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Thing One: Gigantic Libor Shoe Drops: Even though it is not really surprising, the sheer scope and audacity of the market manipulation involved in the latest bank scandal still manages to inspire awe.
As was widely expected, regulators in the U.S., U.K. and Switzerland this morning announced they were forcing Swiss bank UBS to cough up $1.5 billion to settle charges that its traders manipulated the world's most important interest rates perpetually over a stretch of five years. According to the regulators, at least 45 different managers and traders were involved in a scheme to manipulate key benchmark lending rates known as Libor and Euribor, which affect "hundreds of trillions of dollars of financial contracts around the world," notes David Enrich of the Wall Street Journal. Like Barclays, the only other bank so far to settle similar charges, UBS traders manipulated rates not only to make the bank look better, but also to help traders profit on derivatives trades.
The manipulation was so pervasive that the U.K.'s Financial Services Authority says every single trade in which UBS was involved over five years was suspect, the Financial Times notes. And regulators found at least 2,000 instances of certain manipulation. How do they know this? Why, dumb emails, of course.
“I will f***ing do one humongous deal with you ... I’ll pay you, you know, 50,000 dollars, 100,000 dollars ... whatever you want," one eager trader told a banker, to entice him to submit a fraudulent Libor rate.
The important thing about this settlement is not the fine, which UBS should have no trouble paying, even though it is going to cause the bank to take a loss in this quarter. The bank's share price was up 1 percent this morning, if that tells you anything about how much financial damage the settlement is going to do. No, what matters is that criminal charges are finally starting to be filed. Three former UBS traders have already been arrested in the U.K., and more arrests are coming in the U.S. Frog-marches might help send the signal to bankers that regulators are getting serious.
On top of that, prosecutors broke a taboo and actually filed a criminal charge against UBS itself, something they are typically too terrified to do. Of course, this charge was designed to do minimal damage. it was limited to UBS's unit in Japan, which pleaded guilty to one count of fraud.
Authorities are loath to prosecute big banks criminally, Enrich writes, because they consider it a "death sentence" for banks. Legal experts aren't so sure that's really the case, as they discussed recently on HuffPost Live. But prosecutors don't dare take the chance, because toppling these behemoths might crush the financial system. Of course, given that UBS and other big banks are constantly getting themselves into massive amounts of trouble, a death sentence -- or an order to break up into more manageable pieces, as former TARP watchdog Neil Barofsky has suggested -- might leave us all better off in the long run.
Thing Two: Cliff Watch! Everything was going fine in fiscal-escarpment talks. The wealthy and elderly had been placed in the path of the oncoming bus, as pleases Yahweh. But suddenly yesterday the wheels came off that bus.
The Huffington Post's Sam Stein and Sabrina Siddiqui report that yesterday was the "bleakest day in weeks" for talks between the White House and congressional Republicans to avoid the tax hikes and spending cuts due to take effect next year, the so-called fiscal cliff. Angry press releases were typed, harsh words were spoken, and last-minute new ideas were raised, most notably the "Plan B" floated by Speaker of the House John Boehner. That is not a morning-after pill but a plan to shut down talks and only raise taxes on only those making $1 million or more, ignoring everything else that has been discussed so far, as Reuters notes. All of Washington had a cow over that one.
"Either the wheels are totally coming off or one wheel has come off and can still be put back on," one Democrat told Stein and Siddiqui. The wheels on this bus don't go round and round any more, children. They don't go round and round.
As is often the case with these talks, these moments of despair came just as everybody had decided a deal was imminent. And it probably still is. This could very well be the all-important SIFUAB phase of negotiations [SIFUAB is FUBAR updated for the Occupy Wall Street era (warning, link goes to potty words)], where one side throws up its hands and walks away, in an effort to draw the other side into giving up just a little bit more. Like when you tell the car salesman thanks but no thanks. That, or we're just going right off the fiscal escarpment in less than a fortnight. Either way, the government gets gutted, writes Eduardo Porter in the New York Times.
But a trip over the cliff might be preferable to whatever deal the Republicans can wring out of Obama, warned Paul Krugman yesterday morning, before everything went SIFUAB. "[A]ny further concession on Obama’s part "would make this a total non-starter." Get ready to non-start that bus, professor.
Thing Three: Gun Makers Abandoned: For the third straight day, the stock market hammered publicly traded makers of guns, after private-equity firm Cerberus Capital announced it was dumping its investment in the company that makes the Bushmaster rifle used in the Newtown Elementary School massacre. The California State Teachers' Retirement System had put pressure on Cerberus to drop its investment, and CalSTRS told the Huffington Post it is considering dropping its own investments in the publicly traded stocks. Meanwhile, HuffPost's Ben Hallman reports that Newtown victims are going to have an awfully hard time suing the maker of the gun used in the killings, thanks to a law pushed by the National Rifle Association.
Thing Four: AmEx CEO To Get New Job, Maybe: The White House is considering bringing American Express CEO Kenneth Chenault on board for a second Obama term, Bloomberg reports. They might offer him Treasury or Commerce, or maybe just have him around as an advisor, according to Bloomberg. Chenault would be the nation's first black Treasury Secretary, although he is not considered a front-runner for the job.
Thing Five: Facebook Annoys Everyone Again: We all knew something like this was coming, from the minute Facebook bought Instagram. Facebook a couple of days ago announced some policy changes for users of the photo-sharing app, including some language that suggested it was possible for Facebook to sell your photos to advertisers. For some reason, Instagram users were not super excited about this and went into open revolt. As a result, Facebook dropped the whole "sell-your-photos" language. But many Instagram users are still looking to get out. HuffPost's Craig Kanalley considers your Instagram alternatives.
Thing Six: Google Not Off Hook Yet: We thought the Federal Trade Commission's antitrust investigation of Google was dead, but apparently it was just resting its eyes. The New York Times reports that the FTC could still take action against Google over charges of abusive search practices, despite earlier reports it was going to close its books with a light scolding. Don't hold your breath. Meanwhile, the FTC has opened an investigation into companies that mine and sell consumer data, the NYT writes. Facebook could not be reached for comment (just kidding).
Thing Seven: Let Nothing Tear The Robots Asunder: Knight Capital, the high-speed trading firm that nearly killed itself with high-speed trading, is trying to merge with another high-speed trading firm called Getco, the WSJ writes. What could possibly go wrong?
Thing Seven And One Half: Our Home Away From Home: Scientists have discovered a possibly habitable planet circling Tau Ceti, a star very much like our sun, a short 12 light years away, the Guardian writes. Now we just need to get to work on that warp drive. (h/t Quartz)
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Calendar Du Jour:
Economic Data:
8:30 a.m. ET: Housing Starts for November
Corporate Earnings:
Bed Bath & Beyond
FedEx
General Mills
Heard On The Tweets:
Instagram = Grim SatanOooooOOOOooooh!
— Miah St. Cyr (@MiahSaint) December 18, 2012
Not sure how I'm going to explain to my cats that Instagram owns them now.
— Nic Cage Match (@NicCageMatch) December 18, 2012
And you can follow me on Twitter, too: @markgongloff