"dwarfs by orders of magnitude any financial scam in the history of markets."
Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.
"It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. "It's the height of criminality."
But the biggest shock came out of a federal courtroom at the end of March ~ though if you follow these matters closely, it may not have been so shocking at all ~ when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. 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.
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
"It's just amazing how Libor fixing can make you that much money," chirped one yen trader."Pure manipulation going on," wrote another.
"Our goal here is not to destroy a major financial institution."
But Wise eventually outdid even that argument, essentially saying that while the banks may have lied to or cheated their customers, they weren't guilty of the particular crime of antitrust collusion.
"The plaintiffs, I believe, are confusing a claim of being perhaps deceived," he said, "with a claim for harm to competition."
"It's now evident that there is a ubiquitous culture among the banks to collude and cheat their customers as many times as they can in as many forms as they can conceive," he said."And that's not just surmising. This is just based upon what they've been caught at."
"There's no therapy like sending those who are used to wearing Gucci shoes to jail," he says. "But when the attorney general says, 'I don't want to indict people,' it's the Wild West. There's no law."
The CFTC has sent subpoenas to ICAP and to as many as 15 of those member banks, and plans to interview about a dozen ICAP employees from the company's office in Jersey City, New Jersey.Moreover, the International Swaps and Derivatives Association, or ISDA, which works together with ICAP (for U.S. dollar transactions) and Thomson Reuters to compute the ISDAfix benchmark, has hired the consulting firm Oliver Wyman to review the process by which ISDAfix is calculated.Oliver Wyman is the same company that the British Bankers' Association hired to review the Libor submission process after that scandal broke last year. The upshot of all of this is that it looks very much like ISDAfix could be Libor all over again.
"That allows dealers to tell the brokers to delay putting trades into the system instead of in real time," Bloomberg wrote, noting the former broker had "witnessed such activity firsthand."
What other markets out there carry the same potential for manipulation?
We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.
"In general," it wrote, "those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion."Translation: When prices are set by companies that can profit by manipulating them, we're fucked.