U.S. DOJ is building criminal cases in LIBOR rate-fixing

July 16, 2012 by · Leave a Comment
Filed under: Legal News 

Bottom-line, this type of crime has to be prosecuted to the fullest extent of the law.  The Libor rate is used in many financial instruments that use that interest-rate as the baseline in all kinds of contracts.    If you bid the rate up, then you forcing trillions of dollars of borrowers to pay more interest.   If you under bid, then you putting an artificial signal to the market that there is less risk than is truly their.   With these scenarios, you can see how this can become political and it could be used as a tool to shape perception.

Markets need market forces so it can do the job it does so well, indicate conditions in the market to borrowers and savers can make the best choice available with the information and signals available.  We continually mess with this basic function.   One of the biggest problems is that people just lose confidence in these indicators.   I believe that has happened and it is getting worst.   That will increase volatility in the market and creates an environment that you will see major swings that will hurt many.

Lets see if the DOJ can step up to the plate and actually put people in jail.  The American people are sick of continually reading about out of court settlements with no admission of wrong-doing.  We have to have accountability of all parties and people who abuse this most crucial trust need to be run out of the industry and should face stiff penalties to discourage any future wrong doers that want to engage in this reckless behavior.

If we do not step up and hand down punishments, some day we will wake and lose faith in the system and at that point, an amount of lawlessness will continue to seep into our society.  If the standard of our society is the we will do anything that is legal even though it is morally objectionable, then we will be in a society that people will not want to live in.   Just cause something is legal, doesn’t mean you should do it.  At some point people need to realize we still live in a community and you actions have an effect on everyone.   We need a fair system where the rules are handed down equally no matter who you  are, what class your from and who you know.  That is having back-bone and principle to stand for something.   Countries around the world look to us and try and emulate our culture, that means we need to set the standard and stick to it.  The standard needs to be much higher than where we are.

DealBook (NY Times) – As regulators ramp up their global investigation into the manipulation of interest rates, the Justice Department has identified potential criminal wrongdoing by big banks and individuals at the center of the scandal.

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Libor Show Doubts on EU Trillion Dollar Bailout Package

May 12, 2010 by · Leave a Comment
Filed under: Global News 

It has been really surprising with the size of the Euro support package that is reported at being $1 trillion dollars is not calming the markets and sovereign debt investors.  All the experts do not think this will be enough to cure the debt issue.

Most experts still think that countries like Greece, Portugal and Spain will need to restructure their debt and that means that a haircut will be taken on some of these bond issues.  If a trillion dollars does not help, then we are at a point that we might actually be on the last legs on a bear market rally and we are in for some serious declines to create a real support.  The only other option is that we are in for some serious inflation.

The LIBOR (London Inter-bank Lending Rate) is edging up with all this uncertainty.  It will be important to watch over the next 2-4 weeks if the rate rises and gets closer to the rates we saw last March.

Bloomberg – Money markets and the cost of protecting bank bonds from losses show investors are concerned Europe’s almost $1 trillion rescue plan may not be enough to contain the region’s sovereign debt crisis.

The Markit iTraxx Financial Index of credit-default swaps on European banks and insurers rose to 38 basis points more than the Markit iTraxx Europe Index tied to investment-grade companies from 31 yesterday. While the gap narrowed from 58 basis points before European leaders agreed to the rescue plan, the bank index on average has traded 10 basis points less the past three years. A measure of banks’ reluctance to lend also rose to more than three times the level from March.

The loan package for debt-laden nations including Greece is part of an attempt to stop a decline in the euro and stave off a sovereign default that would threaten recovery from the worst global recession since the 1930s. European financial companies, which hold more than 134 billion euros ($170 billion) in Greek, Portuguese and Spanish sovereign debt, are under scrutiny by investors concerned that they’re owed too much by Europe’s most- indebted countries.

“Sovereign risk hasn’t gone away in the slightest,” said Jim Reid, head of fundamental strategy in London for Deutsche Bank AG, Germany’s biggest bank. “What this package has done is massively reduce the tail risk in European markets without necessarily changing the medium- to long-term dynamics of financial markets.”


Overnight Commercial Paper Rates Rise as Bank Bailouts Spread

October 6, 2008 by · Leave a Comment
Filed under: Global News 

Everyone has this “whatever it takes attitude” and this is going to be the mess they leave us with. No one is talking about what happens when the economy contracts and we are left with all this excess liquidity? My bet is on massive inflation that has never been seen in this country. We are witnessing global debasement of currency that are trying to keep up with us which is futile because people feel more comfortable with our currency over other foreign currencies at this point.

At a point we should see a change in that attitude and then I would say instead of having a single reserve currency, we will see a basket along with some measure being put into place that ties the currency to gold in some way to serve as an indicator to show if there is a major expansion in any countries monetary base. .02

News Piece:

Corporate short-term borrowing rates soared as bank bailouts spread through Europe and the Federal Reserve said it would double its auctions of cash to banks to thaw short-term lending.

Yields on overnight U.S. commercial paper jumped 0.94 percentage point to 3.68 percent, according to data compiled by Bloomberg that stretch back to January 1996. That’s the most since the eight-month high of 3.95 percent set Sept. 30 after the U.S. House of Representatives rejected a plan to rescue banks; the bailout eventually was signed into law last week.

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Banking crash hits Europe as ECB loses traction in money markets

September 30, 2008 by · Leave a Comment
Filed under: Economic News 

This is getting more serious by the day.  Looks the like European Central Bank or ECB is really seeing their banking freeze up as well.  In the article they mention the five failed banks that have been rescued because of the massive strain in the system.  Europe will need to de-leverage as well.   UK especially, had a very over heated real estate market that was fueled by securitization of mortgages and hedging strategies against different bonds for default with insurance products such as credit default swaps or CDS.  They mention the inter-bank lending market has collapsed and “The ECB is no longer able to inject liquidity because the money is just coming back to them again. This is extremely serious. If monetary policy is no longer working, there is a risk that the whole system will blow up in days.”  At this moment is when people need to not panic and let these bad institutions fail so we can clean the system of all this excess and set the right precedent so future banks will understand what happens when you conduct such reckless lending operations.  I have read basic banking and lending theory and everything that has been pasted down in that area was ignored in all cases in this industry from making subprime loans to not carrying adequate reserves against losses on debt insurance contracts.  We should never forget the basics and fundamentals.

News Article:

The Dutch-Belgian bank Fortis, Britain’s Bradford and Bingley, and Iceland’s Glitnir, were all partially or fully nationalized after failing to roll-over debts in the short-term money markets, while the French state pledged support for the Franco-Belgian lender Dexia after the share price collapsed on reports of a capital shortage.

“The European financial sector is on trial: we have to support our banks.” said French President Nicolas Sarkozy. He has reportedly ordered the state investment arm Caisse Des Depots to shore up Dexia, even though the bank is based in Belgium.

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Libor Rises 431 basis points, Most on Record After Congress Rejects Bank Bailout

September 30, 2008 by · Leave a Comment
Filed under: Industry News 

Well this shows how acute this situation is now it is time to let the market cleanse itself to get these excesses out of the way. The LIBOR or Interbank lending rate have gone up 431 basis points to bring the rate for banks to lend to each other to 6.88% which is so high that no one would want a loan at that rate.

News Piece:

The cost of borrowing in dollars overnight in London rose the most on record after the U.S. Congress rejected a $700 billion bank-rescue plan, putting an unprecedented squeeze on the global financial system.

The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers’ Association said. The euro interbank offered rate, or Euribor, for one-month loans jumped to a record 5.05 percent, the European Banking Federation said. The Libor-OIS spread, a gauge of the scarcity of cash, also increased to an all-time high.

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