Thursday, April 25, 2013

Matt Taibbi — Everything Is Rigged: The Biggest Price-Fixing Scandal Ever

Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything.
You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets."
That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps....

Moreover, it's increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system.
If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it. Forget the Illuminati – this is the real thing, and it's no secret. You can stare right at it, anytime you want....

The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it. It's not just stealing by reaching a hand into your pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever's in your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it's only just coming into view.
Rolling Stone
Everything Is Rigged: The Biggest Price-Fixing Scandal Ever
Matt Taibbi

Talk about price-fixing. Delegating a democratic country's monetary policy to politically independent central banks is bad enough, but allowing a few bankers to fix prices with impunity is beyond the pale, especially when the AG tells them that they won't be prosecuted. Same in UK. All investigations have to be approved by George Osborne: Revealed: George Osborne’s secret veto on fraud inquiries. Wall Street and the City are dens of thieves criminogenic environments.

I've just provided the outline in the above excerpts. The details are appalling.

Monopoly capitalism is about price setting rather than price taking. When externalities, transaction costs, and economic rent are ignored in economic models, it's GIGO and transparently just a ploy to dupe the rubes and separate them from their money and labor.

1 comment:

The Rombach Report said...

Matt Taibbi is a national treasure. I read with interest how "the International Swaps and Derivatives Association, or ISDA, which works together with ICAP (for U.S. dollar transactions) and Thomson Reuters to compute the ISDAfix benchmark, has hired the consulting firm Oliver Wyman to review the process by which ISDAfix is calculated."

For context, one hat that I used to wear as a derivatives market analyst for Thomson Reuters was to perform a daily task to conduct a telephone survey of interest rate swap dealers to gather quotes for swap spreads of various maturities. It occurred to me during that time how easy it would be for one or more of the dealers to offer a kick back of some value to me or some other analyst to adjusted the quote one way or the other for there advantage. Dealers used to use the survey results to mark to market client positions because Thomson was an "objective source".