We just keep learning new ways that everybody on earth, aside from Tim Geithner, knew of the risk of Libor manipulation years and years ago.
The latest example is a piece in American Banker by Richard Robb, CEO of Christofferson, Robb & Co., an investment management firm, in which he says he warned one U.S. regulator of the risk of Libor manipulation way back in November 1996, nearly 16 years ago.
"No one should be surprised that banks would suppress their posted rates in a funding crisis or that they might manipulate the survey for gain," he writes. "It was easy to see this coming."
Back at the time, the Chicago Mercantile Exchange had its own method for estimating Libor, or the London Interbank Offered Rate, a number meant to measure the interest rate at which banks can borrow money from each other. Libor helps set interest rates throughout the global economy, from adjustable-rate mortgages to derivatives contracts.
The CME had a seemingly foolproof method for gauging Libor, Robb writes, but wanted to adopt the British Bankers Association model instead. While the CME took random samples of bank borrowing costs when setting Libor, the BBA model asked the same banks, day after day, for their borrowing costs. That predictability made it all too easy to game the system, Robb writes.
In November of 1996, Robb wrote a letter to the Commodity Futures Trading Commission warning them that a shift to the BBA model of calculating Libor was an invitation to disaster. In fact, he even gave a few specific examples of just how much the rate could be manipulated by a couple of motivated banks. Robb says the CFTC ignored him.
Fast-forward 16 years, and now that same CFTC is gearing up to collect hundreds of millions of dollars in fines from banks for -- no prizes for guessing -- manipulating Libor, just as Robb predicted.
But Robb was not exactly a lone voice crying in the wilderness. A former Morgan Stanley trader wrote recently that Libor manipulation was an accepted fact of life all the way back in 1991, and that anybody who expressed shock about it would be laughed off the trading floor.
A Federal Reserve analyst also wrote a paper in 1998 warning of the risks of Libor manipulation, using anecdotes that dated back to 1996.
And yet, somehow, we are supposed to believe Treasury Secretary Timothy Geithner's claim that he was clueless about Libor manipulation until the financial crisis of 2008. At the time, Geithner was in charge of the New York Fed, the financial regulator that sits right smack dab in the middle of the financial system, watching interest-rate markets all day, every day.
The New York Fed has said that it leaped into action once it discovered evidence of banks monkeying with Libor, including straight-up admissions from Barclays traders that they were lying about their borrowing costs to make the bank look better. But that action mainly consisted of quietly writing a memo to British bankers and letting the matter drop. And then the Fed and Geithner's Treasury Department used that same manipulated Libor to set bailout terms for banks and AIG.
Why, if you didn't know better, you'd almost think Geithner didn't actually care all that much that banks were manipulating Libor. That's actually an easier position to defend than simply claiming total ignorance.
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Living in the age of computers would only amplify the problems that were caused by investments being merged with banks as they were pre-fall of 1929. Obviously, our legislatures didn't learn history very well because they went along with everything like a hungy bass after the fake lure - hook, line and sinker.
So the CFTC and Fed allegedly know about how wacky Libor was going back to 1996-1998 and once it discovered evidence on “monkeying around” it “leaped into action”. Presumably the speed of reactions was not in the same realm as the superhuman M Phelps more like a slow mo sequence from and old trekky episode. “weeeeeeeeeeeeee haaaaaaaaaave evidennnnnnnnnnce, buuuuuut noooooooot aaaaaaaaaaas yooooooooou koooooooooow iiiiiiiiiiiiiiiiiit, Jim”
If found complicit in the cover up of Libor manipulation will ALL the necessary parties be fined and prosecuted?. Should the bankers be the only ones taking the rap for this one?
It takes time for this activity to become noticeable, whereas, it takes a few cycles for a pattern to emerge for those in the industry who are smart enough and watchful enough to catch it. Which means this started occuring under GHWB. It could have been happening as far back as the late part of the Reagan administration. The article only mentions that it was brought to Geitner's attention who was chairman of the federal reserve in 91.
We don't know if it was brought to the former chair's attention or not. However, it was occuring prior to Clinton taking office and continued through Clinton's two terms and GWB's two terms. There is plenty of blame for both parties to shoulder.
In otherwords, this is a bi-partisan issue. Not a Demorcrat issue.
even the Your" old Reagan Line"