The Biggest Financial Fraud of All Time 470
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."
Fundamentally... (Score:2, Interesting)
Re:Fundamentally... (Score:5, Informative)
Re:Fundamentally... (Score:4, Informative)
Re:Fundamentally... (Score:5, Insightful)
Re:Fundamentally... (Score:5, Insightful)
"Whenever I see comments about "What is the govt doing?" my immediate response is, try living in a country with no govt and see how it compares (Somalia, Afghanistan etc)."
That's really not very relevant. You might as well tell someone who has a broken arm that they should be grateful, because you know a guy with no legs.
However, that isn't a logical argument at all. The fact that somebody else has it worse does not negate the fact that this person is in severe pain. And the fact that a few people (and comparatively, it is only a few) do not have a government, has little or no bearing on whether our government is doing the right thing. We have some serious problems here at home and comparing our government to no government does not even remotely add anything to the knowledge pool.
Just a suggestion, but next time maybe try arguing about the actual topic at hand, rather than just calling everyone crybabies?
Re:Fundamentally... (Score:4, Interesting)
The fact that somebody else has it worse does not negate the fact that this person is in severe pain.
Well, governmentally speaking, are you really in severe pain, or do you just have a muscle ache that you're bitching about to anyone who you can persuade to (reluctantly) listen to your whining? All-in-all, I don't think that the government is doing such a bad job, given all that it's been tasked with. Can it be run more efficiently? Probably - we can all improve. And there are some pockets of corruption that need to be snipped out. But to suggest that it's some awful out-of-control rabid beast that needs to be put down or that it does absolutely no good goes beyond the pale, to me at least. Try toning down the hyperbole if you actually want a discussion.
Re:Fundamentally... (Score:5, Insightful)
A bank is a place to store wealth and ease my monetary transactions.
Bingo!
And if the banks stuck to doing what they're supposed to do, the two things you describe above, instead of playing around with collateralised debt obligation, derivatives, and nuclear warhead testing for all I know, we wouldn't be in this fucking mess.
Re:Fundamentally... (Score:5, Insightful)
The Fed buying up US bonds (for the past couple of years) has nothing to do with bailing out banks, and everything to do with printing money. And about half the nation thinks that printing money is a great idea - I don't, but hey, democracy, not dictatorship of lgw. For a while they were buying up securities, mortgage-backed stuff that it would be a real stretch to call bonds, but again that was not bailing out individual banks (other parts of the government did that, but not the Fed - the Fed shuts down individual banks, and was shutting down many each week during the downturn), but rather keeping financial infrastructure intact. Again, I don't think that was the right plan, but most experts disagree with me.
It's amazing how fast geeks will go off on a rant about imaginary banking scandals - c'mon slashdotters, don't be that crank with a firm opinion about a deeply technical subject that's he can't be bothered to actually study.
This libor scandal is the real deal. It's as dirty as it gets. The more you know, the more pissed off you will be about it. Instead of saying "oh yeah, well, this other imaginary stuff is worse" try a little research. This is the kind of cheating that makes even a libertarian like me say "maybe we should have some more government oversight of these fundamentally dishonest weasels."
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This libor scandal is the real deal. It's as dirty as it gets. The more you know, the more pissed off you will be about it. Instead of saying "oh yeah, well, this other imaginary stuff is worse" try a little research. This is the kind of cheating that makes even a libertarian like me say "maybe we should have some more government oversight of these fundamentally dishonest weasels."
I think the real question is who decided on using LIBOR in the first place? I'm sure there are other similar self-reported indices out there where the reporting entities can profit from tweaking their numbers (for example, governments' reporting of inflation, GDP, and employment). And I'm sure that the majority of such self-reported indices are indeed tweaked in a way that profits those reporting the numbers. It's just a pretty standard conflict of interest, resolved as these things usually are.
A true li
Re:Fundamentally... (Score:5, Interesting)
So, let's pick apart LIBOR – and I would love to hear your suggestion.
One of the reasons why people favor LIBOR is that it is the freest of the indexes. T-Bills can have technical issues of how and when the government issues the bonds. The Prime Rate (another self reporting index) can be influenced by Fed and Government policy.
LIBOR, or the London Interbank Offer Rate – and I will emphasis London here – is the rate that international banks – outside of US government regulation – will offer to borrow the US dollar. In terms of liberation terms this is about as close as one can get in the modern banking work to a bond index free of government regulation.
So, we have a contract between two parties - British Bankers' Association and the RBoS. RboS promised to provide accurate information and then intentionally lied – they broke that contract.
Why do you think should happen? What structural changes would you suggest? And have the noticed the lawyers lining up clients as they are going to sue the banks? (which nobody is sure how that is going to work – for every client that was shaved a dollar another picked up a dollar – the RGoS shaved points in both directions on short term contracts – it just a logical bloody mess)
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>imaginary banking scandals
And this is where you go off into lunacy.
--
BMO
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You must be new here... outside of nerd culture and computers, the average slashdotter is *precisely* that crank on pretty much every topic.
Re:Fundamentally... (Score:4, Funny)
Q: What goes "Pieces of seven, pieces of seven"?
A: A parroty error.
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Yes it is.
The Fed has been given a tough job and they have been doing an honest job in an open fashion. We may debate their wisdom or their goals but I have not hear a case where they are trying to line their own pockets.
The Libor situation - that just greedy basters manipulating the market for their own pocket book. I am sadden so few people went to jail in the last crisis. I hope that is rectified here.
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The Fed has been given a tough job and they have been doing an honest job in an open fashion.
"Open". Then who was on the other side of these Fed bond purchases? There's no report out there that describes what the Fed buys and who they bought it from.
The Libor situation - that just greedy basters manipulating the market for their own pocket book. I am sadden so few people went to jail in the last crisis. I hope that is rectified here.
Given how LIBOR is set up with banks self-reporting their activities, only a fool would be surprised at what happened. I think the real crime was to rely on these indices so much.
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"Open". Then who was on the other side of these Fed bond purchases? There's no report out there that describes what the Fed buys and who they bought it from.
Here you go:
http://www.ny.frb.org/markets/openmarket.html [frb.org]
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>Can we be sure..... ?
Of course they act to benefit themselves, but they have actual controls, although there are any number of citations to show that they have let a lot slide. Part of the reason for that: derivatives and other forms of obscured trades made a mess of things, and the entire US banking system was on the slide, not just one part of it-- the whole thing.
So they forced mergers, and they still do. Lots of banks were upside down in securities whose worth was unknown, not just questioned. It to
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As a selfish volunteer, I'd wager that a good portion of those goods were donated to profit from the good feelings.
Sure, I volunteer as an audio technician to help my church and spread its message of peace, love, and happiness... but deep down I also love playing on a nice big sound rig that I didn't have to buy.
Re:Be that as it may... (Score:5, Insightful)
All human action can be seen as either selfish or selfless, but in reality it is far more complex than that. To say that greed is the only motivation of human beings is a hugely jaded and pessimistic view of human nature, and no more justified than it's opposite. It is however wonderfully self fulfilling as you can find evidence to support either position everywhere you look as long as you filter out the evidence to the contrary.
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Re:Be that as it may... (Score:5, Insightful)
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I don't think personal profit is limited to money in this instance. Increased social status among your peer group is a form of personal profit that drives people.
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(i'm not a murkin) isn't the Federal Reserve's first duty to the private banks that own it and generating profit for them?
The Fed isn't "owned" by any private banks. It was created by the government with the objective of creating: "Maximum employment, stable prices, and moderate long-term interest rate"
Re:Fundamentally... (Score:4, Interesting)
The LIBOR scandal was a conspiracy among numerous banks to mitigate currency fluctuations and reduce loses (or produce profits) based off holdings in a variety of investments across several country's markets.
And you see a likeness, where?
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Poland had strange way of computing national debt expressed in foreign currencies - it was taking a snapshot of exchange rates from single day during a year. If debt breaches magic threshold, bad things happen (like having to make budget without deficit for next year, which would end up with civil war probably). So what government+central bank did? They have manipulated exchange rate on that particular date to make debt look smaller and avoid the problems. And while you can believe it was for 'people', I'm
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How do you figure that?
In a practical sense, it results in the same outcome for sure ...
But fundamentally? Central banks move rates to drive national macro-economic outcomes whilst LIBOR contributors were contributing to a surveys for individual gain (either as a person or corporation) ... those fundamentals are quite different.
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Take bribes? Collude with others for personal gain?
Yea, sure.
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Umm, no, unless the person to whom you're responding has huge reserves of foreign currency "Quantitative easing" not not benefit him every day. It will eat away at any middle class sized savings with inflationary and exchange pressures over the rest of his lifetime.
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Really, where's all this inflation you speak of? This quantitative easing has been going on for years now and I'm not seeing the inflation. The inflation rate is actually quite low: http://www.tradingeconomics.com/united-states/inflation-cpi [tradingeconomics.com]. And here's a link for how all that "high inflation" is helping the economy: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&ved=0CD0QFjAB&url=http%3A%2F%2Fwww.hlntv.com%2Farticle%2F2012%2F08%2F09%2Flow-inflati [google.com]
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Because piles and piles of "money" created out of thin air won't eventually come home to roost?
Given the CPI is full of holes and has been ever since it was decided to leave out the things probably most important to people, food and energy, I can't say that I have much faith in it. Given the price of gas was about 1.86USD a few years ago and these days flirts with nearly twice that I'd say that's something. Toss in reduced value of the dollar you've got, well clearly not inflation right?
It's cool, bring on
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I was going to say the same thing, because there is a meme out there that the CPI leaves out some key things. Then I did some research, and it appears that the meme is actually a lie.
http://www.bls.gov/dolfaq/bls_ques3.htm [bls.gov]
I suggest you do some research on your own. There are some issues with the CPI. Namely, the exact goods in each category can change. For example, for "meat" they might use "filet migon" one time and then "t-bone steak" the next. They claim that they do that because the CPI reflects co
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I only said "drive national macro-economic outcomes" ... I never said anything about benefiting any individual, middle class or otherwise
But, of course, you can interpret that however you want and turn it into a politic debate on which "macro-economic outcomes" are the right ones if you wish ...
Sheila Bair's quote says it all (Score:5, Informative)
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From the article: "When a company can benefit financially from doing the wrong thing, it generally will,"
FTFY. Hell, I'd even go as far to say, when a person can benefit financially from doing the wrong thing, they generally will. Especially when it comes to legislation and regulation - you need to take a worst-case perspective, same as security for a computer system. A legislative approach that relies on the entities it regulates "doing the right thing" is useless - it regulates the honest, who don't need it, and ignores the dishonest, who do.
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You're not properly accounting for all externalities there - chance of disease, loss of reputation, actual distaste for the act itself, etc. Besides, it's not like banks would expose themselves to million-dollar potential fines for $10 either.
The quote, like most quotes, is an over-simplification. Banks, like companies, like people, make decisions based on the potential payout versus the potential risk by the chance of the risk being actualized, whether those risk/rewards are monetary, reputational, emotion
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Re:Sheila Bair's quote says it all (Score:5, Insightful)
The most worrying thing is that now the banks make deals and pay fines so that the executives can walk away with their bonuses. Instead of going into jail as they should. This means this will happen again.
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The most worrying thing is that now the banks make deals and pay fines so that the executives can walk away with their bonuses. Instead of going into jail as they should. This means this will happen again.
They view it as the cost of doing business. If this shit doesn't change I really fear that we are headed toward a revolution. Not the 'interesting times' that I would prefer to live in.
Re:Sheila Bair's quote says it all (Score:5, Interesting)
Two divisions of UBS plead guilty (Japan, which was where the largest schemes were hatched and one other) and were shut down. RBS stock is down today after news leaked that they will have to plead guilty too. A handful of people from the banks have been criminally charged and Barclays CEO has quit. US investigation is only halfway there, so expect a couple more banks to get into trouble.
What will literally kill the banks is the civil suits, though. Any state fund or pension fund that lost money on a bond sale or interest rate hedge will (and can) sue the banks for fraud, wiping out any profit banks may have had. On the other hand anyone who made money due to the libor shenanigan by accident (like average joes, who have loans/mortgage linked to Libor which was lowered artificially) will keep the profit. That has the potential to destroy the banks.
Once a bank falls, so does its lobbying power and hence it will get worse for them.
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FTA:
“Through all of my experience, what I never contemplated was that there were bankers who would purposely misrepresent facts to banking authorities,” says Alan Greenspan
...oh boy
While this is important news... (Score:3)
how is it nerdy in the /. realm?
Re:While this is important news... (Score:4, Informative)
Put it in the category of stuff that matters, even to Americans --- we just don't know it:
http://www.rollingstone.com/politics/blogs/taibblog/a-huge-break-in-the-libor-banking-investigation-20120628#ixzz2JQ77kD9d [rollingstone.com]
Matt Taibbi is doing some of the most in depth reporting on the recent financial crimes of any reporter anywhere. Don't be put off by the Rolling Stone source. Plus he's funny.
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Here's another Taibbi explanation of why you should care:
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Matt Taibbi produces rather excellent stuff. Too bad the average moron reading Rolling Stone reads his stuff, huffs and puffs for about 10 seconds, then goes back to the matrix.
The level to which people are brain washed is astonishing and I have no trouble understanding how relatively smart sensible germany became what it became during WW2.
People need to believe the junk they do every day, like reporting to work/wage slavery, being in mountains of debt and receiving federal reserve notes for their hard work
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Economics is nerd territory.
OK, then we should be running threads on Astrology [slashdot.org], Dowsing [slashdot.org] and Scientology [slashdot.org].
Oh, Wait.
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Economics can be modeled in a meaningful way using the mathematics of complex systems. Emergent behavior, system evolution and self organization. All of these contribute to useful modeling of monetary systems. Old farts going on about "rational behavior?' Not so much.
Science generally deals with repeatable falsifiable experimentation. Resulting theories tend to have considerable predictive power. Classical economics doesn't do so well with this. This is not to say that it's impossible to create theories tha
Limited Government and Unlimited Companies. (Score:3)
Free markets moderated by Democracy. B 4th July 1776. D Oct 2008. RIP.
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My view is that I'd love to live in a world where the greatest threat comes from business rather than government.
Don't forget, companies are people my friend.
They aren't. Not even in the
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haven't pointed to one case of corporate overstep due to limited government
I think the Cuyahoga River fire and the Union Carbide disaster are perfect examples of corporate overstep due to weak government. (later fixed by the government in the form of the EPA and OSHA)
My view is that I'd love to live in a world where the greatest threat comes from business rather than government.
You already do, you just don't realize it yet
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My view is that I'd love to live in a world where the greatest threat comes from business rather than government.
You already do, you just don't realize it yet
In the 20th Century governments killed some 100 million (at least) people, usually their own. However much damage even the largest corporations have done isn't even on the same planet with that scale. Also, let me know when corporations can declare war and draft people.
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They are treated as such. Splitting semantic hairs over a set legal precept, isn't convincing.
It doesn't have to be convincing, just merely correct. The idea of corporate personhood is widely acknowledged by the courts to be a legal fiction, a mechanism when dealing with corporations for resolving issues (such as who to sue in a breach of contract or whether certain speech is constitutionally protected) that would otherwise be unresolved.
You do. The fact the government directors are a proxy for seasonal corporate interests, doesn't change the nature of the mandates.
In a world with weaker government, there would be no such, so-called "proxies".
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Private company's power rests on pleasing their customers by providing real products that the customers voluntarily choose to buy.. If Starbucks makes a loss this quarter because not enough people want to buy their coffee it doesn't have the power to send armed people to my house and demand that I pay them more money. The government does. I can't believe you don't see the difference.
NB4 too much regulation (Score:5, Insightful)
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.
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For instance, most publicly traded stocks and commodities require certain amounts of public information sharing in standard formats and regular intervals, but newer instruments like mortgage backed securities and credit default swaps do not have such standards or
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Mature markets mean little profit, so there will always be the incentive to create new products and profit off them before the market matures. The more complex the products, the better -- this way, it is more likely you can fleece your victims due to their own ignorance.
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I'm at best Keynsian, but the result that you speak of is often the result of collusion with politicians and a consequence of political influence, and not an economic one. It is important to distinguish between the two.
There have been several case studies conduct on both corrupt corporations and monopolies -- corrupt corporations almost always fail in the long run, either due to mismanagement or because t
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Your argument is fallacious.
Who said Goldman Sachs isn't trustworthy? GS is an audited and publicly traded company with pretty clean books -- at least compared to some of their competitors.
Being unethical is not the same as being corrupt -- there's a difference.
Even so, remember what happened during the credit crunch? The banks lost access to capital markets because the markets did not believe in them. Remember when even GS was trading at 46 or even lower? What do you think people were doing then?
The only r
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Centralized, controlled market (think eastern block before 1989) leads to even worse fraud and monopolies. And somewhere in the middle you have European Union, which tries to do both at same time and has biggest bureaucracy machine ever. And there are as many frauds as in any other system (way the EU funds for development of regions are being manipulated is just mind boggling), maybe just bit less monopolies. And carrots are now fruits, instead of vegetables, due to a lobbing from one carrot-jam producing c
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Actually, the economic state of the US has been very stable since the regulations that were passed as a result of the "Great Depression" (like Glass-Steagall). Yes, we had some recessions but they were very minor by comparison to what came before it. The US used to be a hot-bed of panics, depressions, and recessions prior to these new regulations. We were all doing quite well until the late 90's when a lot of deregulation took place like the introduction of CDSs and passing the GLBA (which basically kill
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But in this case it was not the US markets at play ... but I do tend to agree with the general point
However, I think the bigger problem is asymmetric risk/reward these markets provide to the individuals vs the corporations. For the most part, these guys are playing with other people's money and a win results in big bonuses, while a loss really has limited consequences to the individual - it really is set up to encourage individuals to push the boundaries.
It's really the same lesson as Lance Armstrong ... do
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It's entirely possible for an industry to be both over-regulated and under-regulated at the same time.
s/6 years/40 years/ (Score:2)
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*.
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The USA has a 140 year history of regular banking panics and collapses, inspite of the institution of regulations.
You say in spite, I say because of.
The industry is over-regulated - it's regulated in favour of the industry. If you want to see a free-market solution, then stop propping them up with tax dollars, stop letting them use LLCs to avoid personal responsibility for their actions, and hang a bunch of them out to dry.
The problem is, the graft has been going on so long now that letting that happen will be extremely painful.
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Since when do banks have to be corrupt for-profit industries that, as Matt Taibbi said in 2010 in describing Goldman Sachs
Why this pisses me off... (Score:5, Interesting)
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Oh stop. The only reason Scotland was able to punch above it's weight was Whiskey.
35 years in jail? (Score:5, Interesting)
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?
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And with the legal system how it is, only the rich can afford to
Why... (Score:2)
Why should we believe in long-term growth? (Score:2)
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.
Missing Information (Score:3)
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.
Re:Missing Information (Score:4, Interesting)
That's true, to some extent. However...
The money to pay everyone who reaped enormous profits from this scheme -- those with inside information and/or influence, and to a lesser degree the derivatives traders who didn't have inside information, but profited from the resulting market volatility -- had to come from somewhere. It's essentially a hidden tax on everybody else, with the dishonest traders being the taxing authority!
Dont worry! (Score:2)
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.
Comment removed (Score:3, Interesting)
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Lots of them online (Score:4, Insightful)
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.
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You may not be aware, but in 1933, the president signed an order requiring every citizen to bring their gold to the US federal reserve, in exchange for $20 per ounce. If you wanted to keep it, you couldn't, that was the law. After that, the money was immediately devalued to $35 an ounce for gold. Everyone who turned in their gold immediately lost $15 to inflation.
Bad ideas like this, and like the Smoot-Tawley act, are why economists say government action extended the grea
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If you are going for a crime, go for one which was contemporaneously labeled so - this one was called "crime of 73" .
Huh... (Score:2)
Old News (Score:2)
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 wil
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http://en.wikipedia.org/wiki/First_Bank_of_the_United_States [wikipedia.org]
You'd think they would know what's constitutional, since they wrote it.
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Lots of people were opposed to it including Jefferson and Madison. Both claimed it was unconstitutional.
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They would include it in the constitution if they wanted it. It's kind of a big thing to forget to mention, don't you think?
Re:Biggest financial fraud? (Score:5, Funny)
He's a libertarian. You don't think he's actually read the Constitution do you?
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Congress has the power to create money. No question about it. Article 1 Section 8. There is no particular reason they can't delegate that power to whoever they want.
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In which article and section exactly does it say that the Congress has the power to create a central bank? Back then "creating money" meant real money, backed by gold or silver. It is irrational to believe that founders would have wanted to see a private unsupervised agency printing arbitrary quantities of paper and calling it money.
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I can summarize in two words: Management cock-up.
How do you figure that? The profit that was made(stolen), by individuals and institutions will never be repaid. There will be a trial and a few players, probably one big one - someone who made hundreds of millions - and a few bit-players will go to jail for a few year. Most will get off free. There'll be talk of major regulation but what will happen is this particular loophole will be closed - nothing fundamental.
A brilliant business plan, ready to be dusted off, slightly revised and reused in abou
And the Goverment too (Score:2)
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.
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Re:I don't understand... (Score:4, Informative)
Each bank gives their answer, none are discarded as outliers, and the figures are averaged
Rubbish ... no-one would be THAT stupid ...
It is the average of the middle 10 out of 18 responses, with the upper and lower 4 eliminated.
So you need AT LEAST 5 out of 18 banks manipulating in a single direction to have any impact AND you need an asymmetric level of manipulation (low and high) so that the competing manipulations are not averaged out.
Re:I don't understand... (Score:5, Informative)
LIBOR is the rate that banks are supposed lend to each other, As a bond market index it is one of the biggest. This has replaced the old “prime rate” index that was published in the Wall Street Journal. Most floating interest rates are tied to this index.
The index is calculated by a person calling up the banks and asking them what rate they could borrow money.
On the plus side, because it is an opinion poll, it is not distorted by temporary technical issues that can affect the price of U.S. Treasuries.
On the down side, it is an opinion poll and people can lie though their teeth, which is what was done here.
Some of the lying was reporting a lower rate, making the bank look stronger then it was. Some of the lying was to nudge the rate slightly up/down so option contracts would end up in/out of the money. A small difference (less then .1%) could cause an option contract to be worth millions or nothing.
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give a man a pistol and he can rob a bank, give a man a bank and he can rob the world
Re: (Score:3)
Paul White was supposed to give an unbiased opinion – LIBOR only works if it is an unbiased opinion. There should have been a thick china wall between him and Neil Danziger.
In short, White provided the market with false data (i.e. knowingly lied) to manipulate the market for Danziger gain. That's fraud, insider trading, etc.