The Biggest Price-Fixing Scandal Ever
rollingstone.com
rollingstone.com
The claim that "everything is rigged" is supported by a small number of specific examples coupled with a generous helping of polemics. Facts are not placed in useful contexts. The reader, after reading this article, has likely learned very little but only had whatever pre-bias he had confirmed. It takes a lot more than that to support the fantastic superpowered-global-banking-conspiracy thesis of the article.
Since, on articles like this, you tend to be downvoted for going against the zeitgeist, I'll provide a specific example.
The civil suit over LIBOR fixing, mentioned on page one, was thrown out because antitrust laws only apply to competitive processes. (Source: http://www.upi.com/Top_News/US/2013/03/30/Judge-drops-antitr...)
Taibbi writes: "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." This is a baffling recontextualization: suits are thrown out when they are not lawful because we live in a democratic rule of law, and there is no reason to believe the judge wished to punish or blame consumers. The suit was thrown out because the suit was illegal. This isn't an uncommon or partisan thing: the famous Walmart v. Dukes discrimination lawsuit was thrown out 9-0 by the Supreme Court, because it was unlawful. (The reason the case is famous is because of a 5-4 decision on whether it could be refiled, but that's beyond the scope of this comment.)
A long history of reading Taibbi comment threads on HN and r/economics has taught me that Taibbi routinely lies in this fashion; this is just one example.
It's of interest to me because I've had some direct experience tangling with banks over other issues. I have come to believe that the extent to which the banks control the world is even greater than what Taibbi says.
> we live in a democratic rule of law
That is heartbreakingly naive. It is not possible to get elected to office in the U.S. without substantial funding, which means that all of the people in office are either themselves rich or have garnered the favor of wealthy donors. Either way it is impossible as a practical matter to pass any law that constrains the interests of the super wealthy in any meaningful way.
Anyway it's not like the banks weren't fined and sued for amounts totaling billions under other laws. Usually it's considered unjust to throw things out on technicalities if there's no other remedy available, but that wasn't the case here.
EDIT: I just noticed the judge allowed part of the case to go forward under different laws! So Taibbi's claim is even more nonsensical than I initially thought.
As he also writes:
an army of superstar lawyers working on behalf of the banks descended upon federal judge Naomi Buchwald in the Southern District of New York...Davis Polk (home of top ex-regulators like former SEC enforcement chief Linda Thomsen) and Covington & Burling, the onetime private-practice home of both Holder and Breuer.
The presence of Covington & Burling in the suit – representing, of all companies, Citigroup, the former employer of current Treasury Secretary Jack Lew – was particularly galling. Right as the Libor case was being dismissed, the firm had hired none other than Lanny Breuer, the same Lanny Breuer who, just a few months before, was the assistant attorney general who had balked at criminally prosecuting UBS over Libor because, he said, "Our goal here is not to destroy a major financial institution."
That sounds like govt insiders who were once responsible for being on the prosecution now acting as defense, which sounds more banana-republic than democratic imo.
More credit default swaps please :D
"In late 1996, Marcy Engel, then a lawyer for Wall Street heavyweight Salomon Brothers Inc, fired off a warning letter to U.S. regulators: If they approved a Chicago Mercantile Exchange plan to change how a popular futures contract was priced, they would put at risk the integrity of a key interest rate in the global financial system."
"The problem with the CME's plan, as Engel saw it: The banks that set the rates in London daily were also able to take positions in the CME's Eurodollar contract. In her letter to the U.S. Commodity Futures Trading Commission, she said tethering the futures contract to Libor "might provide an opportunity for manipulation" of the interest rate. A "bank might be tempted to adjust its bids and offers ... to benefit its own positions."
http://www.reuters.com/article/2012/11/20/us-libor-fixing-or...
I'd like to think that if I did that myself --- it's possible I have, I'm a pretty undisciplined guy --- I'd apologize for it as soon as it was pointed out.
* Exchanges don't do "evil finance things". Exchanges are middlemen; not only are conflicts of interest legally prohibited, but also an easy way to lose business. LIBOR rigging was not good news for the CME.
* I have about as much loyalty to my former employer as any other hacker would have to a big corporation--that is, I think it's a valuable business, but I'm not going to go on the Internet and shill for them because of some sense of loyalty.
But finance discussion causes people to enter "good vs evil" mode. Go figure.
To call CME irrelevant is strange - it's the world’s largest futures exchange! The CME decision many years ago to link futures contracts to LIBOR may have inadvertently kick-started the entire scandal, because banks responsible for fixing LIBOR would also have trading positions, and thus might be tempted to rig things (which is what happened).
> Exchanges don't do "evil finance things".
Ask farmers: "...rampant dairy price rigging that occurs at the CME and hurts farmers and consumers across the U.S. and around the world. In 2008 the Commodity Futures Trading Commission (CFTC) found Dairy Farmers of America (DFA) guilty of price rigging at the CME and levied an unprecedented $12 million fine. Yet, these illegal trading practices continue at the CME." http://familyfarmers.org/?p=731
Or bullion traders: "As the operator of U.S. commodity futures markets; the CME Group has a quasi-regulatory capacity to ensure the markets are operated in a legitimate manner. A primary facet of this responsibility is to set “margin requirements” for trading positions in a manner which enhances market stability. However, for the second time in 24 months we have this market operator engaging in precisely the opposite manner: maliciously rigging margin position requirements in order to increase the current “instability” in precious metals markets – i.e. the downward pressure in prices." http://wallstreetsectorselector.com/2013/04/cme-group-destab...
> finance discussion causes people to enter "good vs evil" mode. Go figure.
Maybe farmers and bullion traders are just bad losers. Maybe brokers don't front-run their customers. Maybe banks who settle lawsuits are innocent. Or maybe Matt Taibbi is right and people have simply had enough of rampant financial fraud that goes unpunished.
The weird thing about this comment is that you appear to have researched it. You researched an attempt to defame another commenter on HN.
Someone else[1] first mentioned that the original poster once worked for CME. Anyone who has been following the LIBOR rigging story can see the irony.
You've now accused several people of defaming the original poster. Did you somehow forget that the topic of discussion is fraud in the financial markets?
You mean "finance discussions" from people who owed their income to the finance industry...and yet who want us to believe they are unbiased on the topic of the finance industry...this despite their well-thought out "discussion" in this thread of a criticism of the financial industry consisting not of any factual arguments, but only of completely unsupported horseshit like...wait for it... "Taibbi routinely lies..."?
I mean how could anyone even consider the idea "shill", is that what you're saying?
"Good vs evil"?
Go figure. Yeah, go fucking figure.
I mean, with the quality and depth of those kinds of comments, why would anyone ever even think to speculate about motivation and/or character here?
But maybe you, alone among all the other (I suppose) Taibbi advocates on this thread, would like to engage directly with my argument about his financial reporting?
> lawsuits must be lawful
It's not the "rule of law" part that's naive, it's the "democratic" part. We still have some semblance of the rule of law (although even that is starting to fray) but there is no more democracy in the U.S. We are a plutocracy, a government of the wealthy, by the wealthy, and for the wealthy. So it is unsurprising that what the banks are doing to rip people off is legal: the banks (and other big businesses) write the laws.
A close friend has been a public defender (criminal defense attorney) for 20 years. In her experience observing 20 years of cases, there's a direct correlation between wealth of the defendant and likelihood of getting off.
"The unspoken reality is that in America today there exists two systems of criminal justice. One for the wealthy, which includes kid-glove investigations, lackluster prosecutions, drug treatment, light sentences and easy, if any, prison time. The other, for the poor, is one of paramilitary policing, aggressive prosecution, harsh mandatory sentences and hard time. Wealth, and the political connec tions inherent to wealth, not race, is the determining factor in deciding which system one gets. This is most obvious when wealthy hip-hop artists and athletes, many of them black, are charged with serious crimes. Class trumps race every time, even if the wealth is new found..."
"... corporations can and do commit high crimes and misdemeanors with impunity. Likewise for governments and their agents, such as the police or military." — https://www.prisonlegalnews.org/(X(1)S(z3ez5uic5qiulf453pf34...
If this holds true for a black guy caught with a gun in NYC, why think it doesn't hold true for a finance guy conspiring against his clients?
Cheat your bookkeeping clients out of 10 grand and you're in the slammer, cheat cities or nations out of 10 billion and you might lose a couple tee times at the country club for depositions.
But your point is well taken.
What is your take on the issue?
People want him to be right, because who the hell doesn't want to read a fun piece on how corrupt Wall Street is? (I think Wall Street is pretty corrupt, B.T.W.)
He was much better writing about politics, because most of the time you can write a competent political story without needing to explain a technical concept you yourself don't understand. Name dropping, appeals to populism, and comic invective are entirely adequate to that task.
He's good at sports writing too, because he understands the technical concepts he wants to explain.
But with finance writing, Taibbi has set a needlessly high bar for himself, and he doesn't just routinely fail to clear it; he seems to be running under the bar.
If the topic is political or economic and likely to provide a runway for some sort of frustration-at-establishment chatter, I regularly expect you to appear and engage in some sort of character-assassination, poisoning-of-the-well job as you've done here.
That second para is especially representative of the in-character mode of your responses: one of a reasonable, empathetic, "hey, I don't like it either!" stance followed in short order by some content-free opinion shaping.
You're clearly capable of more insightful commentary in technical matters (a minor understatement) but beyond that the risk of your comments going tabloid editorial increases quite a bit.
All quite odd behaviour when you combine it with your tendency to guide others in appropriate commenting approaches (as you've done further down this thread.)
What's especially telling is that 5 (admittedly short) grafs, you've failed to address a single point I actually made, but rather tried to summon a gestalt of all my comments so you could tackle them in the abstract.
Want to take another stab at responding? I'm all ears.
Why not make your argument more credible by taking down my supposedly superficial comment? Wouldn't that be a much more interesting and constructive argument?
You didn't challenge any of his points or reasoning there either. Interestingly enough you did exactly what you seem to be condemning the above poster for: summon a gestalt of his points in the article and attack them in the abstract.
Would you like to stick up for Taibbi's financial reporting? I think I've set you up nicely for a takedown comment: as someone observed downthread, all I've done is make a bunch of assertions without supporting evidence.
Who they are and the difference caliber or prestige has nothing to do with the argument. I only mentioned that situation to further illustrate the trend justsee was pointing out, which you still have not bothered rebutting. You're still using worthless ad hominem attacks, just as you do whenever an article promotes a crowd vs. establishment discussion.
To be honest his comment is pretty accurate; you regularly come along for these types of articles as some sort of watchdog, and predictably attack the author's character in some way to discredit the article (especially if its generally criticizing the SV startup scene), instead of directly attacking the author's arguments and reasoning, which would be much more meaningful. I'm curious as to why?
As for "interest to hackers", this market seems to like finance. I suppose the grass is always greener...
I used to work in finance, and think it's fascinating, the good and the bad. I'm sympathetic to the argument that banks are too large, too undisciplined, and have too much power, but agreeing with nonsense because you want to is an anti-pattern, both personally and in terms of the long-term ideological fight.
I had to chuckle at that. You, sir, have not worked in finance. (complement!)
>> EDIT: CME, eh? Which markets? >> EDIT2: I'm not counting CME software engineer as finance experience. Again, a complement!
That is 100% your opinion. I have read more than a couple of his articles and they are very, very well put together. He is an excellent journalist and one of the few who is willing to cover all the corruption going on within our financial system.
But that this comment could go against the grain of Internet circle jerking and be the top voted one makes me e-swoon. Bravo everyone.
Anyways, I've worked for Apple and I've worked for a major investment bank. The two brand names are both major headline grabbers and I would say in both cases, about 60% of what you read is an outright fabrication designed to attract page views.
Henry Ford
Additionally, the tidbit about OP having worked for two high-profile companies is completely useless information. Just because you get a paycheck doesn't mean you are privy to inside details related to why or how things happen.
So yes, the article in question isn't necessarily perfect, but making wild, unsupported claims about fabricated stories is no better.
But given your clumsy reasoning, I doubt I'll see anything insightful from this conversation.
I don't see anything clumsy about my reasoning. The Libor scandal, for instance, is pretty clear-cut. The rate was set by, simplifying greatly, polling the banks and averaging. There is evidence that some of the banks misrepresented their actual cost of borrowing in order to further their own interests, and thus skewed the rate improperly.
Is any of this in doubt? Now, it might not be the Illuminati secretly picking the president and ordering him to clone Hitler, but it sure does demonstrate that our market economy isn't quite as "market-ish" as we had hoped.
That's a big problem in my book because the fundamental argument in favor of markets as a means of organizing economic activity is that they generate socially optimal outcomes. Otherwise, there's no reason for most of us to buy into the system, it's just feudalism (which economists and capitalists take great pride in having vanquished) all over again and most of us are still just serfs. If those markets are being manipulated, then are the outcomes socially optimal? Or, more specifically, are they more socially optimal than some other method of organizing things? If not, then the whole system is called into question, and that's a huge deal.
In other words, whether or not they were cooperating or competing, they were probably in breach of contract.
How long has it been since we've actually had an AG that really went to bat for the American people? I feel like more there than anywhere, we've been failed by every administration for a good long while.
Yes, the blame goes much, much deeper, but so many of the problems (be it banking or privacy and liberty related issues) all end up at the feet of the attorney general and we've not had one that's been a champion for the people for far too long.
At this point, I don't think it's terribly inaccurate to say that AGs seem to go to bat against the American people more than they do for them.
And then 0.5% on a loan isn't going to smash all that many dreams.
At that time, the bank(s) were batting for a settlement which I believe was opposed by the then DA of New York and 1 more. Most of the other DAs were on board.
I forget what happened to that particular lawsuit though.
PRIMARY SUBMITTER: Whats it worth
SWSISS FRANC TRADER: ive got some sushi rolls from yesterday?...
PRIMARY SUBMITTER: ok low 6m, just for u
The UK FSA Final Notice documents many transcripts just like this as evidence of the unethical, unprofessional, dysfunctional culture [1].
That said, I believe the article. Some of the stuff you could get away with LEGALLY on BrokerTec (ICAP's electronic platform) would amaze most.
[BTW, surprisingly apropos username.]
However, it could also be seen as manufacturing outrage, as accepting as payment something of little to potentially negative value would cause more outrage for those who didn't get the farce. And perhaps that was/is Taibbi's goal, to try to elevate the level of outrage to what he feels are appropriate levels.
Whether this tactic is ethical and even pragmatically advantageous is not absolutely clear in my mind. I generally have an overriding value of intellectual truth, and abhor skewing that for the sake of an emotional response. However, if an unimportant intellectual truth is sacrificed to communicate a significant emotional truth, is that acceptable/virtuous? Of course, the danger is that this may be used to call into question the intellectual integrity of other claims which do involve important intellectual truths, as cynicalkane has done in this thread.
I think in the case of the day old sushi, the truth is outrageous enough without misrepresenting such an insignificant detail, even in jest, which could be used to undermine the author's credibility.
edit: it isn't even bankers humor, it is just general office humor. you wouldn't recognize it if you haven't worked anywhere.
It's not about whether people can have a joke, it's that people of that mindset should not be anywhere near global levers of capitalism.
Like they shouldn't be air traffic controllers, or have national security clearance, or judge legal cases.
However the point in this particular scandal is that the two groups should not have been talking to each other, let alone joking.
Contrast finance with sports betting. If you bet on a hockey team, you have almost complete information about any variable you can imagine. The career of each player, how the team has performed so far, how far the away team has to travel (you use that to estimate the fatigue of the players), any player injuries and so on.
Surprisingly, sports betting is both more transparent and much more fair than finance because everyone has access to the same information. Sure, someone might know that the ice cleaning machine in the arena is malfunctioning so there may be debris left on the ice which may negatively effect one star players skating abilities and be able to exploit that information advantage. But it is marginal in comparison to the huge advantage traders and insiders can acquire in finance.
My point is that looking at finance as betting makes it much clearer what is going on. Some of the players have an information advantage and are exploiting it. The rest are getting screwed.
do we not know that money runs the world? i mean its almost infantile, its not even a question of world view, its simple science, its like writing a news story about the fact that the earth is round
I'm not saying this to blow off the story, I'm alarmed that there's more rate-fixing going on and suspect that we'll hear about more again. But Taibbi writes to incite, not to inform. I don't trust him any more than I trust Glenn Beck or Alex Jones.
The government, banks, big business, whatever pull out all the stops to manipulate "us" to force their view of the world. So, if the opposition are bland and straight up factual, the opposing view will not have the same impact.
I think of the political scare and hate ads that I (as a non US citizen) associate with US right wing politics, and that the US left (still right from a UK perspective) don't seem to do that, so lose out in the attention seeking stakes. People react to fear. Scare them and they will react. Sort of like with terrorists and how gov uses that fear to implement draconian policies.
But, when the non right, non business, non government, non banking people over do the emotive stuff, they get criticised. But I think they, sadly, have to play that game to compete in the information and ideas competition. You need to scream, manipulate, and scare to get heard.
Its awful, horrible and not what I want at all, but I dont see any other way. If this article makes people think, better still act, or at least wake up, then its done its job, IMHO.
Pretty much anything written from that point of view ought to be considered for flagging and being removed from this site, as it's flame bait.
I'm thinking, in particular, of numbers like LIBOR that are generated from privately-reported or easily manipulated data. Although deregulation seems to lead to major fraud sooner or later, so that would be worth keeping track of too.
I'd like to get a feel for which numbers are "soft" and easily manipulated, vs. "hard". Prior to this I thought that LIBOR and ISDAfix were fairly hard to manipulate. Theoretically, it seems like they would be tough to manipulate, but the reality of the financial system is very different from theory.