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Saturday 25 July 2015

Rigged: Banks Rig Treasury Market

Boston’s public sector pension fund accusesall of the biggest US banks  – the so-called “primary dealers” which transact directly with the United States Treasury Department and “have a special obligation to ensure the efficient function” of the American treasury bond market – of colluding to manipulate the $12.5 trillion U.S. Treasury market.  The complaint alleges:

Defendants employed a two-pronged scheme to manipulate the Treasury securities market. First, Defendants used electronic chatrooms, instant messaging, and other electronic and telephonic methods to exchange confidential customer information, coordinate trading strategies, and increase the bid-ask spread in the when-issued market to inflate prices of Treasury securities they sold to the Class. Second, Defendants used the same means to rig the Treasury auction bidding process to deflate prices at which they bought Treasury securities to cover their pre-auction sales. Recent reports confirm that traders at some of these primary dealers “talked with counterparts at other banks via online chatrooms” and “swapped gossip about clients’ Treasury orders.

By engaging in this unlawful conduct, Defendants maximized the spread not only for transactions in the when-issued market, but also between their buy (auction) price and sell (when-issued) price.

***

This conduct lined the pockets of Defendants while raising prices to investors trading Treasury securities in the when-issued market, investors trading Treasury security-based futures and options, and investors transacting in instruments benchmarked to the prices of Treasury securities determined at auction, including certain bonds and other asset- backed securities and interest rate swaps.

Given the tight correlation between the Treasury securities prices in the spot market and futures markets, Defendants’ manipulation of the auction prices for Treasury securities also directly and proximately caused injury to individuals and entities that traded in Treasury futures and options on U.S. exchanges, including the Chicago Mercantile Exchange.

High-frequency trading has also long been used to manipulate the treasury market.

Banks Rig Currency Markets

It has long been known that currency markets are massively rigged. And see this, this, and this. Indeed, not only do the banks share confidential information with each other … they also shared it with a giant oil company.

A number of giant banks pleaded guilty to manipulating currency markets, and agreed to pay a $7.5 billion dollar fine. New York’s state financial regulator called it “a brazen ‘heads I win, tails you lose’ scheme to rip off their clients.”

The formal admissions by the banks include a trader saying, “We trying to manipulate it a bit more in ny now . . . a coupld buddies of mine and I.” And a vice president of a big bank said:

  • “If you aint cheating, you aint trying.”

Derivatives Are Manipulated

Runaway derivatives – especially credit default swaps (CDS) – were one of the main causes of the 2008 financial crisis. Congress never fixed the problem, and actually made it worse.

The big banks have long manipulated derivatives … a $1,200 Trillion Dollar market.

Indeed, many trillions of dollars of derivatives are being manipulated in the exact same same way that interest rates are fixed (see below) … through gamed self-reporting.

Reuters noted in September:

A Manhattan federal judge said on Thursday that investors may pursue a lawsuit accusing 12 major banks of violating antitrust law by fixing prices and restraining competition in the roughly $21 trillion market for credit default swaps.

***

“The complaint provides a chronology of behavior that would probably not result from chance, coincidence, independent responses to common stimuli, or mere interdependence,” [Judge] Cote said.

The defendants include Bank of America Corp, Barclays Plc, BNP Paribas SA, Citigroup Inc , Credit Suisse Group AG, Deutsche Bank AG , Goldman Sachs Group Inc, HSBC Holdings Plc , JPMorgan Chase & Co, Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG.

Other defendants are the International Swaps and Derivatives Association and Markit Ltd, which provides credit derivative pricing services.

***

U.S. and European regulators have probed potential anticompetitive activity in CDS. In July 2013, the European Commission accused many of the defendants of colluding to block new CDS exchanges from entering the market.

***

“The financial crisis hardly explains the alleged secret meetings and coordinated actions,” the judge wrote. “Nor does it explain why ISDA and Markit simultaneously reversed course.”

In other words, the big banks are continuing to fix prices for CDS in secret meetings … and have torpedoed the more open and transparent CDS exchanges that Congress mandated.

The managing director at Graham Fisher & Co. (Joshua Rosner) recently said that the big banks are frontrunning CDS trades … and manipulating decisions on whether a the party “insured” by CDS has defaulted on its obligations, thus triggering an “event” requiring payment on the CDS.

By way of analogy, whether or not an insurance company pays to rebuild a house which has burned to the ground may turn on whether it finds the fire was arson or accidental.

This is a big deal … while hundreds of thousands of dollars might be at stake in the home fire example, many tens or even hundreds of billions of dollars ride on whether or not a country like Greece is determined to have suffered a CDS-triggering event.

Rosner notes:

The potential use of CDS to artificially manipulate corporate solvency, the imbalances in the amounts of CDS outstanding relative to referenced debt and ongoing allegations that ISDA’s Determinations Committee is deeply conflicted and “operates as a quasi-Star Chamber or cartel”, are finally being scrutinized.

As one source recently suggested, “It would be a surprise if determinations of default, made by a committee of interested parties, don’t lead to findings of manipulation similar to those found in LIBOR and FOREX”.

***

The fact that Pimco’s Chief Investment Officer criticized the determination that Greece had not triggered its CDS, even though Pimco was part of the unanimous vote making that determination, is profoundly troubling to say the least.

***

The fact that the [ISDA’s Determinations Committees] has no obligation to “research, investigate, supplement or verify the accuracy of information on which a determination is based” and members “may have an inherent conflict of interest in the outcome of any determinations” only adds credence to suggestions that the “CDS market is being manipulated and gerrymandered by the all-powerful investment banks”.

Energy Prices Manipulated

Energy markets are manipulated as well …

For example, oil prices have been manipulated for many years.

And the U.S. Federal Energy Regulatory Commission says that JP Morgan has massively manipulated energy markets in California and the Midwest, obtaining tens of millions of dollars in overpayments from grid operators between September 2010 and June 2011.

And Pulitzer prize-winning reporter David Cay Johnston noted last year that Wall Street is trying to launch Enron 2.0.

Commodities Are Manipulated

The big banks and government agencies have been conspiring to manipulate commodities prices for decades.

The big banks are taking over important aspects of the physical economy – including uranium mining, petroleum products, aluminum, ownership and operation of airports, toll roads, ports, and electricity – to manipulate market prices.

And they are using these physical assets to massively manipulate commodities prices … scalping consumers of many billions of dollars each year. (More from Matt Taibbi, FDL and Elizabeth Warren.)

Gold and Silver Are Manipulated

Last November, Switzerland’s financial regulator (FINMA) found “serious misconduct” and a “clear attempt to manipulate precious metals benchmarks” by UBS employees in precious metals trading, particularly with silver.

Reuters reports:

Swiss regulator FINMA said on Wednesday that it found a “clear attempt” to manipulate precious metals benchmarks during its investigation into precious metals and foreign exchange trading at UBS …

Gold and silver prices have been “fixed” in daily conference calls by the powers-that-be.

Bloomberg reported in 2013:

It is the participating banks themselves that administer the gold and silver benchmarks.

So are prices being manipulated? Let’s take a look at the evidence. In his book “The Gold Cartel,” commodity analyst Dimitri Speck combines minute-by-minute data from most of 1993 through 2012 to show how gold prices move on an average day (see attached charts). He finds that the spot price of gold tends to drop sharply around the London evening fixing (10 a.m. New York time). A similar, if less pronounced, drop in price occurs around the London morning fixing. The same daily declines can be seen in silver prices from 1998 through 2012.

For both commodities there were, on average, no comparable price changes at any other time of the day. These patterns are consistent with manipulation in both markets.

Interest Rates Are Manipulated

Bloomberg reported last year:

Royal Bank of Scotland Group Plc was ordered to pay $50 million by a federal judge in Connecticut over claims that it rigged the London interbank offered rate.

RBS Securities Japan Ltd. in April pleaded guilty to wire frauda s part of a settlement of more than $600 million with U.S and U.K. regulators over Libor manipulation, according to court filings. U.S. District Judge Michael P. Shea in New Haventoday sentenced the Tokyo-based unit of RBS, Britain’s biggest publicly owned lender, to pay the agreed-upon fine, according to a Justice Department statement.

Global investigations into banks’ attempts to manipulate the benchmarks for profit have led to fines and settlements for lenders including RBS, Barclays Plc, UBS AG and Rabobank Groep.

RBS was among six companies fined a record 1.7 billion euros ($2.3 billion) by the European Union last month for rigging interest rates linked to Libor. The combined fines for manipulating yen Libor and Euribor, the benchmark money-market rate for the euro, are the largest-ever EU cartel penalties.

Global fines for rate-rigging have reached $6 billion since June 2012 as authorities around the world probe whether traders worked together to fix Libor, meant to reflect the interest rate at which banks lend to each other, to benefit their own trading positions.

To put the Libor interest rate scandal in perspective:

  • Even though RBS and a handful of other banks have been fined for interest rate manipulation, Libor is still being manipulated. No wonder … the fines are pocket change – the cost of doing business – for the big banks

Everything Can Be Manipulated through High-Frequency Trading

Traders with high-tech computers can manipulate stocks, bonds, options, currencies and commodities. And see this.

Manipulating Numerous Markets In Myriad Ways

The big banks and other giants manipulate numerous markets in myriad ways, for example:

  • Engaging in mafia-style big-rigging fraud against local governments. See this, this and this
  • Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here and here
  • Pledging the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car
  • Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this
  • Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this
  • Bribing and bullying ratings agencies to inflate ratings on their risky investments

The Big Picture

The experts say that big banks will keep manipulating markets unless and until their executives are thrown in jail for fraud.

Why? Because the system is rigged to allow the big banks to commit continuous and massive fraud, and then to pay small fines as the “cost of doing business”. As Nobel prize winning economist Joseph Stiglitz noted years ago:

“The system is set so that even if you’re caught, the penalty is just a small number relative to what you walk home with.

The fine is just a cost of doing business. It’s like a parking fine. Sometimes you make a decision to park knowing that you might get a fine because going around the corner to the parking lot takes you too much time.”

Indeed, Reuters pointed out recently:

Switzerland’s regulator FINMA ordered UBS, the country’s biggest bank, to pay 134 million francs ($139 million) after it found serious misconduct in both foreign exchange and precious metals trading. It also capped bonuses for dealers in both units at twice their basic salary for two years.

Capping bonuses at twice base salary? That’s not a punishment … it’s an incentive.

Experts say that we have to prosecute fraud or else the economy won’t ever really stabilize.

But the government is doing the exact opposite. Indeed, the Justice Department has announced it will go easy on big banks, and always settles prosecutions for pennies on the dollar (a form of stealth bailout. It is also arguably one of the main causes of the double dip in housing. And there is no change in the air.)

Indeed, the government doesn’t even force the banks to admit any guilt as part of their settlements. In fact:

The banks have been allowed to investigate themselves,” one source familiar with the investigation told Reuters. “The investigated decide what they want to investigate, what they admit to, and how much they will pay.

Wall Street has manipulated virtually every other market as well – both in the financial sector and the real economy – and broken virtually every law on the books.

And they will keep on doing so until the Department of Justice grows a pair.

The criminality and blatant manipulation will grow and spread and metastasize – taking over and killing off more and more of the economy – until Wall Street executives are finally thrown in jail.

It’s that simple …

Downing Civilian Airliners and Destroying Ancient Artifacts

The US claims to be outraged by the shoot-down, but its purported indignation was easily debunked at the time of the event, when commentators reminded Washington (leaving out many other acts) that it shot down an obviously civilian plane on a commercial route, Iranian Air flight 655, killing the almost 300 civilians on board.  “The commander of a nearby U.S. vessel, David Carlson, wrote in the U.S. Naval Proceedings that he ‘wondered aloud in disbelief’ as ‘The Vincennes [the US ship] announced her intentions’ to attack what was clearly a civilian aircraft.”

The commander of the ship that targeted the civilian vessel, rather than being punished, was given the Legion of Merit, and George Bush Sr. said of the event: “I will never apologize for the United States — I don’t care what the facts are…”

In fact, (and mysteriously unlike the US reaction to MH-17), virtually no one in the US seemed to care about a civilian plane being shot down when Washington was the culprit.  There was “no outrage, no desperate search for victims, no passionate denunciations of those responsible, no eloquent laments by the US Ambassador to the UN about the ‘immense and heart-wrenching loss'”.

Similarly, the US vanguard has been “incensed” by the ISIS destruction of ancient artifacts.

Leaving aside that the US was destroying ancient artifacts in Iraq before an entity called Al Qaeda in Iraq (which became ISIS) ever came into existence thanks to the US invasion, the US has a long record, dating to its origins, of decimating ancient artifacts around the world.  For example:

The Plain of Jars is a megalithic archaeological landscape in Laos. Scattered in the landscape of the Xieng Khouang plateau, Xieng Khouang, Lao PDR, are thousands of megalithic jars.

Initial research of the Plain of Jars in the early 1930s claimed that the stone jars are associated with prehistoric burial practices. Excavation by Lao and Japanese archaeologists in the intervening years has supported this interpretation with the discovery of human remains, burial goods and ceramics around the stone jars. The Plain of Jars is dated to the Iron Age (500 BC to AD 500) and is one of the most important sites for studying Southeast Asian prehistory. The Plain of Jars has the potential to shed light on the relationship between increasingly complex societies and megalithic structures and provide insight into social organisation of Iron Age Southeast Asia’s communities.

In the late 1960s and early 70s, Washington carried out a genocide campaign against Laos (and all of Indochina), planting and detonating more explosives there – mostly in the Plain of Jars – than the allies dropped in all of WW2 – millions of tons.  As an expert on the subject, Fred Branfman, reported (ch. 18), “the entire aboveground society [was] leveled.”

Bombs planted by the US explosive teams included 262 million cluster bombs, an estimated 80 million of which did not explode on impact, and continue to kill Laotians today.  Post-bombing deaths number in the tens of thousands.

The Laos example thus illustrates both points: Washington’s high regard for ancient artifacts as well as civilians.

It would cost $16 billion to clean up the remaining bombs in Laos, which continue to kill, maim, and/or blind three year olds, etc.  While the US spent 18 million per day in its 9+ year Laotian genocide campaign, it has to date only devoted 85 million, or .005%, of the $16 billion required to dispose of the remaining bombs, which mostly effect kids, since they look like toys.

Meanwhile, the US gives almost 4 billion a year in aid to an extremely rich country, Israel, spends trillions on further war-making, and recently allocated 1 to 1.5 trillion to illegally advancing its nuclear arsenal, of which MIT Professor Emeritus of Science, Technology and National Security Policy, Theodore Postol, said, “It is hard to understand what the Obama White House thinks it is accomplishing by pushing such a counterproductive program”.

While journalist Brett S. Morris believes the US will not help rid Laos of the unexploded bombs because “it simply doesn’t care”, New York businessman Dori Shimoda, who started Give Children a Choice, says the continued US bombing of Laos through unexploded bombs is “by design.  The intent was to maim not only at the time [of the bombing], but after the fact.”

Indeed, at the time of the campaign, Branfman stated that “There’s a good deal of evidence to suggest that the US has been carrying out the most protracted bombing of civilian targets in history”.

Why did the US push its Laotian killing campaign to such a massive scale?  Once Washington had finished bombing Vietnam, it had planes sitting around with nothing to do.  “It was not that there was some increased strategic threat on the ground.  It was simply that the planes were available.”  This is confirmed in official government records.

Soldier Lee Thorn, who participated in and witnessed the US bombing, says it was “just murder … mostly what we were doing was killing civilians”, and that all but one of his fellow soldiers were “just cackling up there” in the planes as they “took out” entire towns.

Author is a US-based researcher focusing on force dynamics, national and global.  @_DirtyTruths