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New York Times, Gretchen Morgenson Applaud British, Issue Challenge To American Regulators Over LIBOR Scandal July 10, 2012

BY: Matt Taibbi

Ben Bernanke

Ben Bernanke
Alex Wong/Getty Images

The New York Times and its outstanding financial reporter, Gretchen Morgenson, have published an important article about the LIBOR banking crisis, challenging American regulators to take this mess as seriously as the British appear to be.

We found out just over a week ago that Barclays CEO Bob Diamond, as well as several other senior Barclays officials, were pushed out of their jobs after Bank of England chief Mervyn King trained a mysterious Vaderesque power on them, impelling them to leave with an “inflection of the eyebrows.”

Morgenson’s piece from Saturday, “The British, at Least, Are Getting Tough,” wonders aloud why American regulators – Ben Bernanke,  cough, cough – don’t take a similarly stern approach with our own corrupt bank officials. First, she summarizes what seems to be the mindset of American officials:

“Dirty clean” versus “clean clean” pretty much sums up Wall Street’s view of cheating. If everybody does it, nobody should be held accountable if caught. Alas, many United States regulators and prosecutors seem to have bought into this argument.

This viewpoint has been particularly in evidence since 2008. Time and again, American regulators have appeared to be paralyzed by corruption in cases when most or all of the banks have been caught raiding the same cookie jar. From fraudulent sales of mortgage-backed securities, to Enronesque accounting, to Jefferson-County-style predatory swap deals, to municipal bond bid-rigging, the strategy of American regulators has been to accept “Well, everybody was doing it” as a mitigating factor when negotiating settlements, where that should have made them want to crack the whip even harder.

Why? Because “everybody is doing it” corruption is way more dangerous than corruption involving one or two rogue firms going off-reservation. Regulators who spot that kind of industry-wide problem, to say nothing of cartel-style anticompetitive corruption, should be in a panic: They should always impose serious, across-the-board punishments, and it goes without saying that senior executives responsible have to be removed.

This is exactly what has begun to happen in England, now that the British have gotten wind of this LIBOR scandal, which involves the worst and most serious form of corruption – huge companies acting in concert to fix prices/rates. As the Times explains:

Last week’s defenestrations of Marcus Agius, the Barclays chairman; Robert E. Diamond Jr., its hard-charging chief executive; and Jerry del Missier, its chief operating officer, apparently occurred at the behest of the Bank of England and the Financial Services Authority, the nation’s top securities regulator. (Mr. del Missier also seems to have lost his post as chairman of the Securities Industry and Financial Markets Association, the big Wall Street lobbying group. His name vanished last week from the list of board members on the group’s Web site.)

Morgenson notes that the Barclays CEO, Diamond, seemed shocked that there were actual consequences for his misbehavior:

MR. DIAMOND seemed shocked to be pushed out. An American by birth, he probably thought he’d be subject to American rules of engagement when confronted with evidence of wrongdoing at his bank. You know how it works on this side of the Atlantic: faced with a scandal, most chief executives jettison low-level employees, maybe give up a bonus or two — and then ride out the storm. Regulators, if they act, just extract fines from the shareholders.

The article goes on to point out the frightening fact that del Missier, the outgoing Barclays COO, was at the time the scandal broke the sitting head of SIFMA, the trade group representing securities dealers. We know from the emails Barclays released last week that del Missier was privy to the discussions about rigging LIBOR rates; he was one of the people Diamond was writing to when he penned a memo claiming that Paul Tucker, the Bank of England deputy chief, had urged the bank to fake its LIBOR rates.

At the very least, del Missier should have said something, should have opposed the idea. Instead, he went right on being a front for Wall Street’s largest professional association:

With each new financial imbroglio, the gulf widens between Main Street’s opinion of Wall Street and the industry’s view of itself. When Mr. del Missier, the former Barclays chief operating officer, took over as chairman of the Securities Industry and Financial Markets Association last November, he said: “We will continue to work on maintaining and burnishing the level of confidence investors have in our markets, in our own financial institutions, and in the general economic outlook for the future.”

Given the Libor scandal, let’s just say good luck with that.

Hear hear.

When the rest of this scandal comes out, and it turns out that up to 15 more of the world’s biggest banks (including Chase, Bank of America, and Citi) were doing the same thing as Barclays, our regulators better start “inflecting their eyebrows” pretty damn vigorously. Because if it comes out that these other banks were all involved with this scandal (and it will come out that way, almost for sure), and their CEOs and COOs get to keep their jobs, that’ll be a sure sign that the fix is in. Let’s hope Ben Bernanke, Eric Holder, and Tim Geithner are listening.

 

China cuts rates as global economic crisis deepens June 10, 2012

BEIJING (Reuters) – China delivered a surprise interest rate cut on Thursday to combat faltering growth, underlining concern among policymakers worldwide that the euro area’s deepening crisis is threatening the health of the global economy.

The country’s first rate cut since the depths of the global financial crisis in 2008/09 came after the Federal Reserve’s second highest official made a case for more policy easing in the United States, and followed an emergency conference call on Tuesday by the financial leaders of the Group of Seven industrialized nations to discuss Europe’s debt crisis.

It was followed shortly after by comments from Fed Chairman Ben Bernanke that the U.S. central bank was prepared to take action to protect the financial system and U.S. economy.

“The Federal Reserve remains prepared to take action as needed to protect the U.S. economy in the event that financial stresses escalate,” Bernanke said in prepared testimony to the U.S. Congress.

Marc Ostwald, a rate strategist at Monument Securities in London, said the China rate cut combined with Federal Reserve hints and hopes in markets that Europe will deal urgently with Spain’s banking crisis would support risk assets.

“It will be construed positively particularly in close alignment with what we’ve seen,” he said.

The Chinese cut and Bernanke’s statement stood in contrast, however, to the decision by the European Central Bank on Wednesday to leave rates unchanged and hold off on more stimulus, placing the onus on fighting Europe’s crisis on governments.

The People’s Bank of China, the central bank, cut the official one-year borrowing rate by 25 basis points to 6.31 percent and the one-year deposit rate by a similar amount to 3.25 percent.

The cuts confounded the call of many economists who thought the central bank would refrain from cutting policy rates this year even though policymakers had voiced the need to support growth.

“It’s obviously a very strong signal that the government wants to boost the economy, given the current weakness, especially in demand,” Qinwei Wang, economist at Capital Economics in London, told Reuters.

The European Union is China’s single biggest foreign customer, and faltering demand there has led to worries about the knock-on effect to domestic consumption if industrial activity slows dramatically.

A sudden collapse in global trade in late 2008 saw an estimated 20 million Chinese jobs axed in a matter of months, prompting Beijing to roll-out a 4 trillion yuan ($635 billion) fiscal stimulus plan to bolster domestic economic activity.

While the cut to borrowing costs should help in the near term to shore up an economy on course for its weakest full-year expansion since 1999, the central bank also gave banks more room to set competitive lending and deposit rates to further liberalize China’s financial market.

The rate cut, announced after financial markets closed in Asia, helped shares elsewhere rally. World shares, measured by the MSCI world equity index rose to its highest level in more than a week. The euro rose.

China last changed the borrowing rate in July 2011 when the 1-year benchmark lending rate was raised by 25 bps to 6.56 percent.

GOOD AND BAD

Many world leaders, including in Europe, have been alarmed about the latest turbulence in the euro area debt saga as Spain is fast losing the confidence of financial markets, although it did successfully sell debt on Thursday.

A Greek election this month could also push Athens closer to leaving the bloc.

The problems of Spain’s banks were underlined on Thursday when financial sector sources told Reuters an International Monetary Fund report on Spanish banks next week will show the country’s troubled lenders need a cash injection of at least 40 billion euros ($50 billion).

“We must find ways to deal with this fairly quickly because (Spain) is today the major threat to the world economy,” Swedish Finance Minister Anders Borg told Reuters.

After the G7 call this week, Japan’s Finance Minister Jun Azumi said the grouping shared the view that it should work to ease financial market worries ahead of a G20 meeting in Mexico later this month, where Europe is likely to top the agenda.

Janet Yellen, the Fed’s vice chair, warned on Wednesday of “significant” risks facing the economy.

“Hence, it may well be appropriate to insure against adverse shocks,” she said in remarks before the Boston Economic Club.

Several countries, including China and India, have seen economic growth take a hit this year as the euro zone crisis has hurt global confidence. Several euro area countries are struggling with recession.

Britain is among them, but better than expected economic data allowed the Bank of England to hold off on any new stimulus on Thursday

China’s policy announcement on Thursday meanwhile raised concerns for some that the rate move is pre-empting grim news in a deluge of China data due over the weekend that will include all of the country’s key barometers, such as investment and industrial production.

“The concern is that with industrial production and CPI data coming out of China at the weekend, that it’s indicative of them

knowing something about weak data going forward,” said Adrian Schmidt, currency strategist at Lloyd’s Bank in London.

The PBoC has cut bank reserves for the biggest banks by 150 basis points from a record-high of 21.5 percent in three moves since November, after a two-year tightening campaign to rein in inflation and cool steaming economic growth.

That has freed an estimated 1.2 trillion yuan ($190 billion) for new lending, as Beijing sought to stimulate economic activity without resorting to a major fiscal spending package like 2008’s initiative.

Beijing is still tackling the after-effects of that program, which triggered a frenzy of real estate speculation, saw local governments amass 10.7 trillion yuan of debt, and drove inflation to a three-year peak by July 2011.

(Additional reporting by Koh Gui Qing and Aileen Wang; Editing by Neil Fullick/Jeremy Gaunt)