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Taibbi held a gun to my head, er, I mean...
April 26, 2013 9:17 AM   Subscribe

Everything Is Rigged: The Biggest Price-Fixing Scandal Ever The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix
posted by infini (127 comments total) 41 users marked this as a favorite

 
Smaller banks, more participants and regulations that increase market transparency can fix this.
posted by humanfont at 9:23 AM on April 26, 2013 [2 favorites]


Color me surprised.
posted by sonic meat machine at 9:24 AM on April 26, 2013


Smaller banks, more participants

Increased competition? Surely you jest.
posted by the man of twists and turns at 9:27 AM on April 26, 2013 [5 favorites]


What is that old chestnut about every myth having a grain of truth in it?
posted by a shrill fucking shitstripe at 9:34 AM on April 26, 2013


Haha guys I'm tired of fake smiling and playing along so could those of you in the Inner Circle just pull off your human masks so Stephanie Zimbalist can choke down a rat and we can stop with the Pretending Everything's Okay portion of the grand farce and proceed onwards to the grim despair and/or heads-on-sticks middle portion of the show?
posted by adipocere at 9:34 AM on April 26, 2013 [40 favorites]


The Stark Fist of Removal will take care of this...
posted by Chuffy at 9:36 AM on April 26, 2013 [7 favorites]


Do you know how hard it is to collect your campaign war chest from a lot of little banks, banks that may not even all be thinking in lockstep with each other? One-stop campaign fund shopping is so much more convenient and doesn't carry all those messy and confusing conflicting marching orders.
posted by George_Spiggott at 9:36 AM on April 26, 2013 [8 favorites]


Little over a year ago I worked for a company designing a foreign exchange trading platform. My advice to you is to not get into Fx trading. If the trader, brokers, liquidity providers or scalpers don't fuck you, the bank will. And they often go first.
posted by jsavimbi at 9:39 AM on April 26, 2013 [5 favorites]


Every morning, 18 of the world's biggest banks submit data to an office in London about how much they believe they would have to pay to borrow from other banks.

That's like saying car prices are fixed by getting 18 people to suggest what the dealer's price should be.

A bank could flip that on its head and say, "instead of the price we think we'd have to pay, here's the price we will pay."

That's the essence of the problem. No one wants to step out of line and be the loser. It's the same reason a can of Coke and a can of Pepsi costs exactly the same.

You have two solutions. One is price-fixing by the government, and that's worse.

The second is making the financial landscape more advantageous for credit unions.
posted by Cool Papa Bell at 9:41 AM on April 26, 2013 [5 favorites]


Wall Street Journal: Who Got The Fed Minutes Early?
The Federal Reserve said early Wednesday that it inadvertently e-mailed the minutes of its March policy meeting a day early to some congressional staffers and trade groups.
Zero Hedge: Fed Releases Names Of Early FOMC Minutes Recipients: Include Employees Of ECB, Goldman, Barclays, JPM, Law And PE Firms - "In other words: absolutely everyone who trades risk assets for a living!"

naked capitalism: Jeffrey Sachs Calls Out Wall Street Criminality And Pathological Greed and Bill Black: Krugman Now Sees the Perversity of Economics’ “Culture of Fraud” and SEC Gives JPMorgan And Other Big Banks License To Manipulate Commodities
The New Republic: JP Morgan Gets a Big Holiday Gift From the SEC
Allowing financial interests to interfere with industrial activity is disruptive enough. More troubling is that the SEC's decision collapses the distinction between precious metals traditionally used for investment, like gold and silver, and metals and other goods that we consume in large quantities, like copper and corn. It signals to bankers that all goods are fair game for financial play, no matter how vital to our economy or our well-being.
"There's no reason why banks won't try this with grain and oil next," said Michael Masters, a hedge-fund manager based in New York. "As long as they can, why not? Right now, there's free rein. It will only stop when regulators decide that allowing essential things to be hoarded for investment is misguided investment--and dangerous for the public.
interfluidity: Forcing Frequent Failures
It’s not enough for the legal system to “permit” infrequent, hypothetical failures. Economic behavior is conditioned by people’s experience and expectations of actual events, not by notional legal regimes. As a matter of law, no bank has ever been “too big to fail” in the United States. In practice, risk-intolerant creditors have observed that some banks are not permitted to fail and invest accordingly. This behavior renders the political cost of tolerating creditor losses ever greater and helps these banks expand, which contributes to expectations of future bailouts, which further entices risk-intolerant creditors. [1] In order to change this dynamic, even big banks must actually fail.
posted by the man of twists and turns at 9:43 AM on April 26, 2013 [25 favorites]


I sent Mr. Taibbi a fan letter for this article - and also a tiny correction:
In its simplest form, the customer in a swap deal is usually paying a premium for the safety and security of fixed interest rates, while the firm selling the swap is usually betting that it knows more about future movements in interest rates than its customers.
That's not how they do it. They use delta-hedging to keep a balanced book, so they can make money regardless of the direction of interest rates moves, unless the market moves too often, in which case the cost of hedging ends up costing the investment bank on the deal.

A tiny quibble - overall, another brilliant and scary article.
posted by lupus_yonderboy at 9:43 AM on April 26, 2013 [1 favorite]


Everybody knows that the deal is rotten
Old Black Joe's still pickin' cotton
For your ribbons and bows.
And everybody knows.

-Leonard Cohen
posted by Danf at 9:44 AM on April 26, 2013 [17 favorites]


Cool Papa Bell: there is a third solution, which is enforcing the law.

If the banks knew that colluding was illegal, and they could go to jail for it, the game theory would change dramatically...
posted by lupus_yonderboy at 9:46 AM on April 26, 2013 [13 favorites]


also: print version of link in fpp
posted by the man of twists and turns at 9:49 AM on April 26, 2013 [1 favorite]


Can you imaging if Matt Taibbi and Elizabeth Warren had a kid?
posted by humboldt32 at 9:50 AM on April 26, 2013 [19 favorites]


Every morning, 18 of the world's biggest banks submit data to an office in London about how much they believe they would have to pay to borrow from other banks.
That's like saying car prices are fixed by getting 18 people to suggest what the dealer's price should be.


That wasn't the price-fixing bit. The price-fixing bit was where the people at the various banks responsible for calling in the numbers would call round to their counterparts at the other banks and say "hey, i need a favor, the traders over here want to put together a certain deal and they need today's rate to be 3.5, will you call in a 3.5 for me and I'll get Deutche and USB to do the same? Solid. I owe ya one, buddy."

There are emails which say, literally, the above. It's not just Shop Rite noticing A&P put milk on sale so it does too.
posted by Diablevert at 9:50 AM on April 26, 2013 [13 favorites]


This needs to be investigated. Taibbi is still an idiot. There are plenty of good analyses of the problem without his ridiculous style and going-too-far conclusion making.
posted by Ironmouth at 9:53 AM on April 26, 2013


He just went straight for Jewish banker conspiracy in the first paragraph with the Rothschild reference, didnt he?
posted by empath at 9:55 AM on April 26, 2013


Yeah, and Michael Moore is fat! Fat, do you hear?
posted by George_Spiggott at 9:58 AM on April 26, 2013 [8 favorites]


He just went straight for Jewish banker conspiracy in the first paragraph with the Rothschild reference, didn't he?

I read that as a reference to common tenets of financial conspiracy theory, not advocacy thereof.
posted by The Notorious SRD at 10:00 AM on April 26, 2013 [18 favorites]


going-too-far conclusion making

Agreed, but when literally everyone else is not going far enough, isn't this somewhat necessary?
posted by cell divide at 10:00 AM on April 26, 2013 [2 favorites]


...there is a third solution, which is enforcing the law.

If the banks knew that colluding was illegal, and they could go to jail for it, the game theory would change dramatically...


I always knew there's a reason I'm not in any sort of position to lead or make decisions - my only idea is to just randomly throw finance industry people making more than the low-six figures to the lions. We could pass out bread at the stadium too.
posted by Calloused_Foot at 10:01 AM on April 26, 2013 [6 favorites]


He just went straight for Jewish banker conspiracy in the first paragraph with the Rothschild reference, didnt he?

He explicitly went for a whole bunch of conspiracy theories - while also suggesting that they are still inaccurate - thats the whole point of the paragraph, right?
Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game.
posted by memebake at 10:02 AM on April 26, 2013 [2 favorites]


my only idea is to just randomly throw finance industry people making more than the low-six figures to the lions.

You mean per hour, right?
posted by George_Spiggott at 10:05 AM on April 26, 2013


jsavimbi: Little over a year ago I worked for a company designing a foreign exchange trading platform. My advice to you is to not get into Fx trading. If the trader, brokers, liquidity providers or scalpers don't fuck you, the bank will. And they often go first.

From a slightly different angle: Forex trading is a zero-sum endeavor. For every winner, there is a loser. No wealth is created in forex. The jello just gets moved around the plate.

So, for you to win, someone else has to lose. They are professionals, they spend their entire lives doing nothing else, and they don't like to lose.

You'd probably do better playing poker with Vinnie.
posted by Malor at 10:07 AM on April 26, 2013 [2 favorites]


Ironmouth: This needs to be investigated. Taibbi is still an idiot. There are plenty of good analyses of the problem without his ridiculous style and going-too-far conclusion making.

Taibbi is just about the only guy out there who actually understands what's going on, and is willing to digest it for financial noobs, instead of using his knowledge to make himself rich.

In this area, he is more right, more often, than any other mainstream source I know.
posted by Malor at 10:09 AM on April 26, 2013 [60 favorites]


Rolling Stone is a great political magazine disguised as a shitty pop-music fellating rag.
posted by Renoroc at 10:10 AM on April 26, 2013 [9 favorites]


Ironmouth:

> This needs to be investigated. Taibbi is still an idiot.

Content-free comment. Do you have anything substantive to add?
posted by lupus_yonderboy at 10:11 AM on April 26, 2013 [13 favorites]


It's pretty astounding that our legal system would let a single judge decide a trillion-dollar issue.
posted by qxntpqbbbqxl at 10:12 AM on April 26, 2013 [2 favorites]


My least favorite part about these are the illustrations, because I feel like the guy they got now could be doing so much more with the subject, and just goes for anthropomorphic pigs and dollar signs and crap.

Although I've read these guys don't get much of a notice so he's probably crankin em out at like 3am. If so, hats off.
posted by hellojed at 10:16 AM on April 26, 2013


Seriously. They may as well label the guy with the pig's head FAT CAT.
posted by Rustic Etruscan at 10:19 AM on April 26, 2013


Can someone in one sentence explain how this price fixing scheme hurts individuals? I think I understand how it defrauds institutions and nations even, but, I just can't figure out how it hurts individuals in the same way as the junk mortgage collapse did.
posted by Potomac Avenue at 10:22 AM on April 26, 2013


"Two of America's top law-enforcement officials, Attorney General Eric Holder and former Justice Department Criminal Division chief Lanny Breuer, confessed that it's dangerous to prosecute offending banks because they are simply too big."

But prosecuting free culture activists with a history of depression is easy peasy!
posted by dubusadus at 10:24 AM on April 26, 2013 [17 favorites]


The problem with all these invisible handjobs is that they are really more of a unexpected fist up the ass.
posted by never used baby shoes at 10:27 AM on April 26, 2013 [4 favorites]


Ironmouth:

> This needs to be investigated. Taibbi is still an idiot.

Content-free comment. Do you have anything substantive to add?
posted by lupus_yonderboy


His mother wears combat boots and dresses him funny.
posted by dr_dank at 10:29 AM on April 26, 2013 [1 favorite]


The invisible hand! The invisible hand!
Although I can't see it, I take its command!
posted by Rustic Etruscan at 10:30 AM on April 26, 2013


Quibbling over Taibbi's talents or love for hyperbole just flat-fucking-blows-me-away.

Name ONE other person trying to make this subject available/understandable to the average layman. Whether or not he gets the occasional fact or metaphor wrong is nothing more than nitpicking. He's made his case, blown the horn, connected the dots for YEARS now - and EVERYONE KNOWS he's essentially right.

The big question is do we, as a country and a civil society, have the will and fortitude to fix these problems? So far, the answer is a resounding no.
posted by Benny Andajetz at 10:30 AM on April 26, 2013 [61 favorites]


Famously, one Barclays trader monkeyed with Libor submissions in exchange for a bottle of Bollinger champagne, but in some cases, it was even lamer than that. This is from an exchange between a trader and a Libor submitter at the Royal Bank of Scotland:
SWISS FRANC TRADER: can u put 6m swiss libor in low pls?...
PRIMARY SUBMITTER: Whats it worth
SWSISS FRANC TRADER: ive got some sushi rolls from yesterday?...
PRIMARY SUBMITTER: ok low 6m, just for u
SWISS FRANC TRADER: wooooooohooooooo. . . thatd be awesome
Screwing around with world interest rates that affect billions of people in exchange for day-old sushi – it's hard to imagine an image that better captures the moral insanity of the modern financial-services sector.


What the actual FUCK. First, off, can somebody explain what "put 6m swiss libor in low" means, so I understand exactly what this means, and second off, assuming this means somewhat like what I think it means, can we find ways of organizing all the angry violent people on this planet so that they start angrily and violently targeting the right people?
posted by Rory Marinich at 10:31 AM on April 26, 2013 [4 favorites]


This needs to be investigated. Taibbi is still an idiot. There are plenty of good analyses of the problem without his ridiculous style and going-too-far conclusion making.

Dude, I try to be more supportive of your "let's not overreact to this" approach to everything than most people on MetaFilter are, but come the fuck on.
posted by Rory Marinich at 10:32 AM on April 26, 2013


Or we could just ignore the derail and talk about the article? Idk up to you guys.
posted by Potomac Avenue at 10:34 AM on April 26, 2013 [3 favorites]


My question remains: aside from the idea that "banks are stealing from you by making things worth more or less than what they would be naturally in order to make more money"... is this ripe for a disaster in the same way that the last financial crises was? Or is this "merely" corruption in the same way that every corrupt government employee might charge 20 bucks extra for a drivers license and then pay 5 to each other to continue the gouging? The latter is corrosive and greedy but not destructive in the sense that the former actually kills people when their houses get foreclosed on.
posted by Potomac Avenue at 10:39 AM on April 26, 2013


This is basically skimming and anti-trust, basically. Everything costs more. It's not a systemic threat to the capital markets, it's just sleazy.
posted by empath at 10:42 AM on April 26, 2013 [5 favorites]


I am totally going to try that line.

"Hey will you do [some outrageous illegal crazy insane thing] for me?"
"Why the hell would I do that?"
"I've got some sushi rolls from yesterday!"
"OKAY THEN"

Where should I use it first....
posted by seanmpuckett at 10:43 AM on April 26, 2013 [5 favorites]


Your response to is most probably one of the five Kubler-Ross stages of grief (Yes, I really like this toolkit/model lately):
1) Denial: "Surely this can't be true! Taibbi must be wrong!"
2) Anger: "How can this happen? If someone commits financial crimes they should go to jail!"
3) Bargaining: "Maybe it's an isolated incident, or it's not really that big of a deal."
4) Depression: "The world is completely fucked!"
5) Acceptance: "Well yeah, that's how the world works, dontcha know?"

There's also an addendum:
6) Deferral/Apathy: "I'm sure the situation is more complex than we really understand, and the experts will figure it out."


Example of a mix of 4) and 5), Depression & Acceptance:

Color me surprised.

Example of a mix of 1) and 6), or Denial combined with Deferral/Apathy:

This needs to be investigated. Taibbi is still an idiot. There are plenty of good analyses of the problem without his ridiculous style and going-too-far conclusion making.

I suggest Option 2). Which is to say, anger. We have laws for this -- let's fucking implement them. If someone commits a crime, send them to jail. Right now the penalty for collusion is too low that, like lupus_wonderboy mentions, the game theory isn't working for us.

---

Everyone talks about capitalism being the death of capitalism, capitalism crumbling under its own weight. "Just you wait." But I just realize now that you can interpret it in the other way, in that capitalism at its highest point could be replaced with something more sinister, that doesn't operate with the logic of exploitation and surplus-value, but rather corruption and collusion.

Right now, we are seeing that intensified financialization can bring about a corrupt anti-market sentiment so strong that it pierces through national, social, cultural, judicial, ethical, boundaries for the preservation of class. The 0.01%, stay alive not mainly because they exploit labor, not because they own large tracts of land, not because they take advantage of low wages, but because they control the judicial structures. They can get away with money laundering, fraud, not to mention irresponsible banking scot free.

To no extent is this hyperbole or exaggeration.
posted by suedehead at 10:44 AM on April 26, 2013 [29 favorites]


Potomac, I think the way this actually harms people is to think of cities like Stockton that perhaps could have weathered the foreclosure crisis if they hadn't also been scammed by municipal bond rigging on loans set by rates that were also rigged, and stabilized by swaps that are also rigged.
posted by [expletive deleted] at 10:44 AM on April 26, 2013 [6 favorites]


Robber barons is a derogatory term applied to wealthy and powerful 19th century American businessmen. By the late 1800s, the term was typically applied to businessmen who used what were considered to be exploitative practices to amass their wealth...The term derives from the medieval German lords who charged tolls on ships traversing the Rhine without adding anything of value.
posted by never used baby shoes at 10:47 AM on April 26, 2013 [2 favorites]


The "day old sushi" is clearly a "joke". When you're getting fresh sushi whenever you want it, no one would ever eat day-old sushi.

Now, it isn't a "joke" inasmuch as they're clearly colluding to change interest rates - but it's almost certainly on a "personal favors" basis.

> can somebody explain what "put 6m swiss libor in low"

LIBOR is the set of rates that big, high-credit rating banks use to lend between each other (and is used as a "peg" to set all sorts of other interest rates). Swiss LIBOR is the specific rate for lending Swiss francs. 6m would be 6 million(*) "contracts" - but for what it's hard to tell from the context, it could be futures, swaps, conceivably options of some type.

6 million is a moderately large order. People do orders as small as 100k all the time.

As for "in low" it probably means "putting an artificially low offer for this contract on the board at the end of the day to artificially depress the number reported." Without knowing what sort of contract it is, I can't tell for sure whether this would result in a lower or higher LIBOR as result, very likely lower - but it's sort of irrelevant.


(* - trivia - for some people on Wall Street, originally "m" meant thousand, from Latin "millia" - it was very convenient, because 6m = 6000, 6mm = 6 million, 6mmm = 6 billion etc. At the time I showed up there, 1987, m was in transition and "k" was appearing, probably influenced by the computer industry...)
posted by lupus_yonderboy at 10:47 AM on April 26, 2013 [6 favorites]


The only answer is to break up the banks. The rampant criminality is a side effect of the fact that governments are afraid that prosecuting them would cause another economic crisis, basically, and the fact that there are so few players involved that need to collude. Breaking the banks up solves both problems.
posted by empath at 10:48 AM on April 26, 2013 [2 favorites]


Can someone in one sentence explain how this price fixing scheme hurts individuals? - Potomac Avenue
Without doing any research on specific instances, I imagine that individuals are harmed by reduced returns on their pensions and savings, decreased government services, or increased taxes. Taibbi has written about how banks cheat municipalities
Say your town wants to build a new elementary school. So it goes to Wall Street, which issues a bond in your town's name to raise $100 million, attracting cash from investors all over the globe. Once Wall Street raises all that money, it dumps it in a tax-exempt account, which your town then uses to pay builders, plumbers, the chalkboard company and whoever else winds up working on the project.

But here's the catch: Most towns, when they raise all that money, don't spend it all at once. Often it takes years to complete a construction project, and the last contractor isn't paid until long after the original bond is issued. While that unspent money is sitting in the town's account, local officials go looking for a financial company on Wall Street to invest it for them.

To do that, officials hire a middleman firm known as a broker to set up a public auction and invite banks to compete for the town's business. For the $100 million you borrowed on your elementary school bond, Bank A might offer you 5 percent interest. Bank B goes further and offers 5.25 percent. But Bank C, the winner of the auction, offers 5.5 percent.

In most cases, towns and cities, called issuers, are legally required to submit their bonds to a competitive auction of at least three banks, called providers. The scam Wall Street cooked up to beat this fair-market system was to devise phony auctions. Instead of submitting competitive bids and letting the highest rate win, providers like Chase, Bank of America and GE secretly divvied up the business of all the different cities and towns that came to Wall Street to borrow money. One company would be allowed to "win" the bid on an elementary school, the second would be handed a hospital, the third a hockey rink, and so on.

How did they rig the auctions? Simple: By bribing the auctioneers, those middlemen brokers hired to ensure the town got the best possible interest rate the market could offer. Instead of holding honest auctions in which none of the parties knew the size of one another's bids, the broker would tell the pre­arranged "winner" what the other two bids were, allowing the bank to lower its offer and come in with an interest rate just high enough to "beat" its supposed competitors. This simple but effective cheat – telling the winner what its rivals had bid – was called giving them a "last look." The winning bank would then reward the broker by providing it with kickbacks disguised as "fees" for swap deals that the brokers weren't even involved in.
Since the LIBOR and ISDAFix are both used in determining the rate that municipalities will pay for bonds, and the returns it will earn on its unspent cash, the harm is similar. Customers overpay for financial services because the system is not actually competitive.
posted by rustcrumb at 10:49 AM on April 26, 2013 [11 favorites]


If there were a Make Finance Boring Party, or even a Prosecute the Criminals Party, I'd join up right quick.
posted by Rustic Etruscan at 10:54 AM on April 26, 2013 [6 favorites]


Every dollar that the big banks keep out of the normal, expected flow is a dollar that our society doesn't have for moving forward. That's the real crime here. It is anti-trust and money skimming, but it's much, much, much worse than just that.
posted by Benny Andajetz at 10:56 AM on April 26, 2013 [5 favorites]


I suggest Option 2). Which is to say, anger. We have laws for this -- let's fucking implement them.
In that case, a federal judge accepted the banker-defendants' incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place.

We should all just become bankers, if you can't beat 'em join 'em.
posted by xqwzts at 10:58 AM on April 26, 2013


> It's not a systemic threat to the capital markets, it's just sleazy.

Gaming the capital markets IS a systematic threat. The whole reason LIBOR was created was to prevent "balkanization" of interest rates - so that there was some standard yardstick to compare financial products.

If LIBOR is obviously gamed, why would people continue to participate? The whole of these activities is accurate price disclosure - which should mean, "We get financial services for less money."

The whole reason that the United States, at least, originally put the serious laws governing the stock market is that in its early phases it was relentlessly gamed by a few rich people - and when the public realized this it left the market in droves, and had to be enticed back by a level playing field.

Calling the entire financial system a house of cards is an exaggeration - there are checks and balances which do actually sort of work. I think of it more like a Meccano set - but your childhood experience with Meccano should have taught you that if you leave a few of the joins not quite tight enough, the whole structure will tilt...

And even if there isn't a consequent collapse, the fact is that Mr. Taibbi is right. This is exactly like the bank reaching into everyone's wallet and pulling out a few dollars every few months. As an individual, you might never notice, but that still doesn't mean it isn't a huge crime.
posted by lupus_yonderboy at 11:01 AM on April 26, 2013 [5 favorites]


It's the same reason a can of Coke and a can of Pepsi costs exactly the same.

You are not very good at buying cola if you believe this. The price of cola is all over the place depending on store, sales, quantity of unit and size of units.
posted by srboisvert at 11:08 AM on April 26, 2013 [2 favorites]


If LIBOR is obviously gamed, why would people continue to participate?

Because the banks make the rules, because they create the money. So you have to do what they tell you.

Further, they can use that created money to buy any law they want.

What's a little drug money laundering? The government was more than happy to take a skim of the take.
posted by Malor at 11:10 AM on April 26, 2013 [2 favorites]


This is exactly like the bank reaching into everyone's wallet and pulling out a few dollars every few months.

Lotta people doing this already though. Hard to work up the anger when you put it that way.
posted by Potomac Avenue at 11:14 AM on April 26, 2013


Breaking the banks up solves both problems.

to break up the banks, though, you'd have to determine the value of their assets and their obligations - and i strongly suspect that having that information become known would trigger a financial panic in itself

there may be no good way out
posted by pyramid termite at 11:18 AM on April 26, 2013 [1 favorite]


pyramid termite:
what do you mean? Aren't banks required to report their assets and obligations? I though that was public knowledge. Otherwise, WHAT THE ACTUAL FUCK, right? I mean, does that mean I could start calling my apartment the DAQBANQ, and start buying up properties with monopoly money and start getting paid fat loot because I don't have to tell anyone who I owe money to and how much I owe and what I own? Cuz, SIGN ME UP, SIR.

Of course, with most megabanks, their actual assets are probably 1000 page books with multiple volumes. And their obligations are probably twice that much. But I still thought it was something you could pop online and look up from yearly or quarterly reports. Would be kind of silly not to, really. Especially if you owned any stock in that particular bank. Ir something. Due diligence I believe is the phrase. Though, I have seen what due diligence is, and mostly it's just a page count. It would take longer to read the reports than it takes to generate them, I imagine.
posted by daq at 11:24 AM on April 26, 2013


This incestuous revolving door corruption just makes me sick:
One of the biggest Libor suits was proceeding on schedule when, early in March, an army of superstar lawyers working on behalf of the banks descended upon federal judge Naomi Buchwald in the Southern District of New York to argue an extraordinary motion to dismiss. The banks' legal dream team drew from heavyweight Beltway-connected firms like Boies Schiller (you remember David Boies represented Al Gore), Davis Polk (home of top ex-regulators like former SEC enforcement chief Linda Thomsen) and Covington & Burling, the onetime private-practice home of both Holder and Breuer.

The presence of Covington & Burling in the suit – representing, of all companies, Citigroup, the former employer of current Treasury Secretary Jack Lew – was particularly galling. Right as the Libor case was being dismissed, the firm had hired none other than Lanny Breuer, the same Lanny Breuer who, just a few months before, was the assistant attorney general who had balked at criminally prosecuting UBS over Libor because, he said, "Our goal here is not to destroy a major financial institution."
This is how you destroy a democracy.
posted by crayz at 11:24 AM on April 26, 2013 [13 favorites]


Who was it who originally observed that:


Democracy is a necessary precondition for developing capitalism;
capitalism (like any other economic system) undermines and eventually destroys democracies.
posted by hank at 11:27 AM on April 26, 2013 [1 favorite]


Aren't banks required to report their assets and obligations?

Most of the big banks are insolvent. They're not worth anywhere near what they claim; most of the assets they hold are debt instruments and credit swaps that they're basically allowed to value at whatever figure they like.

Well, they like being optimistic. Really, really optimistic.

This is why the Fed has had to print all those trillions, and hold interest rates so low, to try to get more cash into the banking system. They money you SHOULD be making on your savings is being stolen from you, and given to the banks.
posted by Malor at 11:28 AM on April 26, 2013 [5 favorites]


Malor:
since you put it that way, I take it you are talking about quantative easing. So what would happen if those banks simply went poof? or if all the bets that are on the table got called in? is there someone, somewhere, who would suddenly be the only quintillionaire on the planet and everyone else wouldn't have 2 pennies to rub together?
posted by daq at 11:31 AM on April 26, 2013


"Day old sushi" probably translates to 500,000¥ in illegal-tradingese.
posted by benzenedream at 11:31 AM on April 26, 2013 [3 favorites]


Aren't banks required to report their assets and obligations?

yes - but are they doing so honestly? - it's not as simple as it seems
posted by pyramid termite at 11:31 AM on April 26, 2013


So what would happen if those banks simply went poof?

A huge deflationary crash, with a desperate scramble for cash. Millions, worldwide, would probably die, including at least some in the US.

That's really bad, but it will be even worse if we don't get the banking sector under control. This whole funny money business is literally killing us, just very slowly.
posted by Malor at 11:34 AM on April 26, 2013 [2 favorites]


You are not very good at buying cola if you believe this.

You've missed the point in the most pedantic way possible.

I'm staring at a soda machine right now and they're the same price. That's all you need to know about the concept of conscious parallelism. Even when competition nominally exists, prices can be "fixed" without any actual collusion.
posted by Cool Papa Bell at 11:39 AM on April 26, 2013 [1 favorite]


That's really bad, but it will be even worse if we don't get the banking sector under control. This whole funny money business is literally killing us, just very slowly.

Absolutely correct, and are those are only 2 choices? Killing the big banks and watching the economy take the hit, or ceding them more and more power, more and more control over time, until we inevitably hit the tipping point and the crash is then worse?

The banks get away with this in large part because it's so dense and impenetrable for the layman, and that is indeed Taibbi's contribution - the way he writes it helps you understand what's happening. Without that, the average person's eyes glaze over - and that's exactly what the parasitic financial system counts on. It's the perfect crime, when no one can understand exactly how they're being robbed.
posted by kgasmart at 11:39 AM on April 26, 2013 [1 favorite]


in fact, let's look at what's going on right now with the housing market - often, banks are neglecting to actually foreclose on people - or, once foreclosed, they don't do anything with the houses and keep them off the market

why? - because they fear that they're worth a lot less than what it says they are on paper and if they were to put them on the market, they'd have to reevaluate a lot of their assets

they've done a lot in the past few years to try to slow that process down and not take too big a hit at once - if they were to put every house they have on the market, that's exactly what would happen - the prices would go down and their assets would be considerably devalued
posted by pyramid termite at 11:41 AM on April 26, 2013 [2 favorites]


"Day old sushi" probably translates to 500,000¥ in illegal-tradingese.

I read that as an inside joke. "Hey, do me a favor. Remember that time in Tokyo when we had all the hookers and blow and we were eating sushi off the body of an underage virgin?"
posted by Cool Papa Bell at 11:42 AM on April 26, 2013


there may be no good way out

Send people to jail. As in, physical bodies in physical jails.

Right now the game theory matrix works out so that the payoff is way greater than the potential pitfalls. We don't have a prisoner's dilemma that motivates people to abide by the rules. And finance is entirely full of people who think in terms of incentives/risks/rewards anyways; let's play that game and restage the field in terms of those incentives, because we're sure as hell not going to be able to rely on people "playing nice" or "doing the right thing".

If you get caught money laundering, or performing financial fraud, or price fixing, etc, you pay a fine, AND you go to jail. For a serious amount of time: ten years, or more. You don't go to some special white-collar jail, you go to the same jail as "everyone else", the way that some fresh-faced kid will go to the same jail with a murderer for smoking a little bit of pot on a sunday afternoon and being black at the same time.

So maybe you're a banker:
'Maybe you know a banker or two who's currently in jail for doing something stupid and shady. I mean, you could chat your friend from college who's a LIBOR submitter and pull a personal favor since he's borrowing your Montauk house for his sister's wedding reception, maybe call him on your personal cell on a walk outside, buy him a drink later. But you know that the last time someone did that and got caught, years later, they were sent to Rikers for a decade, granted later reduced to 6 years, which is like, shit, still a lot of time. And fuck, anyone who gets caught loses reputation, since not only did you have to go to jail, everyone knows that you were stupid enough to get caught in the first place. It's not like you can hop right back into things like fucking Martha Stewart coming back from jail. And anyways the SEC is being an royal anal bitch lately about being thorough, not like a few years ago where you could hang out with someone who gets it, like Lanny. So you figure, not worth it. Whatever, maybe there's some other deal you can figure out.'

As opposed to:
'I mean, you could chat your friend from college who's a LIBOR submitter and pull a personal favor since he's borrowing your Montauk house for his sister's wedding reception, maybe call him on your personal cell on a walk on your lunch break, buy him a drink later. Yeah, that sounds pretty good, might as well pick up some California rolls.'
posted by suedehead at 11:45 AM on April 26, 2013 [15 favorites]


This is exactly like the bank reaching into everyone's wallet and pulling out a few dollars every few months.

Lotta people doing this already though. Hard to work up the anger when you put it that way.


The matador doesn't just stroll out and lop off the bull's head. The bull is too big and strong for one man in sequined pants holding a cape and saber. This is why the picadors and banderilleros jab and stab at him until his blood is more in the sand than in his veins and his neck muscles are in tatters and he is barely strong enough to lift up his head. Then the matador makes a big spectacle of killing the poor exhausted brute.
posted by [expletive deleted] at 11:46 AM on April 26, 2013 [4 favorites]


(* - trivia - for some people on Wall Street, originally "m" meant thousand, from Latin "millia" - it was very convenient, because 6m = 6000, 6mm = 6 million, 6mmm = 6 billion etc. At the time I showed up there, 1987, m was in transition and "k" was appearing, probably influenced by the computer industry...)

Continued trivia: The "m = 1,000" convention is still used in my industry (natural gas). CF = cubic foot, so CCF is 100 cubic feet and MCF is 1,000 cubic feet. There doesn't seem to be a shorthand for a million cubic feet (you'd probably just call it a thousand MCF), and it switches back to English for billion and trillion (BCF, TCF). If you're talking energy instead of volumes, it's MBTU (thousand BTU) and MMBTU (million BTU) - or you use therms. Which adds another delightful layer of anachronism, because one therm is equal to 100,000 BTU, so we end up talking about dekatherms (10 therms, or 1 MMBTU) a lot. And semi-conveniently, one dekatherm is roughly the energy content of one MCF of gas - but not quite, so be careful!

posted by nickmark at 12:10 PM on April 26, 2013 [1 favorite]


Banks are utilities and should be regulated that way.
posted by LastOfHisKind at 12:21 PM on April 26, 2013 [4 favorites]


I'm liking this post and thread because of what I'm learning, as I find the whole banking farce an excessively elaborate smokescreen to make as much money as possible at any expense, and that crosspost is just sublime.
posted by Zack_Replica at 12:21 PM on April 26, 2013 [1 favorite]


This is how you destroy a democracy.

Good thing America isn't one then.

How about observing Rule of Law? That works for Republics or Plutocracies.
posted by rough ashlar at 12:24 PM on April 26, 2013


>> can somebody explain what "put 6m swiss libor in low"

> 6m would be 6 million(*) "contracts"

i think it means six month libor - enter a lower rate as your estimate of the six month swiss libor...
posted by lulz at 12:26 PM on April 26, 2013 [3 favorites]


Okay I know what the solution is. Take a motorcycle ride out to the country on a warm early spring afternoon and maybe listen to some birds and watch the Mennonites plant our vegetables for later in the season. You know what, I'm not real big on the whole God scene but these farmers with no cars and no phones probably have a lot more things right in their lives than most of the rest of us.
posted by seanmpuckett at 12:34 PM on April 26, 2013 [2 favorites]


Screwing around with world interest rates that affect billions of people in exchange for day-old sushi – it's hard to imagine an image that better captures the moral insanity of the modern financial-services sector.

Meh. Never set a stingy table.
posted by infini at 12:49 PM on April 26, 2013


Ach! You're probably right, 6 month LIBOR. Of course it made no sense that there'd be a number of contracts attached.

> Lotta people doing this already though. Hard to work up the anger when you put it that way.

In fact, I was going to point out the reverse of that - that this wouldn't be such a problem if people weren't getting jacked this way all across the board.

It's like mosquitos. One mosquito bite almost certainly won't kill you, but there are parts of the Earth where humans can't live on the ground, because you'd die in an hour from mosquito bites. (Actually, I once called up Martha Siegel to complain and had a pretty similar conversation about spam.)

So you get hit for your financial services. You get hit by your cable companies (who got huge subsidies from your tax dollar in Clinton's era to provide cheap fiber which they never delivered). You get hit by your health care - they just jacked the asthma medication I use to $190, something you can get offshore for $30, and it's in a shitty little inhaler that doesn't even indicate how much you've consumed but they raised the price "because they can". You get hit because some of your taxes didn't go to civic services but ended up in bankers' pockets because they colluded to fix rates, because some other portion of your taxes was sent in huge bales to Iraq where people literally kicked it around like footballs, because yet another portion of your taxes was spent on vastly bloated defense contractors.

Everyone steals a few dollars from you. It's the death of a thousand cuts. The 99% have strong backs, but there's a limit to how much weight they can bear.
posted by lupus_yonderboy at 12:52 PM on April 26, 2013 [8 favorites]


The banks get away with this in large part because it's so dense and impenetrable for the layman

Bullshit.

The banks are able to buy laws and the Judges and DA's are lazy. The people who gather evidence are lazy or are also willing to lie.

When the citizens were stripped of the power to take matters directly to the Grand Jury because some corrupt judges got jail time the ability for the citizens to actually correct the poor actions of leadership.

All of you outraged have been able to figure it out, so should a grand jury.

Screw trying to get/fix the banks. Let the citizen be able to go to Grand Juries directly. Then you've got a shot at fixing other things, what with the large mass of laws.

Imagine the fun of putting the staff and grandkids of Congressmen in front of a Grand Jury for the felony of making copies of music or movies? (see how powerful citizens could be with stupid laws?)
posted by rough ashlar at 12:54 PM on April 26, 2013


Send people to jail. As in, physical bodies in physical jails.

The problem is more than just too big to fail it is also too expensive to prosecute.
posted by srboisvert at 12:56 PM on April 26, 2013 [1 favorite]


These threads are so depressing. It feels increasingly like there's only room on Metafilter for "FUCK THE BANK$TER$!!!" sentiments while more moderate posters like Ironmouth, JPD, and Mutant (who almost never posts anymore) get shouted down by more rabidly liberal posters who do not seem to be as familiar with the industry.

I canvassed for Elizabeth Warren and would be a huge fan of far tighter regulations of the financial sector, so I'm not saying this from a pro-finance perspective. I just feel the the best part of MeFi is hearing insightful things from people with insider knowledge to the situation (eg: Hey, I happen to be a beekeper! Hey, I wrote the code for that app! Hey, I just finished my dissertation on that species of ringworm!) and we have completely lost that in these finance threads.
posted by Aizkolari at 1:05 PM on April 26, 2013 [7 favorites]


> it is also too expensive to prosecute.

Considering the magnitude of the fines that you can levy, this is most certainly not the case.

Overall the SEC's enforcement division was, at least a decade ago, a massive profit center for the government.

And even without that, what's more expensive for society - prosecuting criminals or letting them go free to continue their criminal behavior?
posted by lupus_yonderboy at 1:06 PM on April 26, 2013 [1 favorite]


We have the tools, it's just that we're not allowed to use them.

What is the purpose of fines? It is meant to discourage negative behavior through financial pain. This is why fines should not be fixed amounts but proportional amounts. A fixed fine could be excessive to a very poor household, yet provide zero behavior modification to the very rich (where it just becomes a cost of doing business). Some Scandinavian countries have implemented things like traffic fines where if you are super-wealthy and you speed, well, you'll pay a $1 million - that might wake you up, where $100 won't. In general, taxes and fines are the answer here - again, countries like Sweden have attempted to limit wealth disparities by higher progressive taxation.

What are these finance operators motivated by? Very well then, hit them in the pocketbook. You break the rules, we fine you - we fine you but good. Proportionally - high enough to modify behavior. Individual misbehavior - fines to the point of your entire net worth being taken. Institutional level misbehavior - massive fines up to and including complete bankruptcy. And don't forget to rocket up the taxes on profits that derive from speculation. Win - win. Rules are enforced, and the state makes money. How do we incentivize this so it all works? Well, what motivates these folks? Money, you say? Well then, rewards - percentage of the fine going to whistleblowers; make whistle-blowing more profitable than rule-breaking; at the other end, anyone found to have known about rule-breaking without blowing the whistle, even if they didn't break the rules themselves, will also be fined - thus whistle-blowing is motivated by the lure of payoff and fear of paying up otherwise. What's really funny, is that we already have all that - including punishment for lack of supervision, collusion, rewards for whistle-blowing etc., we just have not cottoned onto the virtues of the Finnish Traffic Ticket Calculator.

Only operations on the money will solve problems that spring from operating on the money.
posted by VikingSword at 1:06 PM on April 26, 2013 [3 favorites]


I hear you, Aizkolari, but Ironmouth didn't elaborate on his problems with Taibbi, nor did he link to better, less propagandistic articles on the problem in question, despite asserting their existence. Anything broader than that probably belongs in MetaTalk.
posted by Rustic Etruscan at 1:12 PM on April 26, 2013 [3 favorites]


We need to make the system fair. Because it is not sustainable in the long run, to have such massive abuse and inequality. This is what happens if we don't make it fair:

Unequal pay - see what happens next.
posted by VikingSword at 1:18 PM on April 26, 2013 [3 favorites]


I agree that this was probably not the place for that comment, but I didn't want to open up a MeTa about it. On his lack of a link, I would guess that he and other more moderate posters don't do that kind of research to participate in these threads precisely because of the backlash that gets lofted in their direction when they do. It's not like any of the other 90+ comments in here are citing anything.
posted by Aizkolari at 1:18 PM on April 26, 2013


> more moderate posters like Ironmouth,

Ironmouth's contribution to this thread was not a distinguished one...

> JPD, and Mutant (who almost never posts anymore) get shouted down by more rabidly liberal posters who do not seem to be as familiar with the industry.


I personally know an awful lot about this field. Indeed, I wrote valuation models for mortgage derivatives in the 80s for Drexel Burnham Lambert - models which worked, by the way.

This is a lot of the reason that I'm so pissed off. I left because I didn't like the crassness but at the time people were really pretty careful to obey the letter of the law, and the law enforcement really did try to keep you on your toes. Michael Milken, who worked at the same firm I did, went down for a couple of years for what were minor technical transgressions.

And he absolutely deserved to! There's no excuse for cheating - worst is that he didn't even start his cheating until he'd already won the game, he was already a billionaire!

You can make a lot of money on the Street playing completely honestly. There's no excuse for breaking the law.

But his transgressions were nothing at all, tiny little technical errors compared to the gross, criminal behavior that seems to be the standard these days.

For the markets to have any meaning at all, they have to be honest, open markets. At the time I started working on the Street, it was reinforced that your word was your bond - that even though trades were on a word-of-mouth basis, one renege would end your career - perhaps you'd "go back to the buy side" (those pension funds and endowments) or even, worst case, "retail" (but there isn't much "retail" these days, it's all been etraded away), but you had no place on the Street if people doubted your word.

Now, don't get me wrong, these weren't nice guys by any means - I'd call it "honor amongst thieves", Liar's Poker was quite accurate - but they observed their code precisely.

So yes, I'm both informed and pissed off.
posted by lupus_yonderboy at 1:21 PM on April 26, 2013 [35 favorites]


Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.

This is incredibly misleading. Yes, the notional value of the swaps market is in the trillions, but that's not the amount of money actually changing hands. Swaps are set up so that the amount of money transferred is the difference between the two interest rates in the swap times the notional. Any manipulation would in reality affect a much smaller amount of money.

Taibbi is just throwing out that $379 trillion as a scare tactic.
posted by Wemmick at 1:22 PM on April 26, 2013


lupus_yonderboy: You get hit by your health care - they just jacked the asthma medication I use to $190, something you can get offshore for $30, and it's in a shitty little inhaler that doesn't even indicate how much you've consumed but they raised the price "because they can".

Rather, they raised the price because there are more and more and more dollars chasing medical resources, and they can still sell all their inhalers at a higher price.

This is inflation, but it doesn't show up in the heavily massaged/bogus government numbers.
posted by Malor at 1:22 PM on April 26, 2013 [2 favorites]


> Taibbi is just throwing out that $379 trillion as a scare tactic.

I agree he should be identifying that as the notional amount, but that is the only practical number to report.

At least "total notional amount" is clear - you add all the notional amounts - and gives you a relative idea of how big a market it is.

Any other measure would have to be the "actual" amount at risk - but how exactly would you measure that? You'd have to go into each deal and do a worst case analysis... deals that looked very similar might have very different worst cases depending on obscure contract details...
posted by lupus_yonderboy at 1:29 PM on April 26, 2013 [1 favorite]


And note that one deal failing can impact another deal, and then another, and then another -- that whole market could blow up in hours. As I understand, it just about did, in 2008.
posted by Malor at 1:33 PM on April 26, 2013 [1 favorite]


Rather, they raised the price because there are more and more and more dollars chasing medical resources, and they can still sell all their inhalers at a higher price.

This is inflation, but it doesn't show up in the heavily massaged/bogus government numbers.

Malor

That is literally precisely not what inflation is. Companies raising prices to make more money from "more and more and more dollars chasing medical resources" is in no way, shape, or form inflation.

You trot this out in every single finance thread and you're always, always wrong. I'm sorry the world doesn't match the Austrian hyperinflation nonsense you so desperately want to be true, but it just doesn't. Inflation has a real definition, you can't just make things up.
posted by Sangermaine at 1:33 PM on April 26, 2013 [2 favorites]


That is literally precisely not what inflation is. Companies raising prices to make more money from "more and more and more dollars chasing medical resources" is in no way, shape, or form inflation.

It absolutely is. Prices going up because of too much money being in existence is exactly what inflation is.

When you have too many dollars chasing too few goods, prices go up. That's inflation.
posted by Malor at 1:41 PM on April 26, 2013 [3 favorites]


lupus_yonderboy: I agree he should be identifying that as the notional amount, but that is the only practical number to report.

Sure, it's the only practical number to report, but I think talking about the notional value of the swaps market without explaining the difference between swaps and ordinary financial instruments exaggerates the situation without being genuinely informative to the public. There *is* scandal - that much is clear, but oversimplification makes makes it hard to take Taibbi seriously.
posted by Wemmick at 1:51 PM on April 26, 2013


That is literally precisely not what inflation is. Companies raising prices to make more money from "more and more and more dollars chasing medical resources" is in no way, shape, or form inflation.
You trot this out in every single finance thread and you're always, always wrong.


More and more dollars is one of the definitions of inflation.
The Austrian School has consistently argued that a "traditionalist" approach to inflation yields the most accurate understanding of the causes (and the cure) for inflation. Austrian economists maintain that inflation is by definition always and everywhere simply an increase in the money supply (i.e. units of currency or means of exchange), which in turn leads to a higher nominal price level for assets (such as housing) and other goods and services in demand, as the real value of each monetary unit is eroded, loses purchasing power and thus buys fewer goods and services.[60]
posted by rough ashlar at 2:07 PM on April 26, 2013 [1 favorite]


It absolutely is. Prices going up because of too much money being in existence is exactly what inflation is.

Yes, exactly, inflation goes up because of an increase in money supply. Prices merely rising, as you seem to believe, are not an indication of inflation because there are all sorts of factors that can cause such rises. High medical service/device prices in the US are not evidence of an inflated money supply. The trick you pull is implying that the first part of you sentence "prices going up" is an indicator of the second part "because of too much money being in existence". There are all sorts of reasons for why medical devices cost more in the US than they may elsewhere, which is exactly the problem with trying to define inflation as you are.

You're simply wrong about inflation, as you always are, and pointing to rising prices alone as evidence as you usually do just makes you look foolish.

More and more dollars is one of the definitions of inflation.
rough ashlar

Yes, which is why Malor is wrong when he points to high prices as evidence of inflation, as outlined above. The Austrians have been predicting hyperinflation for years and it hasn't materialized, so people like Malor resort to declaring that inflation figures are lies and using their own kooky definitions to show that they're right.
posted by Sangermaine at 2:18 PM on April 26, 2013 [4 favorites]


> There *is* scandal - that much is clear, but oversimplification makes makes it hard to take Taibbi seriously.

Here's an article full of researched information. One number in it is the correct number to report, the notional amount, but you feel the writer and editor have not adequately explained the meaning of the number they're reporting.

And as a result you can't take it seriously?

It seems to me that you're just looking for reasons to ignore the meat and just want to quibble about a detail.

Surely the issue is, as the article points out a couple of times, that people don't understand this stuff at all. It's extremely hard to fit this financial reasoning into an article that many people in a popular magazine will read, understand and believe.

That either the writer or the editor didn't include more details on the difference between notional amount and the amount that's actually at risk is regrettable but absolutely understandable.

Forget about this correct number that you feel is inadequately explained. What about the rest of the article?
posted by lupus_yonderboy at 2:36 PM on April 26, 2013 [7 favorites]


>> "hey, i need a favor, the traders over here want to put together a certain
>> deal and they need today's rate to be 3.5, will you call in a 3.5 for me and
>> I'll get Deutche and USB to do the same? Solid. I owe ya one, buddy."
>
> There are emails which say, literally, the above. It's not just Shop Rite noticing A&P put milk on > sale so it does too.
> posted by Diablevert


-- "literally" -- > the email with that direct quote exists.

A pointer would be welcome. Where can we read this email?
posted by hank at 3:37 PM on April 26, 2013


More on this: Taibbi Talks Price-Fixing With Leonard Lopate
posted by homunculus at 3:59 PM on April 26, 2013 [1 favorite]


While Wronged Homeowners Got $300 Apiece in Foreclosure Settlement, Consultants Who Helped Protect Banks Got $2 Billion
posted by homunculus at 4:00 PM on April 26, 2013 [5 favorites]


homunculus, your link to Taibbi's post regarding the unbelievable contortions conducted by the banks and government regulators to hide their criminality in the matter of illegal robosigning and illegal home foreclosures deserves its own post.

It's not just an add-on to the heinous crimes discussed in this post. It is its own category of criminality.
posted by dott8080 at 5:15 PM on April 26, 2013 [1 favorite]


Name ONE other person trying to make this subject available/understandable to the average layman. Whether or not he gets the occasional fact or metaphor wrong is nothing more than nitpicking. He's made his case, blown the horn, connected the dots for YEARS now - and EVERYONE KNOWS he's essentially right.

sorry, just bears repeating. carry on.
posted by humboldt32 at 5:30 PM on April 26, 2013 [6 favorites]


dott8080, yeah, that piece probably does deserve it's own post, or to be part of a post, but I'm not sure if we should have two Taibbi pieces on the front page so close together. I might post it later. If you'd like to post it yourself now or later, please be my guest.
posted by homunculus at 6:22 PM on April 26, 2013


Yves Smith.
posted by dragonsi55 at 8:09 PM on April 26, 2013


This seems like an opportune time to trot out, "Surely this…"

I'm trying to figure out what game THE MAN is playing in goading people until they won't be happy until the perpetrators swing from lampposts rather than just go to prison.
posted by ob1quixote at 8:15 PM on April 26, 2013


The Austrians have been predicting hyperinflation for years and it hasn't materialized,

If economists were nothing more than voodoo BS artists then it might matter.

I'm trying to figure out what game THE MAN is playing in goading people until they won't be happy until the perpetrators swing from lampposts rather than just go to prison.

Part of being a sociopath practising the art of richcraft is to not only sell you BS but to take and take all the time thumping ya in the chest while saying "Ya going to do something punk?"

And really - in the eyes of the law rights belong to the belligerent litigant. You have to be willing to fight when someone takes something from ya. And there has been an erosion of the people's rights WRT Court. Standing and access to Grand Juries are 2 examples.

Take away the ability to use the Court to settle business can be shown every day in the way 'bad business' gets settled in the illicit drug trade.
posted by rough ashlar at 8:45 PM on April 26, 2013


Name ONE other person trying to make this subject available/understandable to the average layman.

Plenty of blogs out there - the automatic earth, has covered some of the issues. You have various foreign reporters - Matt isn't the only voice. But the people who claim 'this is important' and 'Matt sucks' somehow can't be bothered to show as good if not better reporting on these issues.
posted by rough ashlar at 8:55 PM on April 26, 2013


But the people who claim 'this is important' and 'Matt sucks' somehow can't be bothered to show as good if not better reporting on these issues.

Because the provision of quality journalism is not their priority.
posted by Pope Guilty at 10:53 PM on April 26, 2013 [2 favorites]


Reading the Financial Crisis - "Three post-Lehman novels measure the credit-bust world."
posted by the man of twists and turns at 7:30 AM on April 27, 2013


I'm trying to figure out what game THE MAN is playing in goading people until they won't be happy until the perpetrators swing from lampposts

I figure the people doing these things today are either people who won the "greater fool" lottery of the '00s, or who aspire to emulate the people who did. So they think that either they'll be clever enough to get out intact when they hear the tumbrils rolling down wall street (the greater fool theory), or they figure they really can pillage the economy all they like with no fear of consequences (the "the market will surely go up forever" theory).
posted by hattifattener at 7:42 PM on April 27, 2013


this shortsighted irresponsible mindset is completely alien to me *goes off humming Sting*
posted by infini at 1:59 AM on April 28, 2013


Guys coming into this late so I'll just add a few lightweight points.

First, the ICAP scandal is by no means new, this has been kicking around in the background for maybe four years now -- here is an FT article from 2010 but I read about snippets about it earlier in more specialised industry publications behind paywalls that I won't bother linking to. We definitely were talking about ICAP in late 2008 / early 2009, so I'm sorta surprised it took this long to come to light but there you are.

Second, I've read through Taibbi and it seems he's doing an adequate job introducing this material. Folks shouldn't have any illusions about believing themselves to be subject matter experts after reading a single Rolling Stone article (as well as written as it is), but it clearly delivers the basics and perhaps a tad extra. This isn't an academic publication so bias should be expected, but if folks are curious (don't blame 'em, fascinating topic that impacts all of us!) they probably should research the topic more1 but the article seems fine as is, written for a broad audience and I certainly enjoyed reading it. Different perspective on stuff I knew and some interesting stuff about the LIBOR case dismissal I hadn't read before, all with some good quotes so nicely done.

Finally and most importantly there seems to be a misconception about inflation in this thread. Simply increasing the money supply alone does not cause inflation. Inflation is too much money chasing too few goods, but the fundamental concept here is chasing.

In other words, inflation is a function of BOTH the supply of money and the velocity of money. Of course the US has increased it's money supply, but inflation is very low so that's a puzzle. Why? We have to accept the official numbers at some level so what else could explain this?

We know the velocity of money in the US economy is slowing, and sharply. We measure money via metrics such as M1 or M2, each of which track the supply in order of decreasing liquidity. M1 captures essentially cash in your pocket, while M2 tracks money you've committed to time deposits, perhaps a CD, in your bank. The turnover - aka, "velocity" of each (M1V and M2V respectively) is decreasing.

I posted about this here, where we see both M1V and M2V sharply decreasing. Nobody is really sure why money isn't circulating but we do know inflation is very low. And we're seeing broad deflation in some sectors of the economy. Very odd.

In terms of the velocity of money slowing, my own pet theory is we're seeing something similar to the capital strikes of the 1930s; for diverse reasons money being hoarded rather than deployed in risky endeavours that would help drive the economy.

Now not to go too far off topic, but this ties in with another topic: speaking solely for myself, the whole MF Global meltdown got me very concerned about systemic risk, so I sold a bunch of gold in November 2012 and bought a house. I'm still moving liquidity out of the system, liquidating captial markets based assets, purchasing tangle physical property, and I know several other folks working in banking who are also doing the same. While I personally would prefer liquidity my sense is this is time to move into less liquid assets. I've been accelerating this post Cyprus. The Cyprus bail in was telling, and I believe folks should consider that event very, very carefully.

You see, we depositors at banks have been spoiled over the past sixty years or so. We fully expect some form of protection aka insurance backing our deposits should our bank fail. But if you look back a few decades ago, pre Great Depression, that simply wasn't the case. Banks failed all the time, taking depositors funds with them. In other words, not only did the shareholders and bondholders of institutions get wiped out, very often so did depositors.

Speaking solely for myself, I believe the EU's actions in Cyprus sent a strong signal. Oh yes, we're all in this together. In other words, if a bank fails the regulators may try to tap depositors for money. The Bank of England has (rather quietly) announced they'll do this, as has Denmark and Canada. I don't have time or inclination to research further, but I'd suspect this policy has been quietly instituted across the G10.

So yes, interesting times. Keep your deposits below the insurance ceiling and you'll be fine. At least that's what I'm doing.

Anyhow great post!



1 A few other sources about LIBOR and ICAP that folks might find interesting

The Fed has a great collection of material provided by both Barclays and government investigators into the LIBOR scandal, touches upon ICAP in places.

DOJ has some interesting legal documents that provide more details about what folks were up to

Union Bank of Switzerland not once but twice, Barclays and RBS.

Finally The Wheatley report on LIBOR is a good read if you've got the time.
posted by Mutant at 2:43 AM on April 28, 2013 [13 favorites]


In Kenya, where MPesa has offered critical mass in the financial abstraction layer now already embedded in the majority of the SIMs sold in the country. Top security comes at a cost we pay for the airtime difference between Airtel and Safaricom. Now, however, Bharti Mittal has come out of his shell and will support Airtel Money initiatives, most likely based on airtime as an ersatz community currency that rich and poor can play with, wherever there is a ..uh oh..oops... gsma

Barclays
posted by infini at 2:56 AM on April 28, 2013


Mummy says that gold is quite cheap these days, fwiw.
posted by infini at 2:58 AM on April 28, 2013


Gold is still insanely expensive and has a long way to drop.
posted by empath at 3:25 AM on April 28, 2013


brb
posted by infini at 3:36 AM on April 28, 2013


nope, sorry my ebullience..
posted by infini at 3:41 AM on April 28, 2013


Just wanted to say thanks, Mutant, for dropping in on this.
posted by seanmpuckett at 7:50 AM on April 29, 2013 [1 favorite]


10 Shocking Things You Probably Didn't Know About Central Banking
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Elizabeth Warren: Students should get the same loan rate as big banks
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Elizabeth Warren to Obama Administration: Take the Banks to Court, Already!
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Moyers & Company: Gretchen Morgenson on Why Banks Are Still Too Big To Fail
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