"Everything Is Rigged: The Biggest Price-Fixing Scandal Ever"

The title of this Rolling Stone article:

The main focus here is global interest rates and interest rate swaps, which in turn affect a LOT of debts and assets in turn.

So… Thoughts? Assuming the article is correct, is there anything that can be done, especially considering what many of those banks must’ve done to get into that position in the first place, especially wrt lobbying and other government dealings?

The day that the “average citizen” started to get involved with and become dependent on large loans and investments is the day that he put himself at the perpetual mercy of the predators who have the money and power to manipulate the markets to their own benefit.

Eonwe, I’m not clear what your point is. What are average citizens supposed to do when they want to buy a house? They can go to a credit union instead of a bank, but really that’s just putting the big banks at one remove, they are still in control.

Or are you talking about people who invest in the stock market? Should regular people not attempt to better their financial situation by wise investments?

I haven’t read the article, so take this next bit with a grain of salt. My guess is there isn’t much that can be done by ordinary people, but there are rays of hope. As the internet has diffused much of the influence of the high and mighty (news organizations, for example), it might be able to do the same with finance (as an example, crowd-sourcing). I suspect there are more opportunities now for non-traditional financial transactions than there used to be, and more to come.

Diamond prices are rigged, oil prices are rigged, it’s really no surprise. When you have enough money you make your own rules.

I really like Taibbi for his willingness to write about these things, but I think he often willfully ignores things that don’t fit into his predefined narrative. Now, I haven’t read his article (I plan to later). But the LIBOR thing was less of a big deal than he is probably making it out to be. Why? A few reasons:

  1. Many, if not most institutions and funds getting funds based on LIBOR are big enough to employ financial advisers that, frankly, should have done more due diligence. Fixed rates rarely involved LIBOR, and most consumer loans don’t either. If you are investing in derivatives and other complicated instruments, you need to be smarter.

  2. The way LIBOR is set, it’s unlikely a collusion of even a handful of banks would have swayed the numbers THAT much. The outlier amounts are tossed out, so you need a lot of banks coordinating movements, AND having overlapping interests to move the numbers. Note that a high rate is not good for every bank at every time. One article I read noted the successful movements confirmed via lawsuits were on the order of a basis point per year. On a billion dollar loan, that would be about $278/day. Yes, that can add up to decent money, but it’s a hard way to make money given the risks.

  3. Most banks are price-takers, not price setters. It’s competition that lowers rates, not anchoring to an artificially high or low rate. Remember, LIBOR is supposed to be an accurate reflection of what rates banks can borrow from one another at. Say I go to bank A wanting money. If they say the can get me money at LIBOR plus 200, if they (and others) know that LIBOR is high, then they will just have more room to undercut each others prices since the rate is too high. The real money is in the transaction, so you are not gonna give that to another bank for no reason.

Furthermore, just saying what rates you can get people to loan to you does not always affect what will happen if you actually want a loan. The facts on the ground likely have more impact that the broad estimates the banks make.

  1. The collusion was not to move LIBOR in one consistent direction. I have read that most times, they colluded to lower rates. That helps many borrowers; some of whom are now suing saying they got screwed. Regardless, also remember that every transaction has two sides. Someone is artificially hurt or helped in roughly equal proportions.

  2. IIRC, the way they got caught was lowering the rate in the midst of the economic crisis. This was a time when lying was likely preferable for society. If the true nature of the market was acknowledged at the time, you would likely have seem more panic. Essentially, Barclay’s and a few others were saying, “nothing to see here, this bank is healthy”, when they were likely not. Not just because of their own balance sheets, but because nobody wanted to lend because everyone was seen as an unknown risk. If everyone feels that way, then the system grinds to a halt, if for no other reason than you threw a wrench in the circle of trust. Yes, the truth needed to come out, but those lies could be viewed as an attempt to mitigate global meltdown.

That said, businesses should not be in the happen of defrauding people regardless of intent or success. I think the responsible people should be fined and/or arrested. But the idea that regular folks were screwed to the tune of trillions, let alone billions of dollars is deliberately misleading.

I’ve got a great idea! How about we occupy Wall Street? They’d have no choice but to change their evil ways, then!

I was just gonna mention gasoline prices. Every few years, they (you know, “they”) arrange the closure of a major refinery (for maintenance) and gas prices shoot through the ceiling. Then they come down most of the way again, and we all celebrate. To me, it looks like the biggest manipulation of prices for pure unearned profit in U.S. history (at least since the railroad-building era of the middle 19th century.)

I’ve often wondered, exactly HOW do gasoline prices change? I mean, does the owner of a gas station get an email or something that says “Raise prices today 5 cents/gallon” or something? What exactly triggers these price changes at the pump?

The price he’s paying for the gas goes up.

Yeah, that makes sense. When the wholesale price goes up the retail price goes up. So, I guess that means that prices at the pump only change when the storage tanks are filled with gas purchased at a new price. That’s fine.

But I still move the question up one level: What makes the wholesale price of existing gasoline volatile? When the price of oil goes up, the existing gasoline has already been manufactured from oil that was purchased at some previous price. My best guess is that some kind of cash accounting is at work where all current inventory is valued at the market price, or something. If that’s the case, what’s the point of a futures market?

Except for the prices handed down by deity, all prices are rigged. It can’t be any other way.

Wonderful idea. We can also write letters to our duly elected representatives to inform them of our grievances. Oh, and don’t forget blogging!

The average citizen can’t do much. My point is that the ship has sailed. Somewhere along the line normal people became dependent on financial institutions in order to maintain an “average” lifestyle. I don’t know how we back away from that, but as long as we are swimming in those waters, we are nothing but kept bait fish. We get fed small amounts to keep us happy, while the sharks gobble us whole.

Taibbi is a journalist with no legal or financial training who delves into matters he does not understand. But he knows how to write sensational articles for Rolling Stone readers.

Anyone who begins by stating the Conspiracy Theorists were right has lost right off the bat.

So a London broker of rate swaps who manipulated a few contracts means the entire $379 trillion ($15 trillion in market value) market is rigged? Never mind that on the transactional level a Morgan contract with a million clients is not affected by this London broker.

Really, he just wants to sell copies of Rolling Stone.

I don’t understand this point of view. Financial institutions have been a huge boon on society. IYO what is the most successful society that didn’t have financial institutions? Like all human endeavors it has a positive side and a negative side but in this case the positive well out-weighs the negative.

Will they stop hanging around with Jean and Joan and who knows who?

I talked with the owner of a PetroCanada station about this. He checks other gas prices in his neighbourhood 4 times a day and reports them to PetroCanada. Gas prices are normally sent to him just before midnight to take effect at midnight (they don’t change every day so the rates usually just stay the same). If the local prices start changing at other stations he may get a mid-day price change to track or lead the local trend. He pays a fixed amount per litre less than the retail sale price for all gas he sells each day, so his earnings as the franchise owner are not affected by the gas price. I don’t know if this is the standard process, or if it is the same in the US. (Note that gas sales basically pay his costs - profits come from the cigarette/lottery/junk food sales.)

I (think I) know what you’re trying to say, and that’s of course true, but to me the word “rigging” involves more than just the semi-arbitrary nature of value and supply&demand : it suggests the movers and shakers in a given commodity’s market to collude and agree amongst themselves that said commodity should be worth X, rather than X being reached by the more wholesome and ethical Brownian motions of millions of individuals, all trying to dick each other over.

Can anything be done? Doubtful. Whatever attention this draws will be minimal until it hits home… Personal savings accounts. Until that happens, most people will chalk up any regulatory hearings or criminal trials to whitewashing a bigger scandal, and the real crooks will never go to jail, pay a fine, or lose any substantial wealth.

Beyond this, though, is that the system will not change for the better… And that’s the biggest crime of all.

Where did you get this idea? I worked in the legal dept of a medium sized mortgage bank in the 80’s dafting the documents for loans and doing the financial disclosures. Many of our adjustable loans (ARM’s) were based on LIBOR. I doubt much has changed over the years since as I recall it has always been used as this type of benchmark.