The Great LIBOR Bank Heist of 2008?

The LIBOR manipulation revelations ask some interesting questions.

Washington’s Blog notes:

Barclays and other large banks – including Citigroup, HSBC, J.P. Morgan Chase, Lloyds,Bank of AmericaUBS, Royal Bank of Scotland– manipulated the world’s primary interest rate (Libor) which virtually every adjustable-rate investment globally is pegged to.

That means they manipulated a good chunk of the world economy.

They have been manipulating Libor on virtually a daily basis since 2005.

While the implications of this to the $1200 trillion derivatives market would seem to be profound, one question I have not seen asked much yet are the implications of the manipulation to the reality of the 2008 financial crisis.

Here’s a really wild hypothesis: if the LIBOR rate was under manipulation in 2008, is it not possible that the inter-bank lending rate spike (and resultant credit freeze) was at least partly a product of manipulation by the banking cartel?

Could the manipulators have purposely exacerbated the freeze, to get a bigger and quicker bailout? After all, the banking system sucked $29 trillion out of the taxpayer following 2008. That’s a pretty big payoff. LIBOR profoundly affects credit availability — and the bailouts were directly designed to combat a freeze in credit availability. If market participants were manipulating or rigging LIBOR, they were manipulating a variable directly tied to the bailouts.

That means that every single tick must be under scrutiny; we know that rates have been manipulated for profit. I am no conspiracy theorist; it may just be a coincidence that a massive spike in a variable we now know to have been manipulated contributed to a credit freeze that led to historically-unprecedented bailouts. Yet it is no great leap of the imagination to say that the crisis may have been deliberately worsened for profit.

Investigators should investigate.

(H/T to Saifedean Ammous)

34 thoughts on “The Great LIBOR Bank Heist of 2008?

  1. Pingback: The Great LIBOR Bank Heist of 2008? « Hawks5999

  2. I disagree. In a cartel, a covert one, participants require trust, that one won’t blink. I think they all had no idea what was going on or who would blink, raised rates, then when the dust settled, met and discussed the game plan.

    It is obvious the true rate of interst is much higher and is being artificially held low by the Fed, and low by the cartel under their direction. Where is the real economy risk premium?

    • Banks naked-shorted Lehman to hell. And they were also manipulating LIBOR. I’m not saying they deliberately caused this. I think there is a huge dimension of chaos. But I think it’s very possible that when they realised the beast was going belly up, they went all-in on a big and quick bailout.

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  7. “Investigators should investigate.”

    Amen. But considering how the foxes have been in charge of the henhouse since the dismantling of Glass Steagall and all the rest of the New Deal era regulations that did so much to make the decades after WWII so prosperous, for America at least, I’m sure none of us are holding their breath here. This is just the latest, and perhaps biggest, of the never ending financial scandals coming to light that would have once been thought impossible.

    One wonders just how much once-crazy and unbelievable nastiness will continue to be brought to light. There seems to be no end of it. Are people now so inured to the pervasive corruption of what seems to be everyone and everything that nothing matters? Even a die hard cynic like myself cannot believe that every single thing is rotten. But it can sure look that way. About the only thing one can say with any certainty is that the rule of law has broken down, and there seems little likelihood of it being restored anytime soon.

    Such corruption and rottenness cannot continue forever. Something’s gonna give. Can’t say what or when or how, but something’s gonna give. I fear for our Republic.

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  10. One theory a blogger put forth was that Lehman had not played ball during the LTCM scandal, reluctantly gave money, not nearly as much as the other banks gave, so therefore, if anyone was going to go down, it was going to be Lehman.

    Karl Denninger said in 2008 that he had proof (I read it several times) that Ben Bernanke drained liquidity, which caused the crash to occur. Check out some of his posts from that time.

    You are right, there needs to be a lot more investigation: when, where, who, what, how.

  11. Brilliant!

    Mon, 07/02/2012 – 16:53 | 2581711 ghenny

    “What I get from these forecasts is there are no reliable forecasts at all. I was around when Oxford Analytica started in Oxford. The people involved were charming and bright but had no better clue than the man on the street about what was going to happen and this was born out by subsequent events. The only forecasting team that has had some success for awhile was Pierre Wack’s “Group (Environmental) Panning’ at Shell International Petroleum Company joint HQ in London and even they wound up becoming purveyors of pscychoanalytic Jungian pablum in the end.

    Most of these forecasting or “scenario building” groups get paid big bucks to make decision makers feel like they are making good decisions. They are really no better than the astrologers of the acient world and the middle ages. The “complex adaptive system” that is our world has too many feedback loops and complex interactions for anyone to be able to predict anything out more than a few a days (much like the weather forecasts) and even that is problematic. The “experts” are not changing this reality by talking about “scenarios” and suggesting we monitor paths to different scenarios. Thats like talking about the entrails of different sacrificed animals. Still its nice work if you can get it and people have always paid fortune tellers well out of fear or greed or just plain human desire to feel in control. Heck I’ve played that game myself a time or two but I never fooled “myself” that I had a true crystal ball. All you can do is elucidate the issues and even then you get suprised half the time when you get blind sided by issues you had not even imagined.”

  12. Understand that behind corporations, including TBTF, there are just people we call execs.
    The TBTF execs act by their own rules, VERY privileged rules!!!

    Most (if not all) are allowed to create money in one form or another.
    They have access to cheap liquidity, cheaper than EVERY other party.
    They get away with immoral, and often illegal, practices, which would put most-everybody-else in jail.

    Recall, these are really people guiding and benefiting these TBTF.
    People who socialize their losses and privatize their profits.

    I fail to see why is that the rules are not the same for everybody.

    Isn’t naked short selling illegal?

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  14. Not that anybody who has influence on major policies cares for the following, but still.

    Level the playing field:

    End the state monopoly on what currency is. Consenting market participant are to agree on what is currency. If you want you may use rotten tomatoes as your currency.
    Apply the same rules to ANY party counterfeiting the currency, including FRB practices.
    Apply the same rules to ANY party manipulating interest rates, including the Fed.

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