Random News Stories

[Mesozoic Mister Nigel]

http://www.rawstory.com/rs/2012/07/02/bachmann-refuses-to-say-if-she-is-being-vetted/

So help me, if Romney picks Bachmann as his running mate...

OH PLEASE YES GOD PLEASE YES YES YES!!!

[Anna Mae Bollocks]

http://www.rawstory.com/rs/2012/07/02/bachmann-refuses-to-say-if-she-is-being-vetted/

So help me, if Romney picks Bachmann as his running mate...

OH PLEASE YES GOD PLEASE YES YES YES!!!

WHAT???

...

...

[Cain]

http://www.bbc.co.uk/news/business-18685040

Satan must be skating to work. It's cold here and Bob Diamond, the barclays CE, has quit.

I assume this kind of thing comes along periodically to make me smile and prove me wrong.

I can live with that in this instance. No apologies, no real remorse. No surprises, it's all about protecting the brand. Cue further outrage and no action when his full severance package is released.

The board made him do it, because Bob Diamond was going crazy and talking about "declaring war" on the Bank of England.

http://ftalphaville.ft.com/blog/2012/07/03/1068841/barclays-pb/

Without doubt, this was the trigger:

Bob Diamond is threatening to reveal potentially embarrassing details about Barclays' dealings with regulators if he comes under fire at a parliamentary hearing on Wednesday over the Libor rate-setting scandal, according to people close to the bank's chief executive.

"If he is attacked, he will fight back," said one person familiar with preparations for the Treasury select committee hearing. Such a confrontational tactic could aggravate the fraught relations between the bank and the authorities after Barclays paid £290m to settle an investigation by UK and US regulators over the bank's involvement in manipulating key interbank lending rates.

There were already overt threats to drag Paul Tucker, a leading contender to take over from Sir Mervyn King as BoE governor, in to the mire by suggesting that his unit somehow condoned fantasy Libor quotations.

But that's not the point. You just don't threaten the Bank. The City of London is not some sort of financial democracy. It is a hierarchy. It is not Capitol Hill; political brawling is prohibited.

So this thing could potentially be even dirtier than it first seemed.

[Deepthroat Chopra]

http://www.rawstory.com/rs/2012/07/02/bachmann-refuses-to-say-if-she-is-being-vetted/

So help me, if Romney picks Bachmann as his running mate...

OH PLEASE YES GOD PLEASE YES YES YES!!!

WHAT???

...

...

Bachmann as VP of the still most powerful place on earth would surely be a sign of endtimes. If not a sign, then perhaps a direct causl link. This doesn't make everyone unhappy.

OR - if you're rooting for Dems, I guess it makes the repubs look even sillier. Give Bachmann enough rope...and there'll be seeming silly quotes from coast coast. However, the above requires some sort of assumption that median intelligence of the American population is somewhere above muskrat.

[Luna]

http://www.dailykos.com/story/2012/07/03/1105758/-Fox-Friends-picks-a-fight-with-Jon-Stewart-This-ll-go-well

Fox and Friends take a direct shot at Jon Stewart.  This is gonna go all awesome.

[Cain]

Will you all just STFU about Bachmann for a minute and look into the LIBOR scandal?

Please?

It's only about 100x more significant to everything than whoever Romney picks as his not-get-assassinated backup plan.

LIBOR rates directly affect a huge percentage of the world's variable-rate investments.  This includes American mortgages and student loans.  They're also used as a measure of economic confidence, since they have to do with inter-bank loaning.  If LIBOR rates are high, it means confidence is low. 

After the 2008 crash, if you believe Bob Diamond, he was called by a Treasury official to ask why Barclay's LIBOR rates were much higher than other UK banks.  He basically said "because the rest of them are lying, we're using the actual data we have."  The Treasury official then said he'd had quite a few calls from "a number of senior figures within Whitehall" expressing concern at the Barclay's rate.

The implication is that the Bank of England and Teasury signed off on wholesale fraud in the UK banking sector, affecting the costs of up to $800 trillion's worth of financial transactions, in order to make the banking sector appear far stronger than it really was. 

Furthermore, there is evidence that the tampering with LIBOR rates goes right back to 2005.  Which is very, very important, because of the role LIBOR rates played in the economic crash.  Namely:

But it wasn't the toxic waste or the mezzanine deals that blew up the financial universe. It was the AAA-rated tiers of the mortgage-backed deals that crushed America's financial hull, thanks to an even more sophisticated and diabolical scam perpetrated by some of the wealthiest, most powerful people in the world.

At around the same time Andy was doing his billion-dollar deal, another trader at a relatively small European bank—let's call him Miklos—stumbled on to what he thought, at first, was the find of a lifetime.

"So I'm buying bonds," he says. "They're triple-A, supersenior tranche bonds. And they're paying, like, LIBOR plus fifty."

Jargon break: LIBOR, or the London Interbank Offered Rate, is a common reference tool used by bankers to determine the price of borrowing. LIBOR refers to the interest rate banks in London charge one another to borrow unsecured debt. The "plus" in the expression "LIBOR plus," meanwhile, refers to the amount over and above LIBOR that bankers charge one another for transactions, with the number after "plus" referring to hundredths of a percentage point. These hundredths of a point are called basis points.

So when Miklos says, "LIBOR plus fifty," he means the rate London banks charge to borrow money from one another, plus 0.50 percent more. If the LIBOR rate is 0.50 percent that day, then LIBOR plus fifty means, basically, 1 percent interest.

So Miklos was buying the AAA portions of deals like Andy's at LIBOR plus fifty, and all you really need to know about that price  is that it is slightly higher than what he would have been paying back then for a Treasury bill. The whole bubble game in the years leading up to the financial meltdown was driven by this small difference in the yield between Treasuries, which are more or less absolutely safe, and the AAA-rated slices of these collateralized securities.

Why? Because what few regulations there are remaining are based upon calculations involving AAA-rated paper. Both banks and insurance companies are required by regulators to keep a certain amount of real capital on hand, to protect their depositors. Of course, these institutions do not simply hold their reserves in cash; instead, they hold interest-bearing investments, so that they can make money at the same time they are fulfilling their reserve obligations.

Knowing this, the banking industry regulators—in particular a set of bylaws called the Basel Accords, which all major banking nations adhere to—created rules to make sure that those holdings these institutions kept were solid. These rules charged institutions for keeping their holdings in investments that were not at least AAA rated. In order to avoid these capital charges, institutions needed to have lots of "safe" AAA-rated paper. And if you could find AAA-rated paper that earns LIBOR plus fifty, instead of buying the absolutely safe U.S. Treasury  notes that might earn LIBOR plus twenty, well, then, you jumped on that chance—because that was 0.30 more percentage points you were
making. In banks and insurance companies with holdings in the billions, that subtle discrepancy meant massive increases in revenue.

It was this math that drove all the reckless mortgage lending.

Thanks to the invention of these tiered, mortgage-backed, CDO-like derivative deals, banks could now replace all the defiantly unsexy T-bills and municipal bonds they were holding to fulfill their capital requirements with much higher earning mortgage-backed securities. And what happens when most of the world's major financial institutions suddenly start replacing big chunks of their "safe" reserve holdings with mortgage-backed securities? To simplify this even more: The rules say that banks have to have a certain amount of cash on hand. And if not cash, something as valuable as cash. But the system allowed banks to use home loans as their reserve capital, instead of cash, Banks
were therefore meeting their savings requirements by... lending.

Instead of the banking system being buttressed by real reserve capital, it was buttressed by the promised mortgage payments of a  generation of questionable homebuyers.

Everyone and his brother starts getting offered mortgages. At its heart, the housing/credit bubble was the rational outcome of a nutty loophole in the regulatory game. The reason Vegas cocktail waitresses and meth addicts in Ventura were suddenly getting offered million-dollar homes had everything to do with Citigroup and Bank of America and AIG jettisoning their once-safe AAA reserves, their T-bills and municipal bonds, and exchanging them for these mortgage-backed "AAA"-rated securities—which, as we've already seen, were sometimes really BBB-rated securities turned into  AAA-rated paper through the magic of the CDO squared. And which in turn perhaps should originally have been B-minus-rated securities, because the underlying FICO scores of the homeowners in deals like Andy's might have been fakes.

Getting back to the story: So Miklos is buying AAA bonds. These bonds are paying his bank LIBOR plus fifty, which isn't bad.

But it becomes spectacular when he finds a now-infamous third party, AIG, to make the deal absolutely bulletproof. "So I'm getting LIBOR plus fifty for these bonds," he says. "Then I turn around and I call up AIG and I'm like, 'Hey, where  would you credit default swap this bond?' And they're like, 'Oh, we'll do that for LIBOR plus ten.'"

Miklos pauses and laughs, recalling the pregnant pause on his end of the phone line as he heard this offer from AIG. He couldn't believe what he'd just heard: it was either a mistake, or they had just handed him a mountain of money, free of charge.

If the LIBOR rate was being manipulated by major banks, then the whole AIG collapse takes on a new, somewhat sinister light.  Was the reason AIG was able to offer such great rates was because the LIBOR rate was artificially low in the first place?  Having an artificially high/naturally higher LIBOR rate at one institutions and an artificially low/naturally low one at another is essentially a licence to print money. 

Miklos eventually got edged out of this deal for free money by....you guessed it, Goldman Sachs.  And Deutche Bank.  And Barclays.  And RBS.  And Societe Generale.  And others.  When Goldman Sachs realised the game was over, that everything was falling apart, it freaked, and demanded all its money from AIG.  This led to everyone else panicking and demanding their money back, to Pricewaterhousecooper downgrading AIG.  It was losing billions every month, and Goldman Sachs had about $20 billion in exposure that it wanted, before the whole thing fell apart. 

You may remember that last part, as it reached Ratings Apocalypse levels in...September 2008.

[inode_buddha]

Wouldn't it be *interesting* to see where all the money actually ended up, and try to do a claw-back? Imagine millions of homeowners getting a check for overpayment on their interest... the system would collapse even regardless of the new Basel rules. If not colapse then at least the banks would be stung even more, into a sodding whimper.

[Telarus]

Holyshit, finally a narrative I can follow on this. Thanks Cain.

[Junkenstein]

Thanks for the extra info Cain, always appreciated.

Standard and Poor as well as Moody have downgraded Barclay's today/yesterday. I am sure this is a result of careful examination of all the relevant details and records and nothing whatsoever to do with the media shitstorm.

Or possibly with a £290 Million fine they couldn't make their regular bribes. Or payments. I forget how honest we're being about this stuff these days.

This whole thing seems to give a bit of insight to UK governance in general. Every political interest is aligned to protect the banks and "The City". Given the size of this particular clusterfuck I'd guess Bob knows who's in who's pocket and depending on the size of his severance and potential punishments will be naming names (or not) accordingly.

[Cain]

You'd think the Tories would jump at a chance to sink Ed Balls, who is practically on the top of their shit list.

Apparently not.

When Miliband called for an independent, public inquiry, Osbourne apparently was the most influential party in saying "no", and getting it downgraded to a Parliamentary inquiry.

One wonders if LIBOR-rigging is a bipartisan pursuit in Whitehall...

[Triple Zero]

I seem to remember hearing this, or a very similar story a while back, some time after the first crash. I probably heard it on PD, so maybe I'm thinking of something else?

You know what the hardest thing is, all these stories about what/how/why the economic crisis happened, is to judge them on their relative importance, especially in light of other current events.

[LMNO]

So, other than "the banks", exactly who is responsible for determining LIBOR?  I mean, it really sounds like an arbitrary number to begin with; it certainly doesn't sound equivalent to the Fed interest rate in the US.

[Cain]

Libor is defined as:

The rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to 11.00 London time.

Libor is calculated and published by Thomson Reuters on behalf of the British Bankers' Association (BBA) after 11:00 AM (and generally around 11:45 AM) each day (London time). It is a trimmed average of interbank deposit rates offered by designated contributor banks, for maturities ranging from overnight to one year. Libor is calculated for 10 currencies. There are eight, twelve, sixteen or twenty contributor banks on each currency panel, and the reported interest is the mean of the 50% middle values (the interquartile mean). The rates are a benchmark rather than a tradable rate; the actual rate at which banks will lend to one another continues to vary throughout the day.

[LMNO]

That sounds like it is derived from a team of analysts who calculate risk based on other market figures.  Each bank sets its own rate, and then the average is taken each day.

Which sets the conspiracy bar pretty high, since you've got relatively independent entities calculating their individual risks.  What's the rule of thumb: a conspiracy greater than 5 doesn't work?

[Cain]

But the figures are ultimately derived from the banks themselves.

Barclay's are not contesting that they were manipulating the LIBOR rate - they fully accept that they were - what they are contesting is whether there is systemic fraud at the company and if they had Treasury sanction for what they did.

Diamond has said only 14 traders were responsible for the manipulation.  However, a lot of industry experts have cast some doubt on that.