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Desc:A once obscure interest rate is all over the news.
Category:Business, Crime
Tags:banks, Scandal, economics, Libor, MoneyWeek
Submitted:baleen
Date:08/13/12
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Comment count is 9
SteamPoweredKleenex
It's amazing the power the banks wield. In any sensible or even remotely just system, pretty much everyone from manager on up would be paying off their shenanigans in prison for the rest of their lives.

I'm almost thinking we need a way of tallying up the total losses committed the same way the Golem, Mr. Pump, did in Terry Pratchett's "Going Postal":

“Do you understand what I'm saying?" shouted Moist. "You can't just go around killing people!"
"Why Not? You Do." The golem lowered his arm.
"What?" snapped Moist. "I do not! Who told you that?"
"I Worked It Out. You Have Killed Two Point Three Three Eight People," said the golem calmly.
"I have never laid a finger on anyone in my life, Mr Pump. I may be–– all the things you know I am, but I am not a killer! I have never so much as drawn a sword!"
"No, You Have Not. But You Have Stolen, Embezzled, Defrauded And Swindled Without Discrimination, Mr Lipvig. You Have Ruined Businesses And Destroyed Jobs. When Banks Fail, It Is Seldom Bankers Who Starve. Your Actions Have Taken Money From Those Who Had Little Enough To Begin With. In A Myriad Small Ways You Have Hastened The Deaths Of Many. You Do Not Know Them. You Did Not See Them Bleed. But You Snatched Bread From Their Mouths And Tore Clothes From Their Backs. For Sport, Mr Lipvig. For Sport. For The Joy Of The Game.”
gmol
Why stop at the banks? Why not microsoft employees? Oh and groupon ones too...and anyone in big pharma....

Right that's it then. Just those guys.

SteamPoweredKleenex
Get back to me when Microsoft manages to fiddle a key financial rate for the benefit of itself and its pals. Which is illegal, by the by, yet nobody seems to go to jail.

And the bankers, who lobbied to be allowed to handle mortgages, investment "products," purchase their own ratings agencies, and do a lot of other things that had been wisely walled off due to massive conflicts of interest, were and continue to be the cause of a lot of financial wrongdoing.

But hey, I'm sure Safeway is somehow involved if you squint hard enough, so lets go burn down a grocery store. That'll fix it.

baleen
Gmol, neither Microsoft, groupon, nor big pharma are directly responsible for making the economy work at its most fundamental level. I am not sure if I follow your logic, but I think I do remember you saying something alone the lines that the food commodities futures markets helped farmers sell their food all year around and keep their machinery running, which makes me think that you rest on the side of "Leave the Poor Banks Alone!!!" BTW, if I am remembering your position on food futures correctly, I have to completely disagree.

The idea that massive government connected banks are not worthy of universal disdain is just silly, but maybe I am fundamentally misunderstanding your position.

gmol
The point of my original post is that all businesses are out to screw each other over, it's what they do. Anyone that has ever been a part of an organization that sells stuff to people, be it a used car dealership, perfumes or commercial real estate; all of them just want to take every last penny they can get. You need only look at the megalomaniacs that you'll find at or near the top of these organizations. Wall St. isn't any guiltier than, say, a car manufacturer balancing the cost of manufacturing cost against risk of decapitation or a medical device manufacturer who hires some moron to code an horrible UI that results in a mistaken and fatal overdose given to a patient.

All of these guys are assholes, not just Wall St; it is just what they do. It is hard to argue that Wall St. is somehow more fundamental than, I don't know, defense; or that they way Wall St. is screwing any of us over is somehow worse than all any other family of corporations.

FWIW no one who works on Wall St. is at all shocked by this LIBOR mess. This articles on dealbreaker, I think, gives one an idea as to what it looks like from such a person's perspective:

http://dealbreaker.com/tag/libor/

Pushing around fixing prices is one of the major ways banks make a lot of money. But, once those markets become electronic we can see they become much more efficient, and it becomes much harder to pull these types of shenanigans. Those shenanigans, though, go on every single day. It is hard to envision a realistic system where they wouldn't in some other way.

Baleen,
You do misunderstand my position. People who talk about commodities being inflated due to futures markets don't understand futures markets, why they exist and where they come from. The hypothesis could be true, but the complexity behind proving the assertion isn't obvious.

Read Williams and you can understand how commodity futures markets are really just part of an implicit loan market, which makes sense for processors like millers. Being able to pay for accessibility to a commodity is efficient, that's why these markets come about (the reason why don't have explicit loan markets is a bit of a frozen accident). Without the underlying need to borrow and loan, commodity futures markets die. Here is a simple question to test your understanding:

Why does just about every futures market only have contracts that go out no further than a year or so? Why can't you go long on a 5 year future contract on hard red spring wheat?

Convince yourself that you can answer that first, then see if you can make a cogent argument about commodity markets and food price inflation.

baleen
Yes, I am recently recovered from a failed small business. I know firsthand what it means to get credit or to be denied loans, to have to grovel to the government for a low interest "bailout," to see managerial incompetence at its worst. The fact that assholes, as you put them, rise to positions of great power is reason why assholedom should be regulated. And actually, regulations have traditionally had a pretty amazing effect on putting giant caps on assholedom before the 1980's watered them down. Goldman Sachs manipulating foreign currencies and massaging the books so that they are in a more powerful position to take over, say, Greece, is far more terrifying to me then Pfizer using plants in the FDA to slip a new chemical into our fertilizers without 2 more years of monkey testing, and it's a lot more terrifying than Microsoft buying off a Mississippi representative in an anti-trust trial.

As for your contract question, I'm not sure what you hope to win here. Are you saying you know the answer to the bigger question of, say, "Did the futures market have a role in artificially increasing food prices in 2008?" If you have an answer to this, you're far ahead of me, I haven't been able to find a definitive answer but I'm leaning toward a big fat YES.

Maybe the clearing houses founded over a century ago to create the first class of middlemen were valid when those interested in trading food commodity futures were those involved in the food industry itself. One such man was my grandfather, who inherited an exec position in the family business, at the time New York City's largest produce distribution company. He made a million dollars (in 1940's money) hedging orange futures on margin and lost it all. He had a nervous breakdown in his office, an empty Miami hotel room filled with phones which he used to hustle the market. My dad recalls moving from 5th Ave. to East Flatbush when he was 6 years old. Anyway...

We now have things like The Commodity Futures Modernization Act of 2000. From 2003 to 2008, the amount of money exchanged in commodity index funds increased from $13B to an excess of $300B. To imply that this speculation did not have a deleterious effect on normal working people is wishful thinking.

http://www.fao.org/docrep/012/al296e/al296e00.pdf

baleen
And to sort of answer your question. When big banks adopt a buy-only stance on food futures as if they were stocks, it makes no difference how long the actual contract terms are.

"This imbalance undermined the innate structure of the commodities markets, requiring bankers to buy and keep buying -- no matter what the price. Every time the due date of a long-only commodity index futures contract neared, bankers were required to "roll" their multi-billion dollar backlog of buy orders over into the next futures contract, two or three months down the line. And since the deflationary impact of shorting a position simply wasn't part of the GSCI, professional grain traders could make a killing by anticipating the market fluctuations these "rolls" would inevitably cause. "I make a living off the dumb money," commodity trader Emil van Essen told Businessweek last year. Commodity traders employed by the banks that had created the commodity index funds in the first place rode the tides of profit."

fatatty
It could stand to be a little bit more all over the news in the US. I think it's a pretty fair bet that most people here still have no idea what LIBOR is or why they should be mad about it being manipulated.
baleen
I don't think people really understand the issues ... That's why OWS fragmented into a wild index of independent and liberal antipathy and the Tea Party decided to become a fossil record of Republicans with amnesia.

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