Monday, August 05, 2013 - ISDAfix

ISDAfix

by Sinclair Noe

DOW – 46 = 15612
SPX – 2 = 1707
NAS + 3 = 3692
10 YR YLD + .04 = 2.64%
OIL - .38 = 106.56
GOLD – 9.70 = 1304.80
SILV - .18 = 19.81

We've talked on several occasions about the various banking scandals that have cropped up over the past couple of years. It's a long list and includes everything from municipal bond rigging to robo-signing, predatory loans to insider trading, derivatives stuffing to energy price manipulation including oil markets and electricity markets. Last year we heard about what appeared to be the biggest scandal, at least in dollar volume; the Libor rate rigging scandal.

The scandal surrounding the London interbank offered rate (Libor), against which it's estimated more than $300 trillion worth of products are priced, everything from derivatives to mortgages to credit cards and … well almost everything that might be bought or sold, has become a symbol for the brazen arrogance with which some in the financial industry have pursued their own interests. Libor rate rigging has cost individuals as well as municipalities, including Baltimore, Houston, San Diego, Sacramento, and others; maybe even Detroit. The US municipalities claim that they lost money when they received lower interest rate payments than they should have, or had to pay artificially inflated rates because of the alleged manipulation. In other words, the banksters ripped them off coming and going.

In London, the Libor investigation is ongoing and they've recently announced plans to make charges, possibly criminal charges within a couple of months. The Serious Fraud Office, or SFO has leveled criminal charges at three relatively junior-level individuals in connection with the scam. Three banks, including Barclays, RBS, and UBS have agreed to pay around $2.6 billion to date to secure civil settlements with UK and US regulators; we don't yet have confirmation that the fines have been paid. More than a dozen more banksters were involved in Libor, including Citigroup, JPMorgan, Deutsche Bank, HSBC, Bank of America, Credit Suisse, Rabobank, ICAP, Teullet Prebon, and Royal Bank of Canada.

The prosecutors say it will be difficult;they are outmanned and outgunned; the banksters hit back with counter-suits against prosecutors. Plain and simple, the banksters have more money to spend on litigation. And we all know that justice isn't about justice, it boils down to who has the most money to push around the other party. Also, pushing beyond the judicial system, the banksters have managed to infiltrate the the legislative process, watering down regulations and laws; new efforts to toughen the laws since the Financial Crisis might be too late to find those culpable of causing the crisis to face criminal penalty. Also, much of the correspondence, such as emails, that can be admitted as evidence rarely makes it to the top floor of the corporate suites.

Still those emails reveal the  high pressure on brokers trying to win business from traders is a big incentive to curry favor in extraordinary ways. According to the Wall Street Journal, gifts of expensive dinners, ski trips, strip clubs, and prostitutes are particularly common in London where there is no regulation on the amount of money brokers can lavish on traders. “Some brokers appear to see entertainment as part of explicit favors-for-business exchanges. Such profits, however, have been at the expense of investors, retirees, taxpayers, regular bank customers, pension funds, cities, and public works programs; to the point where even a regular bus rider pays for the transgressions of the banksters.

You might imagine that it would be hard for the banksters to do much worse than manipulate the most widely used interest rate which affects hundreds of trillions of transactions, but then you'll recall that the Financial Crisis of 2007-2008 was not so much the failure of subprime mortgages as it was the failure of the derivatives written on mortgages. There would never have been the sheer volume of toxic loans in the first place, except that the banksters had figured out a way to package all the garbage and collect fees for doing so, and then bet against the very loan derivative packages they created and marketed to customers. Those derivatives were highly leveraged and ridiculously under-capitalized. When the derivatives failed, that is when Hank Paulson went begging on bended knee for bailouts to prevent a global financial meltdown. You might imagine the banksters had hit their bottommost with the Libor rigging, but wait there's more.

For all the interest rates determined by the rigged process that is Libor, there were side bets in the derivatives markets. And trading in those derivatives is largely conducted through the market known as the ISDAfix, which refers to the International Swaps and Derivatives Association and the fix part of the name is what they chose to describe their marketplace. Sure enough, the fix was in.

ICAP, a major London-based firm, is now being investigated by the US Commodity Futures Trading Commission for falsely reporting the benchmark known as ISDAfix, which provides the standard rates in the $379 trillion market for interest rate swaps. ICAP also maintained trading desks in New Jersey which they nicknamed Treasure Island. Fifteen other banks, including Bank of America, JP Morgan Chase and UBS, have been issued subpoenas for their role in submitting the bids and offers used by ICAP to create the benchmark.

Interest rate swaps refer to transactions that provide customers with greater security on loans, at least that's the theoretical claim. This might valuable if a city or company has a loan with a variable and unpredictable interest rate, which can be “swapped” for a fixed and more secure rate. The reality is that in many instances the swaps create greater risks. The price fixing on both interest rates and interest rate swaps is an example of price fixing corruption layered on price fixing corruption. Ultimately it means we all pay more and get less for everything from a mortgage to a bus ride to a glass of water, so the banksters can gamble in the derivatives casino.

Price fixing of the ISDAfix first came into focus in April. Last Friday, the Commodity Futures Trading Commission revealed that their investigation of the ISDA fix had produced recorded telephone calls and emails. And now Bloomberg is reporting that there is a growing trail of evidence showing price manipulation. The CFTC is sorting through more than one million emails; they are interviewing traders. Remember the guilty verdict last week against Fabrice Tourre, the junior level Goldman Sachs trader convicted of insider trading? You've got to believe the junior level traders in the ISDAfix are familiar with the fate of Fabulous Fab and how Goldman threw him under the bus.

CFTC investigators are piecing together evidence that shows swaption traders at banks worked with rate-swap traders at their own firms to manipulate ISDAfix. The swaption traders told their rate-swap colleagues the level at which they needed ISDAfix to be set that day in order to bolster the value of their derivatives positions before these were settled the next day.

The rate-swap trader would then tell a broker at ICAP, the biggest arranger of the contracts between banks, to execute as many trades in interest-rate swaps as necessary to move ISDAfix to the desired level by the close of trade; the price fixing went by the quaint name of banging the close.

It looks like a violation of the Dodd-Frank Act. The law defines the activity as demonstrating “intentional or reckless disregard for the orderly execution of transactions during the closing period” as to interfere with settlement prices.

Maybe you haven't heard of the ISDAfix price fixing scandal, but at more than $370 trillion, there is a strong probability that it is bigger than the Libor scandal. Just to provide perspective, the Gross Domestic Product of the United States, the measure of all goods and services produced each year is about $16 trillion. The GWP, or Gross World Product is the combined gross national product of all the countries in the world; so, the ISDAfix is more than five times bigger than the value of all goods and services produced in the entire world this year. And for all its size the ISDAfix and the derivatives traded do not produce any goods or services.

Over the years we've seen that when any sector of the economy grows too large, there is readjustment. Remember the energy bubble of 1980? The tech bubble of 2000? The financial bubble of 2007? An easy, though incomplete representation can be found by looking at S&P500 sectors over the years; for most of the time until the 1990s, the financial sector represented 5-10% of the S&P capitalization; the bubble burst at 22% in 2007 and now we are back to about 20%. So, the bubble is inflating and it seems inevitable it will eventually pop. The difference between 5% and 20% is the capital the financial sector sucks out of productive purpose; capital that could be used to produce a much healthier economy. We might consider the financial sector as the lubricant for the engine of commerce, but too much grease just gums up the works.

Unfortunately, when a bubble pops it creates a lot of damage, however that damage rarely falls on the people who created the problem, instead it destroys the 401Ks and pensions and home values and jobs of the middle class. Creative destruction may be effective but it is also painful; the “collateral damage” is real and I hope it can be avoided.

We are now five years past the last meltdown and we have not seen a single arrest or prosecution of any senior Wall Street banker for the systemic fraud that precipitated the 2008 financial crisis – a crisis from which millions of people are still suffering, so it comes as no surprise that we continue to report on one scandal after another. Almost nothing has changed, except the financial sector is growing back to dangerous dimensions.

It's never-ending. Today, BP, the oil company which made a mess of the Gulf coast, today they denied wrongdoing even as the Federal Energy Regulatory Commission (FERC) charged BP with manipulating gas prices in 2008. The scheme in question dates back to Hurricane Ike and how the gas traders tried to manipulate prices during the Hurricane. BP claims that's not what they were doing, that a trader-in-training made a mistake when he tried to explain the scheme to a senior BP official.

Remember last week when Steve Cohen faced all those troubles for insider trading at SAC Advisors, the nearly personal hedge fund run by Cohen. Cohen doesn't face criminal charges himself, but the firm might be shut down as the case proceeds. Well, new week, new hedge fund; this time it's George Soros facing allegations his fund management firm engaged in insider trading before the purchase of a large stake in nutritional supplement company Herbalife.

One of the billionaire investor’s top managers is alleged to have leaked details of Soros Fund Management’s purchase of a near-5% stake in Herbalife before the deal is believed to have been finalised last week.

The claim is part of a complaint reportedly filed with the Securities and Exchange Commission by Bill Ackman, who runs the Pershing Square hedge fund and holds a $1billion short bet on Herbalife.

Jeff Bezos, the CEO of Amazon.com has agreed to buy th Washington Post newspaper company. Bezos is making the deal as an individual and not as part of Amazon, the world’s biggest online retailer. Just thought he'd try his hand at the newspaper business, in the proud tradition of Citizen Cane; and what better place to have a newspaper than Washington DC.

The president of the Federal Reserve Bank of Dallas came up with a catchy name for his speech today: Let me articulate clearly: “Horseshift!” (there is an “f” before the “t”) As always, he is no fan of quantitative easing. Fisher says the Fed is closer to slowing its monthly bond buying. Excerpt: “A corollary of reining in this massive monetary stimulus in a timely manner is that financial markets may have become too accustomed to what some have depicted as a Fed `put.’ Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets, encourages lazy analysis and can set the groundwork for serious misallocation of capital.”

The second quarter reporting season is underway but at the end of the first quarter, according to FactSet, the S&P 500 companies, excluding the financial companies that have complicated balance sheets that would obscure our view, had $1.3 trillion in ready cash – and that's just S&P 500 companies; the corporate cash hoard likely tops $2 trillion. Meanwhile, capital expenditures (building new plants, starting projects, hiring people, leasing equipment) grew at its slowest rate in 3 years. No doubt, cash is nice to have in a storm and the Financial Crisis has hammered home the importance of a rainy day fund, but all of this cash will not sit idle forever.

One little-noticed item in the most recent jobs report is that the biggest jobs-gaining sector was "Financial Activities": banks, insurance companies, real estate companies and related financial services firms. These are the folks who will be making the big play for this money.

The other constituency after that cash are the shareholders who want dividends or for the company to buy their stock. Most big companies are already doing a bit of both. McDonald's, in the news because some of its low wage employees have walked out on strike last week, MickeyD says that, "after investing in our business we are committing to returning all free cash flow to shareholders over the long term." Then, they announce they are cutting expansion funds.

What you don't see, in page after page of earnings reports, is anyone talking about paying workers more. The word "salary" is referred to once by American Express executives saying that salary costs were flat year over year. The word "wage" shows up only in the McDonald's call, as a complaint about costs. The word "hire?" Google is hiring. The word "compensation" is mentioned only in Goldman Sachs' regulator disclosures.

The Transportation Department reports airlines collected $6 billion in fees for checked bags and reservation change penalties in 2012, compared with $1.3 billion in 2007. And that doesn't include what are known as ancillary fees for things like priority boarding. 

Monday, July 08, 2013 - Nothing Recedes Like Progress

Nothing Recedes Like Progress

by Sinclair Noe

DOW + 88 = 15,224
SPX + 8 = 1640
NAS + 5 = 3484
10 YR YLD - .07 = 2.65%

OIL - .17 = 103.05
GOLD + 13.50 = 1238.30
SILV + .18 = 19.18

Took a little break for the Fourth of July, so we have some catching up to do. Friday morning the jobs report showed the unemployment rate holding steady at 7.6%, even as the economy added 195,000 jobs. Better than expected but not good enough; possibly proving the adage that nothing recedes like progress, or at the very least we know that the path of progress is neither swift nor easy. More than 8 million people are working part-time for economic reasons; nearly 3 million are working in temp jobs; more than 4 million are in the ranks of the long-term unemployed; more than one million are considered discouraged, they've just given up I suppose.

If the labor market holds steady and job creation continues at the current rate, the unemployment rate will dip below 7 percent sometime in mid- 2014; by which point the majority of American workers will be part-time. We really should be adding more than 300,000 jobs a month, not fewer than 200,000. As the Economic Policy Institute points out, we would need more than five years of job growth at this rate to get back to the level of unemployment that prevailed before the Great Recession.

Still, the 195,000 new jobs should boost expectations for growth and inflation, which tends to push up bond yields. That happened on Friday; yields on the 10year Treasury note bounced up above 2.6%. The concern is that the Fed will ease up on Quantitative Easing as the unemployment picture improves, and the Fed seems to think the economy is strong enough to handle it. But the feral hogs in the bond market smelled blood and they priced in the Fed stepping back, not caring whether the economy can handle it or not.

Ironically, the market's moves could slow down the economy enough to make the market's prediction wrong, by hurting the economy so much that the Fed realizes it can't taper its bond purchases yet. And if the markets don't squash a recovery, then the politicians might. The austerity gang remains staunchly opposed to any deliberate job creation program. The Federal Reserve seems more interested in testing the idea of tapering than any aggressive monetary action.

And as the summer swoons on, it looks less and less likely that there is anything that will finally get us back to full employment. For now, rates are still near historic lows, and the equity markets, after using the Bernanke talking points as an opportunity to take profits, now seems to be focusing attention elsewhere.

Stocks have also been higher again. Maybe it is hope for a stronger earnings reporting season, which kicked off this afternoon with Alcoa reporting a $119 million loss, compared to a loss of $2 million a year ago. Alcoa posted big expenses for restructuring and legal costs. Woo hoo, happy days.

The analysts who analyze earnings seem to live in a mystical land of make believe. Six months ago, they predicted 2Q earnings growth of 8.7%; they've cut that to 1.8%: but they still think S&P 500 index share prices will rise by 8.8%. Getting to their price target would raise the index’s earnings multiple to 16.4; that's not a historically high multiple, but it might not reflect the anticipated slog. After three years of growth, earnings increases are slowing. Income in the S&P 500 advanced an average of 4.3 percent in each of the last five quarters, compared to the 28 percent average for 2010 and 2011.

Also, as we work our way through earnings season and look at the broader economy, GDP has been revised lower; down from 2.2% in 2012 to an estimated 1.9% this year. Data will likely be overhauled at the end of the month, and the expectation is that it will be revised lower. So, earnings growth alone is apparently not enough to reach escape velocity. The International Monetary Fund will probably lower its global growth forecast for the remainder of the year; they already lowered their forecast from the start of the year, down to 3.3% from an earlier estimate of 3.5%. They say they are seeing weakness in emerging countries in particular.

So the bar keeps getting lowered and nothing recedes like progress.

Oil prices moved slightly lower today, but remain entrenched in triple digit territory. Part of that is a risk premium associated with Egypt. At least 51 people were killed when the Egyptian army opened fire on supporters of ousted president Mohamed Mursi, in the deadliest incident since the elected Islamist leader was toppled by the military five days ago. Hundreds more were wounded today.

The Egyptian military has insisted that the overthrow was not a coup, and that it was enforcing the "will of the people" after millions took to the streets on June 30 to call for Mursi's resignation. The US government isn't calling it a coup because that would mean an end to $1.3 billion a year from Washington. That is called aid, but it also serves to pay Egypt to keep the peace with Israel. Apparently, a military coup by any other name is better than a democratically elected Muslim Brotherhood. So, the whole democracy thing is very messy, but the oil is still being transported through the Suez Canal.

The same cannot be said for oil being transported by rail in Canada.

Canadian police are still looking for the remains of people killed when a driverless crude oil train derailed and blew up in a small Quebec town over the weekend. The five locomotives and 72 oil cars had been parked near the town of Lac-Megantic in Quebec; that's not far from Maine. The brakes then somehow released and the train gathered pace as it rolled down a hill into the center of the town early on Saturday morning. It derailed and exploded into a gigantic fireball, flattening dozens of buildings and killing five people. Another 40 are missing and few residents hold out hope that they will be found alive.

Canada's railways have made a determined push to cash in on the country's crude-oil bonanza, painting themselves as a cost-effective alternative to politically unpopular pipelines like the proposed Keystone XL. The Canadian Railway Association recently estimated that as many as 140,000 carloads of crude oil are expected to rattle over the nation's tracks this year, up from only 500 carloads in 2009. That represents a 28,000 per cent increase in the amount of oil shipped by rail in the past 5 years. The Quebec disaster is the fourth freight-train accident under investigation involving crude-oil shipments since the beginning of the year.

So, there are some concerns about the ability to ship oil, whether on rail in Canada or by way of the Suez Canal; still, the recent run-up in oil prices is disconcerting. We've seen a big sell-off in commodities ranging from gold, to industrial metals, iron ore, extending to grains, natural gas and on. We've seen strength in the dollar, which was always a good excuse from the energy experts to explain falling oil prices.. We've seen demand for oil falling. Demand is dropping in China as that economy slows; the IMF is projecting slower and slower global economic growth, and that should mean less and less global demand for oil. Americans are driving less and less, not more and more; and we're driving more efficient cars. There has been a record jump in US domestic oil production, which has grown by more than one million barrels per day over the last year; that's the fastest growth in production in decades.

Some 5 percent of seaborne crude oil passes through the Suez Canal. Not inconsiderable, but its potential cost can be clearly calculated. The closure of Suez would not stop the lifting and shipping of oil cargoes. It would however add approximately 16 days steaming time around Cape Horn to an oil cargo's sea voyage otherwise precluded from using the canal, and the added expense works out to less than 50 cents a barrel.

To fully appreciate the excesses of the oil market one needs to understand that some 80 percent of all contracts bought and sold on the commodity exchanges are not executed by actual producers or crude oil consumers engaged in 'legitimate' hedging strategies, but rather by speculators and gamblers trying to drive oil prices in the direction in which they have placed their bets.

The Commodity Futures Trading Commission (CFTC) was given the authority by virtue of a January 2010 rider to the Commodity Exchange Act, to implement speculative position limits for futures and option contracts of certain energy commodities such as crude oil. To date, no action has been taken by the CFTC other than interminable hearings which one can well imagine have become a cover for the total lack of meaningful process.

In April 2011 the president amidst great fanfare, focused on 'speculation' in the oil market, giving Attorney General Eric Holder a mandate to investigate and announcing the formation of 'The Oil and Gas Price Fraud Working Group.' To date, more than two years later, not a word has been heard from this august commission.

A couple of weeks ago the Federal Trade Commission opened a formal investigation into how prices of crude oil and petroleum-derived products are set, mirroring a European Union inquiry. The investigation, now in a preliminary stage, will probably broaden into a multi-jurisdictional affair like the inquiry into manipulation of the London interbank offered rate, or Libor.

The price of oil is actually set, much like the Libor rates, by a data and news service called Platts. Platts publishes the Dated Brent benchmark that contributes to setting the price of more than half the world’s oil. The EU oil probe, which extends to undisclosed crude-derived products and biofuels, underscores how pricing in some energy markets lacks the transparency of financial products such as stocks and US corporate bonds. It also marks the third time global pricing benchmarks have drawn the regulators’ scrutiny in the past year following investigations into bank manipulation of the Libor, and ISDAFix, the benchmark for the $379 trillion swaps market.

In other words, everything is rigged. 

Friday, April 26, 2013 - The Fix is In

The Fix is In

by Sinclair Noe

DOW + 11= 14,712
SPX – 2 = 1582
NAS – 10 = 3279
10 YR YLD - .05 = 1.66%
OIL - .86 = 92.78
GOLD – 5.30 = 1463.90
SILV - .36 = 24.14

The initial guesstimate of first quarter gross domestic product shows the economy growing at a 2.5% pace. Consumer spending increased by 3.2%, the strongest increase in consumer spending in 2 years. Defense spending fell at an annual rate of 11.5 percent in the first quarter, on the heels of a 22.1 percent decline in the last three months of 2012.

This is the initial report on GDP and it is subject to revisions. The initial fourth quarter GDP number came in at a negative 0.1% and was revised up to 0.4%; the first quarter estimate of 2.5% is well below expectations, and it certainly isn't showing enough strength to indicate a solid recovery.

Personal disposable income, today’s report shows, actually fell by $140 billion in total from the fourth quarter. Reversion of the payroll tax to its normal rates at the beginning of 2013 will continue to drag on the disposable income of middle-class consumers throughout the year. Business investment in productive equipment and IT — a driver of productivity, innovation, and employment — slowed markedly to 3% growth in the first quarter, relative to nearly 12% in the prior quarter. Residential investment maintained strong growth, however, expanding 13% as housing markets in many areas of the country seem to be turning up. exports grew 2.9% in the first quarter. Imports grew even faster at 5.4%, much of that due to an increase in oil prices.

The quick and easy is that cuts in government spending is acting as a drag on economic growth. Government spending fell at an annual rate of 8.4 percent, after a decrease of 14.8 percent in the fourth quarter of 2012 — with both declines happening before the March start of the sequester. Fiscal policy is not enough to get the economy to cruising speed, and monetary policy has only been effective at delivering below-target inflation.

The sequester cuts haven't yet hit the economy, at least it wasn't reflected in the first quarter GDP numbers; the sequester has hit; maybe you haven't felt it yet, unless you were in an airport the past week. Washington politicians are frequent fliers; they are feeling the sequester.

The original theory was that the specter of sequestration would be so threatening that Republicans and Democrats would agree to a budget deal rather than permit it to happen. That theory was wrong. The follow-up theory was that the actual pain caused by sequestration would be so great that it would, in a matter of months, push the two sides to agree to a deal. That theory was wrong. The reality is that the pain of the sequester doesn't matter if it hits the general public, but if it inconveniences politicians; then they will change the parts they don't like.

Today, the Congress decided that the part of the sequester that resulted in furloughs for air traffic controllers, which resulted in delays at airports; they decided that was just too painful, so they are coming up with the money to prevent the air traffic controller furloughs.

Former Labor Secretary Robert Reich correctly observed that most of the pain of the sequester is invisible.

Brandeis University in Waltham, Massachusetts, for example, is bracing for a cut of about $51m in its $685m of annual federal research grants and contracts. The public schools of Syracuse, New York, will lose over $1m. The Housing Authority of Joliet, Illinois, will take a hit of nearly $900,000. Northrop Grumman Information Systems just issued layoff notices to 26 employees at its plant in Lawton, Oklahoma. Unemployment benefits are being cut in Pennsylvania and Utah.

Taken together, these cuts are significant. But they're so localized, they don't feel as if they're the result of a change in national policy.

A second reason the consequences of the sequester haven't been obvious to most Americans is that a large percentage of the cuts are in programs directed at the poor – and America's poor are often invisible.

The Salt Lake Community Action Program, for example, recently closed a food pantry in Murray, Utah, serving more than 1,000 needy people every month. The Southeast Alaska Regional Health Consortium is closing a center that gives alcohol and drug treatment to Native Alaskans. Some 1,700 poor families in and around Sacramento, California are likely to lose housing vouchers that pay part of their rents. More than 180 students are likely to be dropped from a Head Start program run by the Cincinnati-Hamilton County (Ohio) Community Action Agency.

All across America, food pantries and community centers catering to the poor are laying off staff, reducing services, or closing. But most Americans don't know anything about this because the poor live in different places than the middle class. Poverty has become ever more concentrated geographically in America.

A final reason much of the sequester is invisible is that many employees are being "furloughed" rather than fired. "Furlough" is a euphemism for working shorter workweeks and taking pay cuts.

Two thousand civilian employees at the Army Research Lab in Maryland, for example, are being subject to one-day-per-week furloughs starting this week, resulting in a 20% drop in pay. The Hancock Field Air National Guard Base is furloughing 280 workers. Many federal courts are now closed on Fridays.

Furloughs arguably spread the pain. Mass layoffs would be far harder to swallow.

For all these reasons, the sequester hasn't been particularly visible.

But the politicians couldn't deal with flight delays. Sequestration will continue because there is no more pain to push for overturning the whole policy. Well, there's no more pain for the politicians; there's going to be plenty of problems for people who don't have political clout. Air travelers get bailed out; cancer patients; food pantries, schools – all that other stuff is still grounded.

The jobless rate in Spain is now 27.2% for the first quarter; the highest since they have been recording unemployment there going back to the 1970's. In France, more than 3.2 million are unemployed, the highest jobless rate since 1997.

So, things are kind of lousy but there is a little bit of growth in the US economy, thank goodness we're not in Spain, or Greece, or Cyprus, or heaven forbid – Syria; it's okay, we'll just kind of slog along.

It would be great if we lived in a world where there were enough air traffic controllers for all the planes in the sky, and money for cancer research, and money for food pantries, and enough economic growth to create jobs for all the people who want to work. That would be great, but that's not the world we live in. The reason is not because we can't live in prosperity and abundance; the reason is because the banksters are skimming; they are siphoning off profits, at the expense of well, everybody else.

Now, let's move our attention to a story that has been building slowly and received almost no attention in the mainstream media. I'll provide a couple of links. (go to Eatthebankers.com) and click here (Matt Taibbi) and here (Bloomberg Businessweek)

First, let's get in the way back machine. Remember the Libor rate rigging scandal? Libor is the London Interbank Offered Rate, it's where 18 of the big banks get together each day and submit interest rates that the banks would be charged if borrowing from other banks. They take the numbers and average them together, and Libor is then used as the benchmark interest rate for almost everything that uses an interest rate. The Libor is used to calculate how much interest you pay on a credit card, a mortgage, a car loan, financial products, bonds, and derivatives; all together, about $500 trillion dollars worth of financial instruments. And the whole thing was rigged.

The banksters were submitting false numbers to try to look better during the financial crisis and they were also front-running trades based upon the rates, and sometimes they were getting the people who submitted the numbers to submit fake numbers to manipulate trades based on the Libor interest rate.

Taibbi:

Yet despite so many instances of at least attempted manipulation, the banks mostly skated. Barclays got off with a relatively minor fine in the $450 million range, UBS was stuck with $1.5 billion in penalties, and RBS was forced to give up $615 million. Apart from a few low-level flunkies overseas, no individual involved in this scam that impacted nearly everyone in the industrialized world was even threatened with criminal prosecution.

Two of America's top law-enforcement officials, Attorney General Eric Holder and former Justice Department Criminal Division chief Lanny Breuer, confessed that it's dangerous to prosecute offending banks because they are simply too big. Making arrests, they say, might lead to "collateral consequences" in the economy.

The relatively small sums of money extracted in these settlements did not go toward reparations for the cities, towns and other victims who lost money due to Libor manipulation. Instead, it flowed mindlessly into government coffers.

So, the government won't prosecute, but some private investors did, and in March a case went before federal judge Naomi Buchwald in the Southern District of New York and the judge basically said there was no collusion by the banks because the banks weren't competing against one another. So the judge dismissed most of the claim against the banks.

But the case did open up another investigation because if the banks were rigging $500 trillion in interest rates, maybe they were rigging other markets as well.  So, regulators have subpoenaed as many as 15 banks and about a dozen current and former brokers at ICAP, a London based brokerage, with trading desks in New Jersey. ICAP is short for Intercapital. ICAP's website says they are the world’s leading voice and electronic interdealer broker and provider of post trade risk and information services. Among other things, the company collects the data submitted by 13 banks to set ISDAfix prices. ISDA is the International Swaps and Derivatives Association; and the ISDAfix is the benchmark for interest rate swaps, which is about a $379 trillion dollar market.

In their simplest form, swaps are used by investors to exchange a fixed interest rate for a floating one, or vice versa. They affect everything from pension annuities to commercial real estate investments, to more complex derivatives.

And now regulators, including the Commodity Futures Trading Commission, are trying to determine if they’re colluding to manipulate quotes.

The ISDAfix works the same way as the Libor did. Banks submit rates and an average is compiled every day. About 15 banks and about a dozen brokers set the rates on a $379 trillion dollar market. An April16 report by the International Organization of Securities Commissions found that benchmark setting is a process with “opportunities for abusive conduct,” through submission of “false and misleading data” or attempts to buy off the people who physically enter submissions.

In other words, the ICAP brokers may have been gathering the information and then holding on, delaying publication of the rates to allow the banksters to slip in a trade ahead of the public.

It's not like these guys would have to cheat in really big and obvious ways; just a tiny fraction of a percent of a $379 trillion dollar market is enough to pay, one-one hundredth of one percent would be enough to pay for air-traffic controllers, cancer centers, Head Start, food pantries – you know – everything in the sequester.

But wait, there's more.

Given what we have seen in Libor, we’d be foolish to assume that other benchmarks aren’t venues that deserve review, and that means more than just Libor and ISDAfix. So, what other markets carry the same potential for manipulation?

In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together and setting prices.

That includes the markets for gold, where prices are set by five banks in London every morning and afternoon (it's called the AM and PM fix); and silver, whose price is set by just three banks; as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it.

The problem in each of these markets is the same: 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.

All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world. And after they're done investigating, they will be too afraid to do anything because the banks are to big to jail. And so the banksters will continue to skim off the top of everything, and that means that the rest of us will just kind of slog along.