this period. In addition, because different banks were experiencing different levels of severe stress, the banks should have been receiving markedly different borrowing rates.”
OK, now here's another comment, this time from a former senior Treasury officer, since retired but well known to me for over thirty years:
"There's no question that on taking office, Cameron and Clegg were briefed fully about [Brown's intervention]. He'd been screaming at every banker he could find, and not least Mervyn King. Cameron at first saw this as the way to bury Brown and Labour forever, but the people in Threadneedle Street quickly disabused the Coalition of there being any wisdom in that approach".
Now, it seems to me highly unlikely that, without collusion, a senior investment banker and a former Treasury mandarin would come up with a similar sequence of events, and the better informed of the two (undoubtedly the latter Treasury source) would add the global dimension purely on a whim. That latter is a source I knew as a close client in a previous existence, and with whom I've regularly worked since 2006.
Why was the ConDemned Coalition warned off destroying the last vestiges of Brown's reputation for honesty and probity? The answer probably lies as much in the Foreign Office as it does in the Treasury.
But for me, the case raises two massive questions:
1. Where did the LIBOR manipulation scam start?
2. Is this why Bob Diamond feels able to tell David Cameron and George Osborne to **** off with such impunity?
Stay tuned: this is a developing story.

No comments: