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."

Fundamentally...

[hawks5999]

... this is no different than what Central Banks like the Federal Reserve, do every day.

Re:Fundamentally...

[MatthiasF]

Central Banks make their targets public, are the sole source provider for their currency, sell the money at public auction and manage the currency for the public's interest.

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?

Why this pisses me off...

[Grumpinuts]

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.

35 years in jail?

[khchung]

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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[account_deleted]

Comment removed based on user account deletion

Re:Missing Information

[Just Brew It!]

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!

Re:Sheila Bair's quote says it all

[quarterbuck]

In this particular case, that has not been possible for the banks
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.

Re:Fundamentally...

[alexander_686]

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)

Re:Fundamentally...

[frank_adrian314159]

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.