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History's Largest Financial Crime that the WSJ and NYT Would Like You to Forget

By       Message William K. Black, J.D., Ph.D.       (Page 1 of 3 pages)     Permalink

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Reprinted from neweconomicperspectives.org

I read a BBC story about the LIBOR criminal trial in the UK and was going to write to criticize its woeful analytics. In preparation I checked the New York Times and the Wall Street Journal to see how they reported the devastating testimony in the trial. I could not, however, find any coverage in my electronic searches and viewing their web pages.

To review the bidding, the LIBOR bid rigging cartel was the largest cartel in history, manipulating the prices of an estimated $300+ trillion in assets. That is a figure considerably larger than the world's combined GDP. Here are typical statements by the Department of Justice (DOJ) about the LIBOR cartel.

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"For years, employees at Deutsche Bank illegally manipulated interest rates around the globe -- including LIBORs for U.S. Dollar, Yen, Swiss Franc and Pound Sterling, as well as EURIBOR -- in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank's counterparties," said Assistant Attorney General Caldwell. "Deutsche Bank is the sixth major financial institution that has admitted its misconduct in this wide-ranging criminal investigation, and today's criminal resolution represents the largest penalty to date in the LIBOR investigation."

"Deutsche Bank secretly conspired with its competitors to rig the benchmark interest rates at the heart of the global financial system," said Assistant Attorney General Baer. "Deutsche Bank's misconduct not only harmed its unsuspecting counterparties, it undermined the integrity and the competitiveness of financial markets everywhere."

Until recently, I called the LIBOR cartels the largest in history by at least three orders of magnitude. The rigging of foreign exchange (FX) "markets," however, is so large that that I now have to say that they represent the two largest cartels in history by roughly three orders of magnitude. Both cartels consisted of most of the world's largest and most elite banks. Indeed, UBS has admitted that after it signed its anti-prosecution agreement with DOJ for its massive LIBOR frauds it violated that deal by continuing to rig the FX "markets" as a member of a group that called itself "the Cartel." Contrary to theoclassical ideology, both cartels persisted for many years and were ended only by (desultory) government action.

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Naturally, DOJ and the UK's Serious Frauds Office (SFO) have refused to prosecute any of the elite bank officers that led the Libor and FX cartels. The SFO is, however, prosecuting Tom Hayes, a low-level trader who confessed (then changed his mind) to being part of the conspiracy to rig LIBOR. Hayes worked at two of the recidivist criminal banking organizations -- UBS and Citigroup. The two useful things about prosecuting low-level employees are that it often reveals that the senior managers knew of and supported the fraud -- and that the prosecutors knew this to be true and nevertheless refused to prosecute the senior managers' crimes. The BBC story is so embarrassing because it misses both points. But the title of the BBC article shows why the NYT and WSJ's failure to report on the trial revealing details of the largest financial crime in world history is particularly bizarre because the trial is revealing facts that real journalists would be thrilled to report. The BBC title is: "Libor rates could be changed for a Mars bar, court hears." Now, that is a title that could make a journalist famous, and it reveals graphically to the general reader just what "the corrupt culture of banking" in the City of London means. So, we have a news event of surpassing substantive importance plus testimony that sells newspapers. This explains why the NYT and the WSJ ignored the story (irony).

The BBC story about the LIBOR trial starts strong.

Tom Hayes, who worked for UBS and Citigroup, told a fellow trader: "Just give the cash desk a Mars bar and they'll set wherever you want."

Mr Hayes is the first person to face a jury trial for manipulating the key interest rate, used to set trillions of pounds of investments.

Better yet, Hayes' statement was not one he made after his confession in hopes of getting a lighter sentence. The BBC story continues powerfully by showing the context of Hayes' remark and why it is so incriminating about the City of London's corrupt culture and the criminality that existed at all of the elite banks involved in fixing LIBOR.

Throughout Wednesday's session, the court was shown dozens of pages of transcripts of exchanges between traders using UBS's internal messaging system.

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The conversations -- matey in tone -- all related to moving Libor rates, said Mr Hayes, to assist the traders' and banks' commercial interests, something he said he found it hard to see as wrong.

In one chat, Mr Hayes suggests the market is rife with dealers attempting to influence rates: "Very, very hard to price stuff with the fixes so manipulated and inconsistent."

His correspondent replies: "The fixes are manipulated?"

"Yes, of course they are," says Mr Hayes. "Just give the cash desk a Mars bar and they'll set wherever you want."

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William K Black , J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House (more...)
 

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