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Lies, Damn Lies and LIBOR

londonbanker.blogspot.co.uk

41–50 of 140 posts

Re: Lies, Damn Lies and LIBOR

#41

> We need to rethink as a society what banks are for, what exchanges are for, and what clearing houses are for. If they are for the profit of the few at the expense of the many now, that is because it is the business model we have permitted. Is that really true compared to Silicon Valley? Do banks concentrate wealth a lot more than a Google or a Facebook? If not, how would you feel about some random dude commenting o…

I'd be genuinely curious to know why it fails specifically for banks while it works wonders in other industries such as tech.

Isn't that obvious? Capture of the political and regulatory process. As Senator Durbin said of Congress, banks "frankly own the place". Tech does not.

Re: Lies, Damn Lies and LIBOR

#42
post #32

Earlier quoted context omitted.

"Financial innovation" seems to in large part consist of creating private information asymmetries, where the large banks are the only ones with enough data to accurately price the securities they engineer and then make a market for. Thus it's not at all clear here that financial innovation is a net win, and, further, any comparison with innovation in the tech world is fatuous.

Seems like the "vote with your money" mechanism should solve that: don't buy those securities. Do you claim that this mechanism doesn't work? If so, why is that?

The point is you are being lied to about the nature and. Alice of those instruments, the value of which is manipulated up before you buy and down afterwards. Efficient markets only work when participants have reliable information on which to make buy and sell decisions.

It's like telling someone who bought a car that's had its mileage manipulated that they shouldn't have bought the car. Well duh !

Re: Lies, Damn Lies and LIBOR

#43
post #31
post #21

Earlier quoted context omitted.

It's very big news in the UK.

It's big news in the very narrow segment of American society that pays attention to hard news. In the sense that we can see the mechanisms by which the general public is being robbed. It is not news in the sense that most anyone who has been paying attention the last 3 decades knows that the both the markets and the regulation of the markets is a rigged game.

This angle seems a bit overplayed to me. The main victims of the fraud are just the counter parties on these large derivative trades that investment banks make between each other. One side was tilting the scales.

At least that's what I make of it.

Re: Lies, Damn Lies and LIBOR

#44
post #32

Earlier quoted context omitted.

"Financial innovation" seems to in large part consist of creating private information asymmetries, where the large banks are the only ones with enough data to accurately price the securities they engineer and then make a market for. Thus it's not at all clear here that financial innovation is a net win, and, further, any comparison with innovation in the tech world is fatuous.

Seems like the "vote with your money" mechanism should solve that: don't buy those securities. Do you claim that this mechanism doesn't work? If so, why is that?

Yes, it seems that way, doesn't it.

And yet.

[Edit: imagine two bookies, both of them placing odds on different horses. how, exactly, are you going to figure out which bookie to bet with in order to get the fairest odds?]

Re: Lies, Damn Lies and LIBOR

#45

Earlier quoted context omitted.

One reason is that the London Interbank Offered Rates (LIBOR) are just not as relevant as they used to be: "...the scandal has shed light on an inconvenient truth about these interbank rates which are used to determine the price of so many hundreds of trillions of dollars worth of global financial contracts. That inconvenient truth is that even when London Interbank Offered Rates are not "fixed", they may still not b…

There are hundreds of trillions of dollars of derivates tied to the LIBOR. If the LIBOR moves 0.01% it translates to shifts in billions of dollars around the globe. Fixing the LIBOR is one of the (if not the) biggest thefts in history. Free-market capitalism is a joke. Deregulation and corporate socialism has led to a dysfunctional society ruled by a kleptocratic elite.

> Free-market capitalism is a joke.

To paraphrase Churchill: It has been said that free-market capitalism is the worst economic model except all the others that have been tried.

You use the word "deregulation", yet thousands of pages of new regulations are churned out each year by the Federal government... when 1 or 2 pages are repealed, we hear "They're deregulating!". Any look at the regulations being emitted from the Federal Government will numerically prove that deregulation isn't our problem.

It seems more apparent to me that the problem is that the Government has created really poor regulations and way too many of them at that. They created the regulatory mix that their corporate partners wanted them to in order to protect the business models of those corporate partners.

Maybe if the Government tried to do a lot less and just did what it does well, we could keep better track of it and hold it accountable? Instead, the trend seems to be to hand over more power and authority to the Government in hopes that the people in it are somehow more ethical and wiser than the citizenry. That hope would seem to have been misplaced.

Re: Lies, Damn Lies and LIBOR

#46

> We need to rethink as a society what banks are for, what exchanges are for, and what clearing houses are for. If they are for the profit of the few at the expense of the many now, that is because it is the business model we have permitted. Is that really true compared to Silicon Valley? Do banks concentrate wealth a lot more than a Google or a Facebook? If not, how would you feel about some random dude commenting o…

This is one of those questions where a rebuttal and an explanation would be extremely long, and would also have to work against your biases/beliefs. I hope someone more eloquent than me comes along.

In short it's a complicated matter, with tough constraints.

For one, yes banks do concentrate wealth a lot more than Facebook and google. HFT/prop desks/Cdo desks and the firms PE and IB arms are extremely well paid. They concentrate wealth very effectively.

They are doing something wrong, and from the emails which have come out its clear that the extent of it is literally unbelievable. As in the wrongdoing is so obvious, that people can't believe it's happening and move on.

I cant offer you too many links, because I don't keep a list of all the evidence the banks churn out, but the recent libor trader emails are a great start. You can follow that up by reading about the magnetar trade, or abacus - where Goldman Sachs sold their customers a CDO all the while shorting it because they knew it sucked. Edit: After that the emails where they forged ownership documents of mortgages would be illuminating.

The mechanisms are failing us, and the financial industry is extremely good at dancing on the edge of the words, but completely outside of the spirit of regulation.

Further regulation has been reduced, most notably glass steagal in 1999. We are actually seeing the crisis because of a proliferation of financial institutions and instruments caused directly by deregulation. Which is exactly what you are asking for. (edit: this also brings us to the edge of what we can discuss in general terms - you could mean deregulating so that we get a 100 bank of America's)

At the same time the regulators have been understaffed and weakened, so malicious actions are easier to get away with.

On top of all this, there is a chasm of understanding between a lay person and the rituals of wall street.

It was news to me that if the sec says its going to take a bank to court, it means the banks usually will settle.

The sec has few resources, so they choose cases where they know they can make an impact and not waste effort/respirces. when they do tell someone they are in their cross hairs, it's enough for people to realize "ok, we better dial it down". If they say they will take you to court, it translates as "the sec knows they have evidence against you, likely sufficient to get a judgement"

To this most banks immediately plea bargain so that they pay a fine, take measures to correct it, and importantly - don't have to publicly admit to wrongdoing.

Banks work very hard to make sure they don't have to say they broke the law.

Only Goldman recently was arrogant enough to fight the sec and they lost. It was one of th largest fines in the sec's history, and yet it was a drop in the ocean for GS.

This matters because wall street is treated and reported in the main stream press using normal language. The reality of what's going on if translated better is hair raising.

As people are commenting "anyone with a Bloomberg terminal in 2006, knew that libor was being manipulated"

Edit: honestly once you talk to a few traders or just keep up to date with finance news it starts becoming revolting. Many things are open secrets but are artfully reasoned away each day.

Also, banks is a huge term for what they do.

Re: Lies, Damn Lies and LIBOR

#47

> We need to rethink as a society what banks are for, what exchanges are for, and what clearing houses are for. If they are for the profit of the few at the expense of the many now, that is because it is the business model we have permitted. Is that really true compared to Silicon Valley? Do banks concentrate wealth a lot more than a Google or a Facebook? If not, how would you feel about some random dude commenting o…

> 'm tempted to think that it is because the barrier to entry to the banking industry is so amazingly high largely due to regulations that it favors a few large banks at the expense of eventual competitors.

That's a completely ridiculous statement. The barriers to entry in banking are coming up with huge amounts of capital. Silicon Valley is the complete opposite. You can build Facebooks and Googles with very little capital up front.

Re: Lies, Damn Lies and LIBOR

#48
post #32

Earlier quoted context omitted.

"Financial innovation" seems to in large part consist of creating private information asymmetries, where the large banks are the only ones with enough data to accurately price the securities they engineer and then make a market for. Thus it's not at all clear here that financial innovation is a net win, and, further, any comparison with innovation in the tech world is fatuous.

Seems like the "vote with your money" mechanism should solve that: don't buy those securities. Do you claim that this mechanism doesn't work? If so, why is that?

Why is the presumption that "vote with your money" will solve that? Why don't you prove that "vote with your money" will solve that problem?

Re: Lies, Damn Lies and LIBOR

#49
post #44

Earlier quoted context omitted.

Seems like the "vote with your money" mechanism should solve that: don't buy those securities. Do you claim that this mechanism doesn't work? If so, why is that?

Yes, it seems that way, doesn't it. And yet. [Edit: imagine two bookies, both of them placing odds on different horses. how, exactly, are you going to figure out which bookie to bet with in order to get the fairest odds?]

> [Edit: imagine two bookies, both of them placing odds on different horses. how, exactly, are you going to figure out which bookie to bet with in order to get the fairest odds?]

Isn't that type of problem solved through arbitrage? Frankly, I'm really not sure I get your point.

Re: Lies, Damn Lies and LIBOR

#50
post #48

Earlier quoted context omitted.

Seems like the "vote with your money" mechanism should solve that: don't buy those securities. Do you claim that this mechanism doesn't work? If so, why is that?

Why is the presumption that "vote with your money" will solve that? Why don't you prove that "vote with your money" will solve that problem?

That is pretty much the equivalent of asking me why capitalism works which is another debate entirely.
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