Crossposted from The Stars Hollow Gazette

A story about smoking.

The big place to watch fireworks is down on the beach and one year my friends and I decided to make an event of it so we packed up a couple of cases and our portable stereo- a car battery, 250 watt car equalizer/amp, a Colecovision power supply and voltage inverter, 2 Walkman CD players, mixer board, and 4 Minimus 7s.

And a blanket.

We got there early so we’d get good seats and were only 3 or 4 rows behind the Police tape and had a fun early evening waiting for the dusk to gather amusing ourselves, scaring little children, and annoying our neighbors.

Nothing like playing the feedback.

As it got darker we switched to more mellow fare, Holst’s The Planets and Pink Floyd as I recall and soon enough the show started and we were right underneath it.

Underneath as in the shells were exploding pretty much directly overhead and showering flaming debris all around us.  A blanket a couple of rows ahead caught fire causing several moments of excitement until somebody remembered that if you just shovel sand on top these things go out.

I personally was put in mind of an old Buck Rodgers comic strip where the villain, in preparation for a duel with Buck, lies down in a field and has his flunkies howitzer him with spikey mace balls to demonstrate his courage until his chief toady right next to him gets kind of, well, squished.  Think chunks of facade landing next to the Orc captain at the siege of Minas Tirith if you’re not getting the 1930s image.

Harmless good times for the most part and it seemed only fitting that when a lit fragment landed close enough to reach without straining I fished out a Kool and kindled it off the chunk.

The difficult thing was the three hours getting out of the parking lot.

The Correspondents Explain – The Economy – Trickle-Down Economics (2:40)

Why is Nobody Freaking Out About the LIBOR Banking Scandal?

Matt Taibbi, Rolling Stone

July 3, 9:04 AM ET

Most intriguingly, or perhaps disturbingly, there were revelations last week that Bank of England deputy Governor Paul Tucker had a conversation with Diamond at the peak of the crisis in 2008. The conversation reportedly left Diamond, and subsequently his traders, with the impression that the bank had carte blanche to rig LIBOR downward in order to help allay spiraling public fears about the banks’ poor financial health.

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That is explosive stuff. Members of Parliament will be grilling Tucker tomorrow about those events in what is sure to be a far more combative and entertaining legislative inquiry than the Jamie Dimon dog-and-pony show we just went through here in the states in recent weeks.

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Anyway, the LIBOR story is leading the front pages of most of Britain’s dailies, it’s on TV, and it’s producing blistering editorials and howls of outrage amongst politicians and activists. But as compadre Yves Smith at Naked Capitalism put it, where’s the outrage here in America?

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(T)o me what’s missing from all of this is the “Holy Fucking Shit!” factor. This story is so outrageous that it shocks even the most cynical Wall Street observers. I have a friend who works on Wall Street who for years has been trolling through the stream of financial corruption stories with bemusement, darkly enjoying the spectacle as though the whole post-crisis news arc has been like one long, beautifully-acted, intensely believable sequel to Goodfellas. But even he is just stunned to the point of near-speechlessness by the LIBOR thing. “It’s like finding out that the whole world is on quicksand,” he says.

Mirabile Dictu! Barclays CEO Bob Diamond Resigns Over Libor Scandal (Updated)

Yves Smith, Naked Capitalism

Tuesday, July 3, 2012

This sudden announcement also makes it seem much more likely that serious shoes will drop at the Wednesday hearings.

Although this news has just broken, and I’m sure there will be a ton more commentary in the next few hours, I suspect the proximate cause is that Diamond’s attempts to defend the rigging of Libor during the crisis as being tacitly approved by the Bank of England was not going to fly.

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In other words, Diamond was saying “you can’t really blame us for this, we told everyone and no one said no.” We’ll find out soon enough, but the effort to shift blame to the regulators may be what sunk him. Paul Tucker, the deputy governor to the Bank of England to whom Diamond spoke directly on October 28, 2012, has had subordiantes issue denials of Diamond’s account.

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The other interesting side effect is that this development, that of two heads falling in short succession at the top of one of the UK’s biggest banks, the only major institution not to receive any bailout funds, will raise the visibility of the Libor scandal in the US considerably. One correspondent has said the price manipulation goes back to 2001, and if that proves to be true, this is an even bigger cesspool that the reports so far envision. And the fact that top executives have been forced to resign from a bank that cooperated in the investigations and the settlement documents said deserved to be treated with leniency as a result, raises the question of what sort of sanctions should be meted on the executives of less cooperative and presumably equally culpable institutions.

Behold, the British establishment, panicked

Paul Mason, BBC

3 July 2012

Here is the central problem with Barclays. Its business model has become heavily reliant on the kind of investment banking Bob Diamond pioneered at Barcap, a division he created and was determined to lead to global dominance until Alistair Darling impolitely stopped his acquisition of Lehman Brothers in September 2008.

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The results have been felt in every community in Britain. Four years ago, Barclays was lending £52bn to non-finance, non-property businesses in the UK, 27% of all loans.

Now the figure is £38bn, and just 16% of business loans. In the process the bank – single handedly – has taken £3bn of capital out of manufacturing, more than £3bn out of retail/wholesale, while ploughing an extra £10bn into home loans and £6bn into property.

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It has reduced its exposure to British business, carries a £700bn net credit risk that is only possible because of the implicit guarantee the October 2008 bailout gave to all banks. And it is:

“(a) a machine for enriching investment bankers … with £1.5 billion in staff bonuses last year versus a pre tax profit of £3billion (b) the risks to the tax payer are not offset by corporation tax, because Barclays has used losses to minimise its payments; [paying] just £113 million in UK corporation tax in 2009.”

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But the crisis threatens to escalate in three directions. First to the 20 other global banks who stand accused of manipulating Libor.

The scale of class-action lawsuits being readied in the United States is, say some, big enough to sink certain of these banks. We will soon hear the results of the other – regulatory and criminal – investigations into the City of London.

Second, to the City of London itself.

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(T)he management of the bank: its board, its chairman and its CEO stood accused, effectively, of negligence. Yet again London turned out to be the dodgiest place to do business, and that was why the original slap on the wrist did not work.

So now we have a third direction of escalation. Both the SEC and FSA left unanswered questions about the manipulation of Libor for “survival” reasons.

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By last night, that meant the Bank of England – an institution created in the Christopher Wren era – was getting calls from financial journalists of the type normally aimed at, well, people like Bob Diamond. In short order he was gone.

Such is the power of the British establishment. But its problems are not over.

Court Papers Undercut Ratings Agencies’ Defense

By GRETCHEN MORGENSON, The New York Times

Published: July 2, 2012

When Cheyne issued its various securities in 2005, Moody’s and S.& P. rated them all investment grade. Even though Cheyne’s portfolio was bulging with residential mortgage securities, some of its debt received the agencies’ highest ratings, a grade equal to that assigned to United States Treasury securities. About two years later, as mortgage losses began to balloon, both agencies downgraded Cheyne’s debt below investment grade, to what is known as junk.

After the institutions that bought Cheyne’s debt sued Morgan Stanley and the ratings agencies, Moody’s and S.& P. immediately mounted a First Amendment defense. But Shira A. Scheindlin, the federal judge overseeing the matter, ruled in September 2009 that it did not apply because the Cheyne deal was a private offering whose ratings were distributed to a small group of investors and not the public at large. Judge Scheindlin agreed with the plaintiffs, who argued that the ratings were not opinions but were misrepresentations that were possibly a result of fraud or negligence.

“The disclaimers in the Information Memoranda that ‘a credit rating represents a rating agency’s opinion regarding credit quality and is not a guarantee of performance or a recommendation to buy, sell or hold any securities,’ are unavailing and insufficient to protect the rating agencies from liability for promulgating misleading ratings,” Judge Scheindlin ruled.

The judge also ruled against the defendants’ motion that documents and depositions generated in the case should be sealed. As a result, e-mails and deposition transcripts were filed with the court on Monday, showing how closely agency officials rating the deal had collaborated with Morgan Stanley, the firm that hired them to rate Cheyne’s securities.

Former Brokers Say JPMorgan Favored Selling Bank’s Own Funds Over Others

By SUSANNE CRAIG and JESSICA SILVER-GREENBERG, The New York Times

July 2, 2012, 9:06 pm

Amid the market volatility, ordinary investors are leaving stock funds in droves.

In contrast, JPMorgan is gathering assets in its stock funds at a rapid rate, despite having only a small group of top-performing mutual funds that are run by portfolio managers. Over the last three years, roughly 42 percent of its funds failed to beat the average performance of funds that make similar investments, according to Morningstar, a fund researcher.

“I was selling JPMorgan funds that often had weak performance records, and I was doing it for no other reason than to enrich the firm,” said Geoffrey Tomes, who left JPMorgan last year and is now an adviser at Urso Investment Management. “I couldn’t call myself objective.”

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There is also concern that investors may not have a clear sense of what they are buying. While traditional mutual funds update their returns daily, marketing documents for the Chase Strategic Portfolio highlight theoretical returns. The real performance, provided to The Times by JPMorgan, is much weaker.

Marketing materials for the balanced portfolio show a hypothetical annual return of 15.39 percent after fees for three years through March 31. Those returns beat a JPMorgan-created benchmark, or standard of comparison, by 0.73 percentage point a year.

The actual return was 13.87 percent a year, trailing the hypothetical performance and the benchmark. All four models with three-year records were lower than the hypothetical performance and the benchmarks.

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Regulators tend to discourage the use of hypothetical returns. “Regulators frown on using hypothetical returns because they are typically very sunny,” said Michael S. Caccese, a lawyer for K&L Gates.

The Correspondents Explain – The Economy – Recessions & Depressions (2:35)

The weeks they are dark, The Daily Show and The Cobert Report post mash ups.  These are from June 10th.

The Correspondents Explain – The Economy – Banks (2:08)

Crossposted from The Stars Hollow Gazette

Barclays fined for manipulation of Libor

By Danielle Douglas, Washington Post

Published: June 27

The British bank admits to scheming to manipulate rates to increase profits and hide the reality of its distress during the financial crisis. Regulators suspect Barclays did not act alone, but was part of a larger conspiracy to set artificially low rates for Libor and the Euro interbank offered rate, or Euribor.

The U.S. Commodities Future Trading Commission uncovered evidence of Barclays senior management and numerous traders in London, New York and Tokyo making false reports to improve the bank’s trading position dating to 2005, according to the complaint filed Wednesday. At the height of the recession, the bank submitted low figures to keep rates down and to deflect public scrutiny about its condition.

“When a bank acts in its own self-interest by attempting to manipulate these rates for profit, or by submitting false reports . . . to lower submissions to guard the bank’s reputation, the integrity of benchmark interest rates is undermined,” David Meister, director of enforcement at the CFTC, said in a statement.

Counterparites: Barclays’ $450 million LIBOR settlement

By Ben Walsh, Reuters

June 27, 2012

The importance of Libor and, to a lesser extent, Euribor, is hard to overstate. They are used to value of hundreds of trillions of dollars of financial instruments. Or as Matt Levine puts it, they “set the rates on pretty much all the loans and swaps in the world … CFTC order mentions $350 trillion of [over-the-counter] swaps, $10 trillion of loans, and $437 trillion of CME eurodollar contracts indexed to Libor alone”.

In that context, it’s fair to ask what’s $450 million compared with a scheme like that? Not much, proportionally. And Barclays won’t face criminal prosecutions, because of what the DOJ calls its “extraordinary cooperation”. Individual employees, though, are the subject of ongoing criminal investigation.

This Week in Financial Not-Crime

By: masaccio, Firedog Lake

Wednesday June 27, 2012 1:47 pm

(T)oday we learn that manipulating LIBOR isn’t a crime. Barclays Bank paid $450 million to settle charges that it deliberately manipulated the bench-mark interest rate used to establish how much people pay on $350 billion worth of credit cards, student loans and mortgages. It’s also good news for other banksters who haven’t even been sued, like HSBC, Citigroup, JPMorgan Chase and other firms that are being looked at by regulators around the world.

Apparently the manipulation ran both ways, to increase the rate artificially for direct profit, and to reflect a lower rate to hide the fact that other banks were charging Barclays more than other banks because of its perceived weakness. Still, it’s hard to see a connection between a $450 million fine and the massive profits that could come by increasing LIBOR even fractionally. If LIBOR were .1% higher on $350 billion of debt, that comes to $350 million per year. The fraud went on for at least 4 years, which in my example means $1.4 billion in profits, all going directly to the bottom line.

Quelle Surprise! Barclays Settlement on Massive Interest Rate Price Fixing Illustrates Bank Crime Pays Well

Yves Smith, Naked Capitalism

Thursday, June 28, 2012

Barclays is first to settle, and given the scale and potential profitability of this activity, the fine looks paltry: $450 million among the FSA, the CFTC, and the Department of Justice (£230 million to the US authorities, £60 million to the FSA). The DOJ has granted “conditional leniency” on anti-trust charges. Price fixing is criminal under the Sherman Act. Four top executives, including CEO Bob Diamond are also giving up bonuses this year.

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But all we need to do is contrast this case with the municipal bid-rigging prosecution described by Matt Taibbi in the current Rolling Stone. Here you have three individuals at GE Capital going to jail for price fixing, which is crime under the Sherman Act. But they were merely the arms and legs of big banks. Where were the prosecutions of the higher ups, or of the senior officers of banks who were in on this con? We see the same pattern over and over: justice is meted out only on the foot soldiers, those far enough away from the executive ranks so as not to call into question the integrity of the system. The irony of it all is the public is well aware of how crooked the financial services industry is (the poll data alone is proof). But for the elites, it is vital that they not admit that something is rotten in Denmark, for if they did, they’d have to do something about it.

A Huge Break in the LIBOR Banking Investigation

Matt Taibbi, Rolling Stone

POSTED: June 28, 10:15 AM ET

This is unbelievable, shocking stuff. A sizable chunk of the world’s adjustable-rate investment vehicles are pegged to Libor, and here we have evidence that banks were tweaking the rate downward to massage their own derivatives positions. The consequences for this boggle the mind. For instance, almost every city and town in America has investment holdings tied to Libor. If banks were artificially lowering the rates to beef up their trading profiles, that means communities all over the world were cheated out of ungodly amounts of money.

First there were huge bid-rigging settlements for Chase, UBS, Bank of America, GE and Wachovia. Now we’ve got a $450 million settlement for Barclays for Libor manipulation, and one imagines this won’t be the end of it. Anyway, more on this to come soon, and if you’re wondering, yes, there should be a lot more press on this.

UK probing more banks for interest rate fixing

By ROBERT BARR, Associated Press

20 minutes ago

Osborne said Barclays was not the only bank to be involved in market fixing. Beyond the U.K., there are also investigations in several countries involving numerous global banking groups.

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“Banks were clearly acting in concert,” said Andrew Tyrie, a British lawmaker who chairs the influential Treasury Committee in the House of Commons. “I fear it’s not going to be the end of the story, that we are going to find that other banks have been involved.”

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“If Bob Diamond had a scintilla of shame, he would resign,” said Matthew Oakshott, a member of the House of Lords. “If Barclays’ board had an inch of backbone between them, they would sack him.”

Prime Minister David Cameron, when asked whether Diamond should resign, said he thinks “the whole management team have got some serious questions to answer. Let them answer those questions first.”

The massive fines are unlikely to be the end of the pain for Barclays. The cost of lawsuits related to the LIBOR scandal will likely be bigger, said Sandy Chen, banking analyst at Cenkos Securities.

“Since Royal Bank of Scotland, HSBC and Lloyds Banking Group have also been named in lawsuits, we expect they will also face significant fines and damages. We are penciling in multi-year provisions that could run into the billions,” Chen said.

Leading article: A sick banking culture that cannot be tolerated

The Independent

Friday 29 June 2012

Politicians have attempted with varying degrees of rigour to introduce rules preventing a recurrence. Mostly, in the face of determined lobbying by the banks (led in the UK by Barclays), they have retreated or watered down their proposed measures. But it is obvious now that the authorities are only scratching at the surface: a far stronger hand is required.

For a start, they should act immediately and decisively. Fining a bank has little effect: what is required is the naming and shaming and driving from office of those involved. The era of entitlement – something we hear an awful lot about in relation to those at the other end of society, on benefits – must be brought to an end for bankers. Incredibly, only one UK top banker has been punished for his bank’s role in provoking the credit crunch: Fred Goodwin lost his job and subsequently, his knighthood. Now, with a second storm engulfing the sector, that cannot be allowed to happen again. Light-touch regulation and, with it, light-touch penalties should be banished. In that respect, Bob Diamond is right: the time for mere remorse is well and truly over.

Barclays Libor fix trail leads to senior managers

By Sarah White, Reuters

Wed Jun 27, 2012 6:09pm EDT

Staff responsible for submitting rates in some instances told colleagues of “internal political” pressure to set these low, the FSA’s report shows.

Barclays “senior management at high levels” became concerned over the media scrutinizing the bank’s funding access early in the financial crisis, in August 2007.

“Senior management’s concerns in turn resulted in instructions being given by less senior managers at Barclays to reduce Libor submissions in order to avoid negative media comment,” the UK’s FSA said in its report. “The origin of these instructions is unclear.”

The U.S. CFTC said specific instructions to lower submissions came from “senior Barclays Treasury managers”. They asked submitters to provide rates at a level where Barclays wouldn’t be “sticking its head above the parapet”.

Can Bob Diamond hang on after Barclays Libor scandal?

Nils Pratley, The Guardian

Wednesday 27 June 2012 11.37 EDT

Barclays tried to manipulate a $550tn market for almost half a decade. Internal controls and risk management functions were inadequate. The compliance department failed to do its job. The bank’s actions created the risk that the stability of the UK financial system would be threatened.

Add up that collection of misdemeanours and even £290m of fines, plus a voluntary waiving of boardroom bonuses, is woefully inadequate. The outside world will want to know why no director of Barclays has offered his resignation.

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None of the various regulators’ reports suggest that Diamond or any other executive director at Barclays knew what was going on – they, we must assume, are not the “senior management” referred to in the FSA report who gave instructions to reduce Libor submissions. But should the top brass have known what was going on? Why doesn’t the buck stop at the top when the reputation of the bank has been so badly damaged?