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The Biggest Financial Fraud of All Time
An anonymous reader sends this excerpt from an article at Bloomberg giving an inside look at how the Libor scandal happened:
"Every morning, from his desk by the bathroom at the far end of Royal Bank of Scotland Group Plc’s trading floor overlooking London’s Liverpool Street station, Paul White punched a series of numbers into his computer. White, who had joined RBS in 1984, was one of the employees responsible for the firm’s submissions for the London interbank offered rate, or Libor, the global benchmark for more than $300 trillion of contracts from mortgages and student loans to interest-rate swaps. Behind him sat Neil Danziger, a derivatives trader who had worked at the bank since 2002. On the morning of March 27, 2008, Tan Chi Min, Danziger’s boss in Tokyo, told him to make sure the next day’s submission in yen would increase, Bloomberg Markets magazine will report in its March issue. 'We need to bump it way up high, highest among all if possible,' [Tan wrote]. ... Events like those that took place on RBS’s trading floor ... are at the heart of what is emerging as the biggest and longest-running scandal in banking history. ... For years, traders at Deutsche Bank AG, UBS AG, Barclays, RBS and other banks colluded with colleagues responsible for setting the benchmark and their counterparts at other firms to rig the price of money, according to documents obtained by Bloomberg and interviews with two dozen current and former traders, lawyers and regulators. UBS traders went as far as offering bribes to brokers to persuade others to make favorable submissions on their behalf, regulatory filings show."
... this is no different than what Central Banks like the Federal Reserve, do every day.
From the article: âoeWhen a bank can benefit financially from doing the wrong thing, it generally will,â
I can summarize in two words: Management cock-up.
Want a few more? Irresponsible. Reckless. Stupid. This was institutional idiocy and ego, and that's it. No software glitch. No big conspiracy. No market "eating" the profits. Nope. Plain, simple, human stupidity.
#fuckbeta #iamslashdot #dicemustdie
What exactly were they doing,what it affected and how?
I heard something about this on NPR a few months back, and one of the bankers explained why this scandal was so bad. It boiled down to "waah, we didn't make as much money as we thought we would!" Cry me a river!
how is it nerdy in the /. realm?
"I don't know, therefore Aliens" Wafflebox1
Bigger than the Federal Reserve unconstitutionally counterfeiting money for the last 100 years?
Negative moral value of force outweighs the positive value of good intentions.
Free markets moderated by Democracy. B 4th July 1776. D Oct 2008. RIP.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
I just want to post in this thread before all the free marketeers try to talk up the joys of unregulated capitalism.
The USA has a 140 year history of regular banking panics and collapses, inspite of the institution of regulations.
And there are those who would still insist that the industry is over regulated, in the face of flagrant and widespread fraud during the last 6 years.
"Free" markets do not lead to competition.
They consistently and repeatedly lead to fraud and monopolies.
[Fuck Beta]
o0t!
You've just got penis envy because you got screwed.
Seastead this.
and that price can be manipulated, you know, there's something fundamentally wrong with the world we live in.
...people, it would seem, are quite happy to cheat when given direct incentives to do so.
Paul White's job at Royal Bank was to submit the lending/interest rate for libor . Neil Danziger was a derivatives trader who worked in the same room as Mr White. Mr Danziger's boss, Tan Chi Min, wanted his employee to raise the rate the Royal Bank submitted for libor
What does this all mean? Is this saying that Danziger persuaded White to submit a higher rate? (using beer and hookers?)
Also, it states that Mr White "was one of the employees responsible for the firm's submissions for the London interbank offered rate". In a normal situation at the bank, Who usually gave Mr White the rate for submission to libor... the ghost of Christmas past?
I'm Scottish, and while I was growing up RBOS had a branch in every Main Street in Scotland. They had a history hundreds of years old of being a solid reputable institution with a high degree of social responsibility and integrity that ensured that in the global finance world, my small country of 5 million people could punch above its weight. The word Scotland was synonymous with prudence and fiscal excellence and businesses such as RBOS were large profitable concerns employing many thousands of my fellow countrymen. The actions of individuals such as these have dragged the good name of my country into the dirt. Part of the collateral damage is that many blameless employees of the bank have lost their livelihoods, and the damage done to reputations will take generations to expunge. But what really pisses me off is that RBOS have the gall to hijack Flower of Scotland, the semi official Scottish National Anthem on one of their radio adverts. After all the damage that's been done they try to appeal to our patriotism (apparently they sponsor the 6 nations rugby competition ). Sorry but in RBOS' s case I feel anything but proud and patriotic.
So, which one of them is going to be threatened with charges up to 35 years in jail in order to squeeze out a plea bargain?
Oliver.
and their counterparts at other firms to rig the price of money
OMG! Who would have imagined that the global banking system is anything but a collection of honest people working hard for the betterment of society??
does this make me think of The Girl with the Dragon Tattoo
Capitalism has got to go.
BTW... stories like this hitting the mainstream media is in part why there is such a push to limit the flow of information. Those who have become corrupted seek to silence the flow of information. While now we are slaves to debt, soon we'll be slaves because we are just plain ignorant of the world around us.
Don't forget to hug a "hacktivist" today. :)
There's no reason to suppose the economy will somehow keep growing, if the current trend continues of automation throwing everyone out of work. The whole scam of "investing in your future" only works if other people keep buying into it.
The British regulators encouraged the Bank of Scotland to lowball it's LIBOR figures. That made the bank look stronger then it was, preventing a run. That was a sad, sad day.
And then walk away while they die slowly, in great pain.
It's the least we can do for those who would suck the blood of
hard-working people who trusted them.
This article is missing a very important point. A lot of the LIBOR manipulation was done to artificially LOWER the rate for trading purposes or to make a bank look stronger than it actually was.
This lower rate benefited borrowers, just as much as the higher rate hurt them. It depends in detail what kind of loan was involved.
Some municipalities are actually suing based on the idea that they received artificially low interest rates on their bonds because of LIBOR manipulation.
The fascists have been attacking for longer than that.
Money is just a tool for the fascists.
It is *ALL* about control of society.
There be cylons there. They don't care about *you*.
You are being MICROattacked, from various angles, in a SOFT manner.
No one in the financial sector will get any jail time. We can't have any of that. Sure, if you steal a car you can get 10 years but if you rip of billions, it's no big whup.
Are agnostics skeptical of unicorns too?
When it comes to fraud on a massive scale, this doesn't even come close to the theft of the people's gold by the government and the banks when FDR decided to renege on the promise to redeem US dollars for specie.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
Thanks for your comment, now I understand why Scrooge is Scottish. :)
He was my favorite character growing up.
People with money, power, and lax oversight behaving badly. Who could've seen that coming?
This was especially important to the 2008 crisis.
If you're so scared of the banks and the banking system then keep your money in your mattress. Otherwise, STFU and be glad they let you open a chequing account.
Fucking Americans.
The free market will fix this.
*sips Free Market Kool-Aid*
People will stop doing business with those banks that cheated and they'll go out of business.
*another sip*
And competition will arise that will do an honest job.
*another sip*
And there's no need for government regulation.
*chokes on vomit*
Furthermore, nobody will be prosecuted.
We live in a time where justice is by the rule of men, arbitrary and opportunistic.
As long as this continues:
There will be no peace.
There will be no peace of mind.
There will only be, can only be a human race left in pieces.
People need to break up this monstrosity in the west of globalization and realize what it is doing to your communities, children and culture.
If people do not wake up and take back control of their own futures, these psychopaths we have as leaders will define a future for you and it will be more of the same: Poverty, Homelessness, More Banker Looting of your sons or daughters future and now all out war on the African continent.
You people will either wake up, or the species will cease to be.
-Hack
Got Geometrodynamics? Awe, too hard to figure out? Too bad.
Clinton made the banks loan money to poor people for mortgages. The banks said how much will you lend us to do that? He said 33 times your capital. Twenty years later the banks had lent out all that money and asked Obama if they could lend 66 times their capital. He balked, so they said we're broke and owe the government 16 trillion, when do we go bankrupt. Obama said I'll bail you out and buy the mortgages at face value. So each year he buys up half a trillion worth of mortgages on buildings which have been stripped of their siding, plumbing, wiring etc. and will do so for the next 30 years (with printed money).
"It's wrong to create a mortgage-backed security filled with loans you know are going to fail so that you can sell it to a client who isn't aware that you sabotaged it by intentionally picking the misleadingly rated loans most likely to be defaulted upon." -- Conor Friedersdorf.
I used to work in RBS in Tokyo in the late 2000s (I was a support staff though, not a trader).
Yes, there were frauds happening there. One day my boss tells me to engage in such frauds. I refused, and went immediately to my compliance officer and reported it and made a complaint to the FSA (Japan's SEC).
The result was that I was removed from my job a week later by RBS management, and then summarily dismissed for 'poor performance'. I was told that what I saw was all my 'imagination' and had nothing to do with removal from my job after making the complaint a week earlier. I reported it to London head office,and to Stephen Hester (the CEO) himself too, to no avail.
After the dismissal, I took it to court, where long story short, I got told by the judge (in Japan) that it would be better for me to take a small amount of money from RBS now, withdraw my complaint to the FSA, drop the issue, resign and never discuss the issue. Otherwise, I would likely 'lose the case'. I felt that was corruption, so I refused. I lost the case and got dismissed. It ended up never getting settled..
Several months later, the Japan FSA contacts me, asks me for more evidence, and tells me that everything I said was true.. turns out I wasn't imagining it I guess.
And now...the biggest fraud ever..!
The corruption goes wide and deep folks..its everywhere!..
Despite this being the largest systematic fraud in human history, not a single person involved will be executed. Not a single one will be sent to prison. Perhaps a designated sword-faller will be charged with something... but there will be no fines of any actual import, no laws passed that mandate harsh punishments in the future, in short no meaningful action of any kind.
Well ain't I psychic.
jump you fuckers
There is a substantial gold-worshiping cult online that thinks that it is something magical that solves any and all currency and banking woes. I guess none of them have studied enough history to know about the great depression or what backed the currency at the time.
The Federal Reserve is a privately owned bank that prints dollars, and 'lend' it to the Federal Government at a good rate if interest. The Federal Government taxes you to pay back the interest on the 'loan'.
"Who Owns The Federal Reserve?"
If you borrow or lend money at a variable interest rate, and that interest rate is based off a figure your lender or borrower pulls out of a thin air, good luck to you:-)
Now let's have two minutes of hate against these awful banksters who manipulate(!) LIBOR.
Comment removed based on user account deletion
A Republican lies
I know some people are morally against capital punishment, but if the penalty for theft of >$1 million was a capital offense, it would happen a lot less.
-Styopa
Only hours or minutes left in the life of Paul White, Tan Chi Min, Neil Danziger and many other not named here but known.
"Careful with that Ax junior."
as are all the other *BOR's. They are not based on actual trading. They are meant to be a self-estimate of where a bank can borrow funds from other banks. That the derivatives market, beginning in the 80s, latched onto LIBOR as a mechanism to settle vanilla interest rate and cross-currency swaps was unfortunate but could have been changed at any time if enough market participants felt compelled to do so. Bill rates, for example, might have been used.
Keep in mind too that in all this bellyaching and tear jerking over a fantasy rate being pushed a few basis points one way or another is that the parties most affected are the banks themselves. And please don't cry me a river about Joe Blow's ARM resetting as the rates were not uniformly moved higher and the movement was tiny, even in the worst case amounting to cups of coffee for the typical mortgage.
No, this isn't the biggest financial fraud ever.
The banking/money creation system is the biggest financial fraud ever.
This story is more akin to a counterfeiter getting caught stealing from the till.
I can guarantee that the banks will have made billions more money from defrauding honest people than they will pay out in "fines". But is the term fines really applicable? When you commit a crime on a global scale, that a regular person would get 20 or more years in prison for, and you get off with paying a fine that doesn't even amount to the profit from your fraud. Isn't that really more like bribery?
The U. S. program calles Social Security. Our S. S. taxes don't go into a trust fund to collect interest. Instead, they become part of the general budget and get spent immediately.
The Federal Reserve is a privately owned bank that prints dollars, and 'lend' it to the Treasury. The Treasury prints bonds and gives them to the Federal Reserve as collateral. This 'wealth' is essentially worthless, which is why the banks have to keep on issuing loans that ultimately end up with the consumers as debt.
"Who Owns The Federal Reserve?"
Barclays paid a 290 million pound ($464 million) fine in June to settle with regulators, and three top executives, including CEO Robert Diamond, departed.
Charges are pending? Just askin'.
"Tongue tied and twisted, just an Earth bound misfit
No mention of Bush or Republicans. Story must be false.
The Biggest Financial Fraud of All Time (that we know of)
It says something about the legal systems that these banks are just getting fined a fixed sum. Why isn't it that they get fined for an estimation of the profits they made from this behaviour (as would other criminals losing the proceeds of crime) plus say, 10% - 30% for punitive damages? Does anyone know estimates of how much they profited monetarily from this in comparison to the fines?
Not a true analogy (which isn't to say that the Narodowy Bank Polski - Polish National Bank - is 100% unpoliticised, nor to say that it, like other central banks, is no stranger to interesting accounting practices). Central Banks - all central banks - have the mandate to influence FX rates by regulating the money supply, buying/selling bond reserves, etc.
Let's not forget the Swiss National Bank intervention a year or so ago is the main reason why many Polish (and Hungarian) homeowners haven't defaulted on their CHF-denominated mortgages. If the market didn't want to buy/sell at the prices bid/offered by the NBP, then no transaction would take place at that rate and the price wouldn't move.
That's a world away from *lying* about your interbank lending rate (ie, misreporting the actual trades that took place) to give signals about your credit risk (higher rate can be indicative of unease about the counterparty's ability to repay) or ensure the cashflows on interest-rate swaps you've written go your way on the sample date.
One point to make about Poland that you have to say is an improvement on other older financial systems: the 1997 Constitution (yes, Constitution - not some minor statute) dictates that national debt shall not exceed 60% of GDP. Leszek Balcerowicz (the then architect of the new Polish economy) showed admirable foresight on that one ...
...and all I see in the comments here are complaints about the Fed in the US.
I know /. is US-centric, but, really, is the only interest here that of fighting a hundred-year-old American constitutional battle? This is WORLD finance, not some minor disagreement between US states and the US government...
All other media coverage of White and Libor centers around the scandal itself and does not mention that his desk was near the bathroom at all.
In this article his proximity to the bathroom is mentioned briefly in the opening paragraph (as it should be!) and has the distinctive flavor of a lead-in -- but the second paragraph goes directly into the topic of interbank offered rate. And then goes on about that. Just like the others.
It is my impression that the sanitizing crew which had done such a fine job of excising all mentions of Whites proximity to the bathroom in the popular press... had skimmed over this article, perhaps removing blatantly direct sections about this topic that the author placed there to divert their attention.
But Vaughan and Finch have one-upped their journalistic colleagues with a teaser in the very first sentence where the censors would least expect to see it. Be sure to archive copies of this article, let us now see if that bathroom proximity reference will soon disappear. Or expect some in-your-face lame correction (we meant boardroom but of course!) as damage control.
Now that the spell has been broken and the truth is in plain sight I hope to see the investigation of Libor head for the bathroom... where it belongs.
<blink>down the rabbit hole</blink>
The "prime rate" index provided mark-to-market valuation whereas the LIBOR was mark-to-model at best. Accountants know the scope of shenanigans enabled by mark-to-model and they all happened during the LIBOR scandal.
Unsurprisingly Bernanke and FASB were lobbying against mark-to-market during 2008 and 2009 because things were too turbulent to use actual prices when evaluating the health of a bank. With Bernanke encouraging this its little surprise the in-bank folks did what he wanted.
It isn't fraud. The rate that banks report for the purposes of calculating LIBOR is NON-BINDING INFORMATION. You can't commit fraud if thinks you say don't create or claim to fulfill any obligations. The reason the whole thing works is because both buyers and sellers are assumed to occasionally exaggerate the numbers. So the average number is actually a very accurate representation of where the rate stands.
Any guest worker system is indistinguishable from indentured servitude.
A true libertarian would understand those structural problems rather than attempt to slap the bandaid of "government oversight" on top.
Ahh, the No True Scotsman argument. Are you really going to trot out that logical fallacy? Understanding structural problems and seeking to solve them has nothing to do with being (or not being) a libertarian. In fact one could argue that hands-off libertarian style thinking is what caused this problem with LIBOR in the first place. No one was keeping an eye on the banks and so they behaved exactly how one would predict they would when no one was watching. While I'm certainly no fan of needless government oversight, there is a reason it exists and sometimes it is the least worst option.
Reducing the conflicts of interest are a more effective solution than having corrupt government agencies watch harder.
I don't think anyone will disagree that setting the right incentives is the most ideal solution. There is an old saying "show me my incentives and I'll tell you how I'm going to behave". Incentives are something economists focus heavily on. Problem is that setting incentives is often incredibly difficult (often impossible) to do well even if there are no conflicts of interest present in the people setting them.
Let me give an example. Let's say you own a company and you want to motivate your sales staff to go out and sell. How do you compensate them? If you pay a salary they likely will not work as hard as on commission. If they are on commission what do you base the commission on? Base it on sales and they will have no reason to care about profitability. Base it on profits and they'll try to cherry pick. If there is no sunset provision on commissions they may try to build up a few clients and then not worry about getting new ones. Basically any incentive structure you can come up with, I can tell you how people will game it. It is REALLY hard to come up with a system that provides the right incentives and eliminates motivation to game the system
Who said Goldman Sachs isn't trustworthy?
Anyone who has ever worked in or near the securities industry. GS is a company that is respected because they are smart but not because anyone thinks they are trustworthy. This is a company that has bet against their own clients. They sold clients securities and then shorted those same securities that they had good reason to believe were going to fail. That's pretty much the definition of conflict of interest.
GS is an audited and publicly traded company with pretty clean books -- at least compared to some of their competitors.
I'm a certified accountant and let me let you in on a little secret. "Clean books" means nothing. Enron had "clean" books even while they were screwing people out of billions. It is unbelievably easy to manipulate financial statements and do so without breaking any laws. Auditing is a good thing but do not ever overestimate its value. Audits are not perfect and never will be.
Furthermore if you look at GS financial statements (and I have) I defy you to tell me how exactly they are making money. They are pretty much inscrutable even to people who examine financial statements for a living. I have Masters degrees in both engineering and finance and I can't make heads or tails of their financial statements. Neither can anyone else. Let me assure you that that is no accident either. There is no large banking concern on the planet that you can read their financial statements and really, truly understand what they are doing.
All of this could have been avoided if we changed out monetary system to one that doesn't rely on these parasitic banks not only controlling the quantity of currency available, but profiting on it through the age old practice of usury. All of our money is based on debt which directly profits the banks. Sovereign countries should control their currencies, not a private industry with a huge conflict of interest. Money should be created by spending it into existence to pay for public goods, services, and infrastructure, not created as debt owed to banks who then collect interest on it. The whole system is rigged in their favor and history has shown time and time again that they will manipulate entire countries' economies simply to increase their own personal profits. The fact that we continue to tolerate this monetary system blows my mind. Right now, banks rule countries through their economies, which is monumentally fucked up.
Question everything
I think I'm in the wrong place; I wanted slashdot, news for nerds, stuff that matters. Seems I got to slashcash, news for MBAs, stuff that mutters. Uh, guys, what's slashdot's new URL? If indeed this is slashdot, HUH? WTF happened? How did this non-nerd news get posted?
*scratches head, shakes it, looks for a new nerd site without all these goddamned money worshipers in it*
This my friends is how capitol works. It's not about being fair , just or reasonable. Its about getting what you can. Anyone who is shocked by these revelations I suggest you try and spend some time with the people who work in these institutions. Not the technical guys but the young people looking to fund another house, a better house or a better school for their children. The amounts of money to be made are so large (more than the majority of the world earn in a lifetime) that they will balance that against the 'morality' of what they do. What would you decide to do in their position?
Flame away :)
And about half the nation thinks that printing money is a great idea - I don't, but hey, democracy, not dictatorship of lgw
Nobody thinks printing money is a good idea, including Bernake.
/must/ be repaid.
/should/ be taking on debt right now, but that is no the same as printing money.
The Fed has increased the amount of money to balance to books, (and the Dems have increased the capital requirements of banks), but none of that money has entered general circulation, because the Fed has set up incentive structures for the banks to park their money with: us treasury bonds.
Those bonds
The price of creating money in this way is the interest on the debt.
Printing money would be simply stupid. Nobody wants to do that.
Basically every economist (with a few notable exceptions) thinks that the US government
So the government is more competent then you are on economic matters. Who would have thunk it.
Cue libertarian and economically incoherent rant.
Like all pain, suffering is a signal that something isn't right
The Fed Reserve bank is complicate in the on-going money laundering schemes, along with the major private institutions, that have been going on for the last 20 or so years, washing clean the money from drug cartels and terrorists networks...
How do you know that? Did you read a collection of paranoid websites put together by equally uninformed people? Know what the cognitive bubble is? Just how much do you really know about how the Fed works? Could you give a 50min lecture on it to people who work there, without having them alternatively roll their eyes and roll on the floor laughing.
Stop fooling yourself.
Set irony metre to full.
Like all pain, suffering is a signal that something isn't right
And so, for the third time in 25 years or so, we see again just how well deregulation works, and cutting the number of auditors, and reducing their power. This is the kind of Freedom (tm) that business needs.
Btw, if you're posting here, I'd give a 99.999% chance that you're not a millionaire; therefore, if you continue thinking there should be less regulation, there's a fine old word for you: sucker.
mark
I'm an American, I don't believe there are any conspiracies! I ridicule any conspiracy theorists and their nutty tin foil hat stories!
The only legitimate conspiracies are the ones on Fox News such as the massive coverup of Obama's birth certificate! If you want Americans to even begin to grasp what is going on NEVER use the word conspiracy - even Fox News avoids using that word, unless they have something they want to disparage (even if factual, from scientists... even then, with global warming they tended to avoid literally saying the word "conspiracy" in talking about the vast conspiracy among scientists to push Geenpeace's agenda to backdoor communism into our lives!) ;-)
I find it interesting to see how this will play out. While people might gripe about lost interest revenue, a large swath of non-financial entities benefited from this manipulation.
Consider this: nearly all commercial loans that are variable rate are tied to one-month LIBOR as their base index. What this means is that while rates were manipulated lower to help with illicit trading, the average person with a LIBOR loan benefited from paying less interest expense.
no expect to be justified by the laws of men ~ Bob Marley
Yes, it was a tragedy that the rich (the only ones able to stockpile gold for obvious reasons) took one for the team for one time in history. Austerity is for the little people!
And more generally educated on money. In particular, I understand that it is a theoretical construct for facilitating trade. That physical objects have and continue to be used for it is of no consequence. The objects aren't what make money money.
Sure, that's one opinion. But you seem to have only a cartoon caricature understandiong of the opposing view. If you can't argue coherently and logically for both sides of an issue, you don't understand the issue.
Socialism: a lie told by totalitarians and believed by fools.
If you can't argue coherently and logically for both sides of an issue, you don't understand the issue.
The truth isn't always in-between.
I'm a bit of a Hayek fan.
AKA: The Big Show