martedì 31 luglio 2012

ECB Chief Draghi Investigated for Membership in the G30

Mirabile Dictu! ECB Chief Draghi Being Investigated for Membership in the Group of Thirty

It’s easy for Americans to labor under the delusion that other parts of the the world have less obvious forms of corruption or its milder form, conflict of interest, than our revolving door system (one of my favorites was when the NY Fed staffer tasked to overseeing AIG left….to AIG).
And ex banking, that actually is true in most advanced economies. But as a reminder of how backs get scratched in Europe, we have Mario Draghi. The former head of the Bank of Italy, now ECB chairman, was responsible for European operations for Goldman from 2002 to 2005, and predictably has no memory of the currency swaps deal that enabled Greece to camouflage the size of its budget deficit. The new contretemps involves his membership in the Group of Thirty (aka G30), which despite its grand claims, is a bank lobbying group, even as he is serving as the head of the ECB. An alert reader pointed me to the story in Der Spiegel (German version only) and Google translate does a serviceable job.
The inquiry was set in motion by Corporate Observatory Europe, which is an anti-lobbying group. From a recent article on its website:
Industry experts and corporate lobbyists have effectively captured key areas of policy advice within the European Commission, according to new research carried out by the Alliance for Lobbying Transparency and Ethics Regulation (ALTER-EU) which finds that two thirds of DG Enterprise and Industry’s advisory groups are dominated by corporate representatives.
The Der Spiegel piece provides an overview of the G30 and highlights that bank executives play prominent roles. Per the Google translation:
The International Banking Seminar of the Group of Thirty (G30) is held every year to coincide with the fall meeting of the International Monetary Fund (IMF) and World Bank, and is accessible only to selected visitors. Behind the G30 hides a group of leading bankers and economists who wish to make claims to influence decisions in the financial sector. Prominent members include senior representatives of Goldman Sachs, Morgan Stanley and JPMorgan Chase International and former and current heads of central banks.
The original complaint contended that given the ECB’s role in bank regulation, having anyone in an executive capacity, let alone its chief, represented a serious conflict of interest. The EU Ombudsman thinks the charge has enough meat to warrant an investigation:
The EU Ombudsman Nikiforos Diamandouros has instituted investigations against Draghi and sent to the Central Bank a mandatory questionnaire. Up to 31 October, the ECB will announce how they rated Draghi’s role in the G30 and whether it includes in its membership a conflict of interest.
The European Ombudsman investigates complaints against EU institutions, which can be introduced both by citizens and organizations. For the procedure caused a stir recently with the European Food Safety Authority (EFSA). Thus, the Ombudsman has asked the EFSA in December 2011 to strengthen its rules and procedures to prevent conflicts of interest.
So it appears that the EU Obudsman has been able to get some changes put in place, albeit at less powerful organizations. And the charge certainly looks valid. Draghi should not be involved with the G30 while he is active at the ECB. And if the EU Obudsman does find Draghi’s membership to be a conflict of interest, that has to be just as true for the other EU central bankers that are current participants. And please, don’t try insulting the readership’s intelligence by arguing in comments that membership in the G30 is valuable to Draghi because he gets “information”. As a central banker, he can practice proctology on banks. He doesn’t need to be chatted up over caviar and champagne to get the intelligence he needs to do his job. If you don’t think the G30 is in the business of representing specific interests, I have a bridge I’d like to sell you. While this would be only one small step, it would still be gratifying to see pushback against the overly cozy relationship between central bankers and the banks they supposedly regulate.

Read more at http://www.nakedcapitalism.com/2012/07/mirabile-dictu-ecb-chief-draghi-being-investigated-for-membership-in-the-group-of-thirty.html#PlzsJY621JsWlbhR.99

'Audit the Fed' moves forward


Ron Paul: 'Audit the Fed' moves forward

 Section: 
By U.S. Rep. Ron Paul
Monday, July 30, 2012
Last week the House of Representatives overwhelmingly passed my legislation calling for a full and effective audit of the Federal Reserve. Well over 300 of my congressional colleagues supported the bill, each casting a landmark vote that marks the culmination of decades of work. We have taken a big step toward bringing transparency to the most destructive financial institution in the world.
But in many ways our work is only beginning. Despite the Senate Majority Leader's past support for similar legislation, no vote has been scheduled on my bill this year in the Senate. And only 29 Senators have cosponsored Senator Rand Paul's version of my bill in the other body:
If your senator is not listed at the link above, please contact them and ask for their support. We need to push Senate leadership to hold a vote this year.
Understand that last week's historic vote never would have taken place without the efforts of millions of Americans like you, ordinary citizens concerned about liberty and the integrity of our currency. Political elites respond to political pressure, pure and simple. They follow rather than lead. If all 100 senators feel enough grassroots pressure, they will respond and force Senate leadership to hold what will be a very popular vote.
In fact, "Audit the Fed" is so popular that 75% of all Americans support it according to this Rasmussen poll:
We are making progress.
Of course Fed apologists -- including Mr. Bernanke -- frequently insist that the Fed already is audited. But this is true only in the sense that it produces annual financial statements. It provides the public with its balance sheet as a fait accompli; we see only the net results of its financial transactions from the previous fiscal year in broad categories, and only after the fact.
We're also told that the Dodd-Frank bill passed in 2010 mandates an audit. But it provides for only a limited audit of certain Fed credit facilities surrounding the crisis period of 2008. It is backward-looking, which is of limited benefit.
The Fed also claims it wants to be "independent" from Congress so that politics don't interfere with monetary policy. This is absurd for two reasons.
First, the Fed already is inherently and unavoidably political. It made a political decision when it chose not to rescue Lehman Brothers in 2008, just as it made a political decision to provide liquidity for AIG in the same time period. These are just two obvious examples. Also, Fed member banks and the Treasury Department are full of former and future Goldman Sachs officials. Are we really to believe that the interests of Goldman Sachs have no effect on Fed decisions? Clearly it's naive to think the Fed somehow is above political or financial influence.
Second, it's important to remember that Congress created the Fed by statute. Congress therefore has the full, inherent authority to regulate the Fed in any way -- up to and including abolishing it altogether.
My bill provides for an ongoing, thorough audit of what the Fed really does in secret, which is make decisions about the money supply, interest rates, and bailouts of favored banks, financial firms, and companies. In other words, I want the Government Accountability Office to examine the Fed's actual monetary policy operations and make them public.
It is precisely this information that must be made public because it so profoundly affects everyone who holds, saves, or uses U.S. dollars.

lunedì 30 luglio 2012

Lietaer: The potential of complementary currencies

martedì 24 luglio 2012

HSBC, kidnappings and fear


HSBC, kidnappings and fear on the financial front line: Bank boss tells of threats from Mexican criminals

Forget uniformed policeman kicking down doors in the global fight against organised crime, drug dealing, terrorism and tax evasion. The new front line is the banks.
And as HSBC found out last week just how very expensive it is likely to be to fail in this new role of crook catcher, one of its top executives has revealed the nightmare of trying to make sure procedures are rigorous enough to meet the tough demands of global regulators, particularly the ferocious American watchdogs.
With the bank facing possible fines of $1 billion (£640 million) for its failings, Paul Thurston – once chief executive of the HSBC Mexican operation at the centre of the concerns investigated last week by the US Senate Committee on Homeland Security– has told of being parachuted into somewhere more resembling the Wild West than the genteel banking world of the City.
A member of the Mexican Navy stands guard as packages of cocaine are incinerated as part of the country's ongoing war on drugs
Drug wars: A member of the Mexican Navy stands guard as packages of cocaine are incinerated
He revealed how the bank failed catastrophically in its assessment of the criminal risk in Mexico, and while Thurston himself faces some blunt criticism, the report from the US Senators’ inquiry and his own testimony paint a picture of a bank already immersed in corruption and criminality.
‘Some of the things I found took my breath away,’ Thurston told US senators last week. 
One HSBC insider said that Thurston, who went on to head the bank in Britain and is now global head of retail banking, was handed a ‘mission impossible’ by his bosses.
The fiasco leaves a litany of questions for the bosses of HSBC who first bought the Bital bank in Mexico in 2002, and for Sandy Flockhart, who headed the operation until Thurston took over, head office chief executive Mike Geoghegan, and chairman Stephen Green. All have since left the bank, though Green – now Lord Green and a Trade Minister – is facing mounting pressure to explain what he knew and when.
 
The Thurston testimony threw a bright light on the scale of safeguards needed to ensure banks meet the new rigorous standards.
‘The external environment in Mexico was as challenging as any I had ever experienced,’ he said. ‘Bank employees faced very real risks of being targeted for bribery, extortion and kidnapping – in fact multiple kidnappings occurred throughout my tenure – and high levels of security were required for bank staff working in Mexico.’ 
He added: ‘This was not HSBC as I knew it.’
The full scale of what was happening hit Thurston within weeks of his arrival at HSBC’s Mexico City HQ on February, 2007.
On March 15, Mexican authorities working in partnership with the US Drug Enforcement Administration raided the home of Chinese Mexican citizen Zhenli Ye Gon. 
Previous biggest fines by US authorities on banks
In his basement they uncovered a huge pile of carefully stacked dollar bills amounting to $205 million along with $17 million in Mexican pesos, a stash of weapons and records of international wire transfers recording the movement of millions of dollars between Mexico and America.
Ye Gon was later arrested in America, where he is still being held pending extradition to Mexico accused of providing key chemicals to Mexican drug barons for the manufacture of methamphetamine – better known as the deadly crystal meth. He has denied the charges.
Worryingly for HSBC, Ye Gon was a long-time customer of its Mexican banking business. It was bad enough that a client was implicated in serious offences, but HSBC in Mexico had already been warned to steer clear of Ye Gon’s company, Unimed, and had ignored the alert. 
The pattern of orders mysteriously not being followed was to become familiar to Thurston. 
Two months after the raid on Ye Gon, the US Authorities swooped on a Mexican company called Casa de Cambio Puebla. 
This was a money transfer business and had about $11 million on deposit with American bank Wachovia in Miami and London that were seized by the US authorities. 
Soon after one of Puebla’s staff in America confessed to money laundering. 
Like Ye Gon, Puebla was a long-standing customer of HSBC in Mexico having begun as a client of Bital in the 1980s and staying on as an HSBC client after the takeover. In July, after an internal review, Thurston ordered that all of Puebla’s accounts be closed.
Incredibly, the order was not carried out until November 2007 and even then only after the Mexican Attorney General sent a warrant requesting seizure of all Puebla’s cash.
HSBC was at a loss to explain how the order had been ignored, but insiders suspect that lax controls in the bank or even outright corruption were the probable explanation. 
Thurston claims he took decisive steps to clean up Mexico, including action to stop lower-level staff being bribed or threatened into opening  accounts or transferring money without proper checks.
One HSBC employee said it was about ‘protecting front line staff’.
‘No one could go into a branch and try to launder money and threaten the clerk by saying I know where your family live. That is precisely what was happening. If local staff cannot open an account on their own they cannot be bribed or threatened,’ he said.
But Thurston’s tenure at HSBC Mexico ended with failure. In December, 2007 he was appointed to run HSBC’s UK retail bank, but he remained in Mexico for a further three months – just enough time for another bombshell.
This time it involved Sigue Corporation, another money transfer service company, with its headquarters in California. Its main line of business was moving money from America to Mexico and other Latin American countries. The US authorities launched a sting operation in 2007 in which US agents transferred $500,000 from America to Mexico through Sigue.
As they did so, they openly told Sigue agents they were transferring drug money. In January 2008, Sigue reached a settlement with American authorities, admitting its business was out of control.
On February 4, David Bagley, global head of compliance at HSBC, recommended to Thurston that he close the Sigue account in Mexico. Thurston ignored Bagley’s recommendation and allowed the Sigue account to stay open.
It was to prove an embarrassing decision and the one example where Thurston was clearly slammed by the Senate report.
Thurston left Mexico in April 2008. Looking back on his experience he said: ‘I believe we made real progress at HSBC Mexico during my short tenure.’ But he admitted: ‘We know we should have done this better sooner.’
Thurston’s testimony and the Senate report beg many questions about HSBC’s management of the Mexican takeover and its aftermath. But the lesson for banks is that in the war on organised crime, they will be in the front line for the foreseeable future.


Read more: http://www.thisismoney.co.uk/money/news/article-2176963/HSBC-kidnappings-fear-financial-line.html#ixzz21WgWfZbd

lunedì 23 luglio 2012

The criminal banking system can be sustained only by fraud


Paul Craig Roberts: World financial system now can be sustained only by fraud

 Section: 
The Libor Scandal In Full Perspective
By Paul Craig Roberts
Institute for Political Economy
Thursday, July 19, 2012
The recent article about the Libor scandal, co-authored with Nomi Prins --
-- received much attention, with Internet repostings, foreign translation, and video interviews. To further clarify the situation, this article brings to the forefront implications that might not be obvious to those without insider experience and knowledge.
The price of Treasury bonds is supported by the Federal Reserve's large purchases. The Federal Reserve's purchases are often misread as demand arising from a "flight to quality" due to concern about the EU sovereign debt problem and possible failure of the euro.
Another rationale used to explain the demand for Treasuries despite their negative yield is the "flight to safety." A 2% yield on a Treasury bond is less of a negative interest rate than the yield of a few basis points on a bank certificate of deposit, and the U.S. government, unlike banks, can use its central bank to print the money to pay off its debts.
It is possible that some investors purchase Treasuries for these reasons. However, the "safety" and "flight to quality" explanations could not exist if interest rates were rising or were expected to rise. The Federal Reserve prevents the rise in interest rates and decline in bond prices, which normally result from continually issuing new debt in enormous quantities at negative interest rates, by announcing that it has a low interest rate policy and will purchase bonds to keep bond prices high. Without this Fed policy there could be no flight to safety or quality.
It is the prospect of ever-lower interest rates that causes investors to purchase bonds that do not pay a real rate of interest. Bond purchasers make up for the negative interest rate by the rise in price in the bonds caused by the next round of low interest rates. As the Federal Reserve and the banks drive down the interest rate, the issued bonds rise in value and their purchasers enjoy capital gains.
As the Federal Reserve and the Bank of England are themselves fixing interest rates at historic lows to mask the insolvency of their respective banking systems, they naturally do not object that the banks themselves contribute to the success of this policy by fixing the Libor rate and by selling massive amounts of interest rate swaps, a way of shorting interest rates and driving them down or preventing them from rising.
The lower is Libor, the higher is the price or evaluations of floating-rate debt instruments, such as collateralized debt obligations, and thus the stronger the banks' balance sheets appear.
Does this mean that the U.S. and U.K. financial systems can be kept afloat only by fraud that harms purchasers of interest rate swaps, which include municipalities advised by sellers of interest rate swaps, and those with saving accounts?
The answer is yes, but the Libor scandal is only a small part of the interest rate rigging scandal. The Federal Reserve itself has been rigging interest rates. How else could debt issued in profusion be bearing negative interest rates?
As villainous as they might be, Barclays bank chief executive Bob Diamond, Jamie Dimon of JP Morgan, and Lloyd Blankfein of Goldman Sachs are not the main villains. The main villains are former Treasury Secretary and Goldman Sachs Chairman Robert Rubin, who pushed Congress for the repeal of the Glass-Steagall Act, and the sponsors of the Gramm-Leach-Bliley bill, which repealed the Glass-Steagall Act. Glass-Steagall was put in place in 1933 in order to prevent the kind of financial excesses that produced the current ongoing financial crisis.
President Clinton's Treasury Secretary, Robert Rubin, presented the removal of all constraints on financial chicanery as "financial modernization." Taking restraints off of banks was part of the hubristic response to "the end of history." Capitalism had won the struggle with socialism and communism. Vindicated capitalism no longer needed its concessions to social welfare and regulation that capitalism used in order to compete with socialism.
The constraints on capitalism could now be thrown off, because markets were self-regulating as Federal Reserve Chairman Alan Greenspan, among many, declared. It was financial deregulation -- the repeal of Glass-Steagall, the removal of limits on debt leverage, the absence of regulation of OTC derivatives, the removal of limits on speculative positions in future markets -- that caused the ongoing financial crisis. No doubt but that JP Morgan, Goldman Sachs, and others were after maximum profits by hook or crook, but their opportunity came from the neoconservative triumphalism of "democratic capitalism" and its historical victory over alternative socio-politico-economic systems.
The ongoing crisis cannot be addressed without restoring the laws and regulations that were repealed and discarded. But putting Humpty Dumpty back together again is an enormous task full of its own perils.
The financial concentration that deregulation fostered has left us with broken financial institutions that are too big to fail. To understand the fullness of the problem, consider the lawsuits that are expected to be filed against the banks that fixed the Libor rate by those who were harmed by the fraud. Some are saying that as the fraud was known by the central banks and not reported, that the Federal Reserve and the Bank of England should be indicted for their participation in the fraud.
What follows is not an apology for fraud. It merely describes consequences of holding those responsible accountable.
Imagine the Federal Reserve called before Congress or the Department of Justice to answer why it did not report on the fraud perpetrated by private banks, fraud that was supporting the Federal Reserve's own rigging of interest rates (and the same in the UK.)
The Federal reserve will reply: "So you want us to let interest rates go up? Are you prepared to come up with the money to bail out the FDIC-insured depositors of JPMorganChase, Bank of America, Citibank, Wells Fargo, etc.? Are you prepared for U.S. Treasury prices to collapse, wiping out bond funds and the remaining wealth in the United States and driving up interest rates, making the interest rate on new federal debt necessary to finance the huge budget deficits impossible to pay, and finishing off what is left of the real estate market? Are you prepared to take responsibility, you who deregulated the financial system, for this economic Armageddon?"
Obviously, the politicians will say, "No. Continue with the fraud." The harm to people from collapse far exceeds the harm in lost interest from fixing the low interest rates to forestall collapse. The Federal Reserve will say that we are doing our best to create profits for the banks that will permit us eventually to unwind the fraud and return to normal. Congress will see no alternative to this.
But the question remains: How long can the regime of negative interest rates continue while debt explodes upward? Currently, everyone in the United States who counts and most who don't have an interest in holding off Armageddon. No one wants to tip over the boat. If the banks are sued for damages and lack the money to pay, the Federal Reserve can create the money for the banks to pay.
If the collapse of the system does not result from scandals, it will come from outside. The dollar is the world reserve currency. This means that the dollar's exchange value is boosted, despite the dismal economic outlook in the United States, by the fact that, as the currency for settling international accounts, there is international demand for the dollar. Country A settles its trade deficit with Country B in dollars; Country B settles its account with Country C in dollars; and so on throughout the world.
For whatever the reason -- perhaps to curtail their accumulation of suspect dollars or to bring Washington's power to an end -- the BRICS countries, Brazil, Russia, India, China, and South Africa, are agreeing to settle their trade between themselves in their own currencies, thus abandoning the dollar.
According to reports, China and Japan have reached agreement to settle their trade between themselves in their own currencies.
The moves away from the dollar as the currency of international transactions means that the dollar's exchange value will fall as the demand for dollars falls. Whereas the Federal Reserve can create dollars with which to purchase the Treasury's debt, thus preventing a fall in bond prices, the Federal Reserve cannot prop up the dollar's exchange value by creating more dollars with which to purchase dollars. Dollars would have to be taken off the foreign exchange market by purchasing them with other currencies, but to have these currencies the United States would have to be running a trade surplus, not a long-term trade deficit.
In the short run, the Federal Reserve could arrange currency swap agreements in which foreign central banks swap their currencies for dollars to supply the Federal Reserve with currencies with which to soak up dollars. However, only a limited number of swaps could be negotiated before foreign central banks understood that the dollar's fall in value was not a temporary event that could be propped up with currency swaps.
As the value of the dollar will fall as countries move away from its use as reserve currency, the values of dollar-denominated assets also will fall. The Federal Reserve, even with full cooperation from the banking system employing every fraud technique known, cannot prevent interest rates from rising on debt instruments denominated in a currency whose value is falling.
Think about it this way. A person, fund, or institution owns bonds or any debt instruments carrying a negative rate of interest but continues to hold the instruments because interest rates, despite the increase in debt, are creeping down, raising bond prices and producing capital gains in the bonds. What happens when the exchange value of the currency in which the debt instruments are denominated falls? Can the price of the bond stay high even though the value of the currency in which the bond is denominated falls?
The drop in the exchange value of the currency hits the bond price in a second way. The price of imports rises, and this pushes up prices generally. The inflation measures will show higher inflation. How long will people hold debt instruments paying negative interest rates as inflation rises? Perhaps there are historical cases in which bond prices continue to rise indefinitely (or even hold firm) as inflation rises, but I have never heard of them.
As the Federal Reserve can create money, theoretically the Federal Reserve's prop-up schemes could continue until the Federal Reserve owns all dollar-denominated financial assets. To cover the holes in its own balance sheet, the Federal Reserve could just print more money.
Some suspect that the Federal Reserve, to forestall a declining dollar and thus declining prices of dollar-denominated financial instruments, is behind the sales of naked shorts every time demand for physical bullion drives up the price of gold and silver. The short sales -- paper sales -- cancel the impact on price of the increased demand for bullion.
Some also believe that they see the Federal Reserve's hand in the stock market. One day stocks fall 200 points. The next day stocks rise 200 points. This up-and-down pattern has been ongoing for a long time. One possible explanation is that as wary investors sell their equity holdings, the Federal Reserve, or the "Plunge Protection Team," steps in and buys.
Just as the "terrorist threat" was used to destroy the laws that protect U.S. civil liberty, the financial crisis has resulted in the Federal Reserve moving far outside its charter and normal operating behavior.
To sum up, what has happened is that irresponsible and thoughtless -- in fact, ideological -- deregulation of the financial sector has caused a financial crisis that can be managed only by fraud. Civil damages might be paid, but to halt the fraud itself would mean the collapse of the financial system. Those in charge of the system would prefer the collapse to come from outside, such as from a collapse in the value of the dollar that could be blamed on foreigners, because an outside cause gives them something to blame other than themselves.
-----
Paul Craig Roberts was assistant secretary of the treasury for economic policy for President Reagan and associate editor of The Wall Street Journal. He also has a columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments.

Titanic banks hit Libor Iceberg

Titanic banks hit Libor 'bergBy Ellen Brown 
http://atimes.com/atimes/Global_Economy/NG24Dj01.html
At one time, calling the large multinational banks a "cartel" branded you as a conspiracy theorist. Today the banking giants are being called that and worse, not just in the major media but in court documents intended to prove the allegations as facts. 

Charges include racketeering (organized crime under the US Racketeer Influenced and Corrupt Organizations Act, or RICO), antitrust violations, wire fraud, bid-rigging, and price-fixing. Damning charges have already been proven, and major damages and penalties assessed. Conspiracy theory has become established fact. 


In an article in the July 3 Guardian titled "Private Banks Have Failed - We Need a Public Solution", Seumas Milne writes of the London Interbank Offered Rate (Libor) rate-rigging scandal admitted to by Barclays Bank:
It's already clear that the rate rigging, which depends on collusion, goes far beyond Barclays and indeed the City of London. This is one of multiple scams that have become endemic in a disastrously deregulated system with in-built incentives for cartels to manipulate the core price of finance.

... It could of course have happened only in a private-dominated financial sector, and makes a nonsense of the bankrupt free-market ideology that still holds sway in public life.

... A crucial part of the explanation is the unmuzzled political and economic power of the City ... . Finance has usurped democracy. [1]
Bid-rigging and rate-rigging
Bid-rigging was the subject of the US v Carollo, Goldberg and Grimm, a 10-year suit in which the US Department of Justice obtained a judgment on May 11 against three GE Capital employees. Billions of dollars were skimmed from cities all across America by colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. 

Other banks involved in the bidding scheme included Bank of America, JPMorgan Chase, Wells Fargo and UBS. These banks have already paid a total of $673 million in restitution after agreeing to cooperate in the government's case. 

Hot on the heels of the Carollo decision came the Libor scandal, involving collusion to rig the inter-bank interest rate that affects $500 trillion worth of contracts, financial instruments, mortgages and loans. Barclays Bank admitted to regulators in June that it tried to manipulate Libor before and during the financial crisis in 2008. It said that other banks were doing the same. Barclays paid $450 million to settle the charges. 

The US Commodities Futures Trading Commission (CFTC) said in a press release that Barclays Bank "pervasively" reported fictitious rates rather than actual rates; that it asked other big banks to assist, and helped them to assist; and that Barclays did so "to benefit the bank's derivatives trading positions" and "to protect Barclays' reputation from negative market and media perceptions concerning Barclays' financial condition." [2] 

After resigning, top executives at Barclays promptly implicated both the Bank of England and the Federal Reserve. [3] The upshot is that the biggest banks and their protector central banks engaged in conspiracies to manipulate the most important market interest rates globally, along with the exchange rates propping up the US dollar. 

CFTC did not charge Barclays with a crime or require restitution to victims. But Barclays' activities with the other banks appear to be criminal racketeering under federal RICO statutes, which authorize victims to recover treble damages; and class action RICO suits by victims are expected. 

The blow to the banking defendants could be crippling. RICO laws have taken down the Gambino crime family, the Genovese crime family, Hell's Angels, and the Latin Kings. [4] 

The payoff - in interest rate swaps
Bank defenders say no one was hurt. Banks make their money from interest on loans, and the rigged rates were actually lowerthan the real rates, reducing bank profits. 

That may be true for smaller local banks, which do make most of their money from local lending; but these local banks were not among the 16 mega-banks setting Libor rates. Only three of the rate-setting banks were US banks - JPMorgan, Citibank and Bank of America - and they slashed their local lending after the 2008 crisis. In the following three years, the four largest US banks - Bank of America, Citi, JPMorgan and Wells Fargo - cut back on small business lending by a full 53%. The two largest - Bank of America and Citi - cut back on local lending by 94% and 64%, respectively. [5] 

Their profits now come largely from derivatives. Today, 96% of derivatives are held by just four banks - JPMorgan, Citi, Bank of America and Goldman Sachs - and the Libor scam significantly boosted their profits on these bets. Interest-rate swaps compose fully 82% of the derivatives trade. The Bank for International Settlements reports a notional amount outstanding as of June 2009 of $342 trillion. [6] JPMorgan - the king of the derivatives game - revealed in February 2012 that it had cleared $1.4 billion in revenue trading interest-rate swaps in 2011, making them one of the bank's biggest sources of profit. 

The losers have been local governments, hospitals, universities and other non-profits. For more than a decade, banks and insurance companies convinced them that interest-rate swaps would lower interest rates on bonds sold for public projects such as roads, bridges and schools. 

The swaps are complicated and come in various forms; but in the most common form, counterparty A (a city, hospital, and so forth) pays a fixed interest rate to counterparty B (the bank), while receiving a floating rate indexed to Libor or another reference rate. The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels. 

Defenders say "a deal is a deal"; the victims are just suffering from buyer's remorse. But while that might have been a good defense if interest rates had risen or fallen naturally in response to demand, this was a deliberate, manipulated move by the Fed acting to save the banks from their own folly; and the rate-setting banks colluded in that move. The victims bet against the house, and the house rigged the game. 

Lawsuits brewing
State and local officials across the country are now meeting to determine their damages from interest rate swaps, which are held by about three-fourths of America's major cities. Damages from Libor rate-rigging are being investigated by Massachusetts Attorney General Martha Coakley, New York Attorney General Eric Schneiderman, officers at CalPERS (California's public pension fund, the nation's largest), and hundreds of hospitals. 

One victim that is fighting back is the city of Oakland, California. On July 3, the Oakland City Council unanimously passed a motion to negotiate a termination without fees or penalties of its interest rate swap with Goldman Sachs. If Goldman refuses, Oakland will boycott doing future business with the investment bank. Jane Brunner, who introduced the motion, says ending the agreement could save Oakland $4 million a year, up to a total of $15.57 million - money that could be used for additional city services and school programs. Thousands of cities and other public agencies hold similar toxic interest rate swaps, so following Oakland's lead could save taxpayers billions of dollars. 

What about suing Goldman directly for damages? One problem is that Goldman was not one of the 16 banks setting Libor rates. But victims could have a claim for unjust enrichment and restitution, even without proving specific intent:
Unjust enrichment is a legal term denoting a particular type of causative event in which one party is unjustly enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing ... [It is a] general equitable principle that a person should not profit at another's expense and therefore should make restitution for the reasonable value of any property, services, or other benefits that have been unfairly received and retained.


Goldman was clearly unjustly enriched by the collusion of its banking colleagues and the Fed, and restitution is equitable and proper. 

Rico claims on behalf of local banks
Not just local governments but local banks are seeking to recover damages for the Libor scam. In May 2012, the Community Bank & Trust of Sheboygan, Wisconsin, filed a Rico lawsuit involving mega-bank manipulation of interest rates, naming Bank of America, JPMorgan Chase, Citigroup, and others. [7] The suit was filed as a class action to encourage other local, independent banks to join in. On July 12, the suit was consolidated with three other Libor class action suits charging violation of the anti-trust laws. 

The Sheboygan bank claims that the Libor rigging cost the bank $64,000 in interest income on $8 million in floating-rate loans in 2008. Multiplied by 7,000 US community banks over 4 years, the damages could be nearly $2 billion just for the community banks. Trebling that under Rico would be $6 billion. 

Rico suits against banking partners of Mers
Then there are the Mers lawsuits. In the State of Louisiana, 30 judges representing 30 parishes are suing 17 colluding banks under Rico, stating that the Mortgage Electronic Registration System (Mers) is a scheme set up to illegally defraud the government of transfer fees, and that mortgages transferred through Mers are illegal. A number of courts have held that separating the promissory note from the mortgage - which the Mers scheme does - breaks the chain of title and voids the transfer. [8] 

Several states have already sued Mers and their bank partners, claiming millions of dollars in unpaid recording fees and other damages. These claims have been supported by numerous studies, including one asserting that Mers has irreparably damaged title records nationwide and is at the core of the housing crisis. What distinguishes Louisiana's lawsuit is that it is being brought under Rico, alleging wire and mail fraud and a scheme to defraud the parishes of their recording fees. 

Readying the lifeboats
Trebling the damages in all these suits could sink the banking Titanic. As Seumas Milne noted in The Guardian:
Tougher regulation or even a full separation of retail from investment banking will not be enough to shift the City into productive investment, or even prevent the kind of corrupt collusion that has now been exposed between Barclays and other banks ... .

Only if the largest banks are broken up, the part-nationalized outfits turned into genuine public investment banks, and new socially owned and regional banks encouraged can finance be made to work for society, rather than the other way round. Private sector banking has spectacularly failed - and we need a democratic public solution.
If the last quarter century of US banking history proves anything, it is that our private banking system turns malignant and feeds off the public when it is deregulated. It also shows that a parasitic private banking system will not be tamed by regulation, as the banks' control over the money power always allows them to circumvent the rules. 

We the people must transparently own and run the nation's central and regional banks for the good of the nation, or the system will be abused and run for private power and profit as it so clearly is today, bringing our nation to crisis again and again while enriching the few. 

Notes: 1. Private Banks Have Failed - We Need a Public Solution
2. See here.
3. See here
4. See here.
5. See here
6. See here
7. See here
8. See here

Ellen Brown is an attorney and president of the Public Banking Institute, PublicBankingInstitute.org. In Web of Debt, her latest of 12 books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are webofdebt.com andellenbrown.com. 

Titanic banks hit Libor Iceberg

Titanic banks hit Libor 'bergBy Ellen Brown 
http://atimes.com/atimes/Global_Economy/NG24Dj01.html
At one time, calling the large multinational banks a "cartel" branded you as a conspiracy theorist. Today the banking giants are being called that and worse, not just in the major media but in court documents intended to prove the allegations as facts. 

Charges include racketeering (organized crime under the US Racketeer Influenced and Corrupt Organizations Act, or RICO), antitrust violations, wire fraud, bid-rigging, and price-fixing. Damning charges have already been proven, and major damages and penalties assessed. Conspiracy theory has become established fact. 


In an article in the July 3 Guardian titled "Private Banks Have Failed - We Need a Public Solution", Seumas Milne writes of the London Interbank Offered Rate (Libor) rate-rigging scandal admitted to by Barclays Bank:
It's already clear that the rate rigging, which depends on collusion, goes far beyond Barclays and indeed the City of London. This is one of multiple scams that have become endemic in a disastrously deregulated system with in-built incentives for cartels to manipulate the core price of finance.

... It could of course have happened only in a private-dominated financial sector, and makes a nonsense of the bankrupt free-market ideology that still holds sway in public life.

... A crucial part of the explanation is the unmuzzled political and economic power of the City ... . Finance has usurped democracy. [1]
Bid-rigging and rate-rigging
Bid-rigging was the subject of the US v Carollo, Goldberg and Grimm, a 10-year suit in which the US Department of Justice obtained a judgment on May 11 against three GE Capital employees. Billions of dollars were skimmed from cities all across America by colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. 

Other banks involved in the bidding scheme included Bank of America, JPMorgan Chase, Wells Fargo and UBS. These banks have already paid a total of $673 million in restitution after agreeing to cooperate in the government's case. 

Hot on the heels of the Carollo decision came the Libor scandal, involving collusion to rig the inter-bank interest rate that affects $500 trillion worth of contracts, financial instruments, mortgages and loans. Barclays Bank admitted to regulators in June that it tried to manipulate Libor before and during the financial crisis in 2008. It said that other banks were doing the same. Barclays paid $450 million to settle the charges. 

The US Commodities Futures Trading Commission (CFTC) said in a press release that Barclays Bank "pervasively" reported fictitious rates rather than actual rates; that it asked other big banks to assist, and helped them to assist; and that Barclays did so "to benefit the bank's derivatives trading positions" and "to protect Barclays' reputation from negative market and media perceptions concerning Barclays' financial condition." [2] 

After resigning, top executives at Barclays promptly implicated both the Bank of England and the Federal Reserve. [3] The upshot is that the biggest banks and their protector central banks engaged in conspiracies to manipulate the most important market interest rates globally, along with the exchange rates propping up the US dollar. 

CFTC did not charge Barclays with a crime or require restitution to victims. But Barclays' activities with the other banks appear to be criminal racketeering under federal RICO statutes, which authorize victims to recover treble damages; and class action RICO suits by victims are expected. 

The blow to the banking defendants could be crippling. RICO laws have taken down the Gambino crime family, the Genovese crime family, Hell's Angels, and the Latin Kings. [4] 

The payoff - in interest rate swaps
Bank defenders say no one was hurt. Banks make their money from interest on loans, and the rigged rates were actually lowerthan the real rates, reducing bank profits. 

That may be true for smaller local banks, which do make most of their money from local lending; but these local banks were not among the 16 mega-banks setting Libor rates. Only three of the rate-setting banks were US banks - JPMorgan, Citibank and Bank of America - and they slashed their local lending after the 2008 crisis. In the following three years, the four largest US banks - Bank of America, Citi, JPMorgan and Wells Fargo - cut back on small business lending by a full 53%. The two largest - Bank of America and Citi - cut back on local lending by 94% and 64%, respectively. [5] 

Their profits now come largely from derivatives. Today, 96% of derivatives are held by just four banks - JPMorgan, Citi, Bank of America and Goldman Sachs - and the Libor scam significantly boosted their profits on these bets. Interest-rate swaps compose fully 82% of the derivatives trade. The Bank for International Settlements reports a notional amount outstanding as of June 2009 of $342 trillion. [6] JPMorgan - the king of the derivatives game - revealed in February 2012 that it had cleared $1.4 billion in revenue trading interest-rate swaps in 2011, making them one of the bank's biggest sources of profit. 

The losers have been local governments, hospitals, universities and other non-profits. For more than a decade, banks and insurance companies convinced them that interest-rate swaps would lower interest rates on bonds sold for public projects such as roads, bridges and schools. 

The swaps are complicated and come in various forms; but in the most common form, counterparty A (a city, hospital, and so forth) pays a fixed interest rate to counterparty B (the bank), while receiving a floating rate indexed to Libor or another reference rate. The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels. 

Defenders say "a deal is a deal"; the victims are just suffering from buyer's remorse. But while that might have been a good defense if interest rates had risen or fallen naturally in response to demand, this was a deliberate, manipulated move by the Fed acting to save the banks from their own folly; and the rate-setting banks colluded in that move. The victims bet against the house, and the house rigged the game. 

Lawsuits brewing
State and local officials across the country are now meeting to determine their damages from interest rate swaps, which are held by about three-fourths of America's major cities. Damages from Libor rate-rigging are being investigated by Massachusetts Attorney General Martha Coakley, New York Attorney General Eric Schneiderman, officers at CalPERS (California's public pension fund, the nation's largest), and hundreds of hospitals. 

One victim that is fighting back is the city of Oakland, California. On July 3, the Oakland City Council unanimously passed a motion to negotiate a termination without fees or penalties of its interest rate swap with Goldman Sachs. If Goldman refuses, Oakland will boycott doing future business with the investment bank. Jane Brunner, who introduced the motion, says ending the agreement could save Oakland $4 million a year, up to a total of $15.57 million - money that could be used for additional city services and school programs. Thousands of cities and other public agencies hold similar toxic interest rate swaps, so following Oakland's lead could save taxpayers billions of dollars. 

What about suing Goldman directly for damages? One problem is that Goldman was not one of the 16 banks setting Libor rates. But victims could have a claim for unjust enrichment and restitution, even without proving specific intent:
Unjust enrichment is a legal term denoting a particular type of causative event in which one party is unjustly enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing ... [It is a] general equitable principle that a person should not profit at another's expense and therefore should make restitution for the reasonable value of any property, services, or other benefits that have been unfairly received and retained.


Goldman was clearly unjustly enriched by the collusion of its banking colleagues and the Fed, and restitution is equitable and proper. 

Rico claims on behalf of local banks
Not just local governments but local banks are seeking to recover damages for the Libor scam. In May 2012, the Community Bank & Trust of Sheboygan, Wisconsin, filed a Rico lawsuit involving mega-bank manipulation of interest rates, naming Bank of America, JPMorgan Chase, Citigroup, and others. [7] The suit was filed as a class action to encourage other local, independent banks to join in. On July 12, the suit was consolidated with three other Libor class action suits charging violation of the anti-trust laws. 

The Sheboygan bank claims that the Libor rigging cost the bank $64,000 in interest income on $8 million in floating-rate loans in 2008. Multiplied by 7,000 US community banks over 4 years, the damages could be nearly $2 billion just for the community banks. Trebling that under Rico would be $6 billion. 

Rico suits against banking partners of Mers
Then there are the Mers lawsuits. In the State of Louisiana, 30 judges representing 30 parishes are suing 17 colluding banks under Rico, stating that the Mortgage Electronic Registration System (Mers) is a scheme set up to illegally defraud the government of transfer fees, and that mortgages transferred through Mers are illegal. A number of courts have held that separating the promissory note from the mortgage - which the Mers scheme does - breaks the chain of title and voids the transfer. [8] 

Several states have already sued Mers and their bank partners, claiming millions of dollars in unpaid recording fees and other damages. These claims have been supported by numerous studies, including one asserting that Mers has irreparably damaged title records nationwide and is at the core of the housing crisis. What distinguishes Louisiana's lawsuit is that it is being brought under Rico, alleging wire and mail fraud and a scheme to defraud the parishes of their recording fees. 

Readying the lifeboats
Trebling the damages in all these suits could sink the banking Titanic. As Seumas Milne noted in The Guardian:
Tougher regulation or even a full separation of retail from investment banking will not be enough to shift the City into productive investment, or even prevent the kind of corrupt collusion that has now been exposed between Barclays and other banks ... .

Only if the largest banks are broken up, the part-nationalized outfits turned into genuine public investment banks, and new socially owned and regional banks encouraged can finance be made to work for society, rather than the other way round. Private sector banking has spectacularly failed - and we need a democratic public solution.
If the last quarter century of US banking history proves anything, it is that our private banking system turns malignant and feeds off the public when it is deregulated. It also shows that a parasitic private banking system will not be tamed by regulation, as the banks' control over the money power always allows them to circumvent the rules. 

We the people must transparently own and run the nation's central and regional banks for the good of the nation, or the system will be abused and run for private power and profit as it so clearly is today, bringing our nation to crisis again and again while enriching the few. 

Notes: 1. Private Banks Have Failed - We Need a Public Solution
2. See here.
3. See here
4. See here.
5. See here
6. See here
7. See here
8. See here

Ellen Brown is an attorney and president of the Public Banking Institute, PublicBankingInstitute.org. In Web of Debt, her latest of 12 books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are webofdebt.com andellenbrown.com.