Wednesday, November 06, 2013 - Banksters Continue Evil Games, Please Pay Their Bill on Your Way Out

Banksters Continue Evil Games, Please Pay Their Bill on Your Way Out

by Sinclair Noe

DOW + 128 = 15,746
SPX + 7 = 1770
NAS – 7 = 3931
10 YR YLD - .02 = 2.64%
OIL + 1.49 = 94.86
GOLD + 5.70 = 1318.60
SILV + .10 = 21.91

A record high close for the Dow Jones Industrial Average. The S&P 500 missed it's all-time high by one point.

Yesterday we told you that a couple of the Fed's top staff economists made the case in new research papers for more aggressive action by the central bank to drive down unemployment by promising to hold interest rates lower for longer. Late yesterday, John Williams, president of the SF Fed, threw fuel on that fire, saying the Fed should wait for stronger evidence of economic growth before winding down its massive QE bond buying program. Today, Cleveland Fed President Sandra Pianalto said tight mortgage credit has been holding back the economy, and will continue to hold back the broader economy from getting back to full strength.

Apparently the Fed heads have bought into the idea of the wealth effect from Wall Street and the housing market as the panacea to ail the economic ills, even though it appears QE is losing punch as time wears on. It can be argued that one of the effects of the financial crisis on US households was a sharp tightening of credit. Households that had previously been able to borrow relatively freely through credit cards, home equity loans, or personal loans suddenly found those lines closed off—just when they needed them the most. But that doesn't mean loosening credit will mean that capital finds its way to Main Street.

Tomorrow the European Central Bank meets to determine monetary policy, and today there was a report on stronger than expected German industry orders; balancing that report were surveys showing only modest growth in Spanish and French businesses, and that might convince the ECB to maintain a dovish stance at the meeting tomorrow.

Six banks are expected to face combined fines of just over $2 billion next month from European regulators for rigging yen Libor interest rates. Additionally, Reuters reports EU regulators will also penalize another group of banks for operating as a cartel in a separate case involving the rigging of the Euribor benchmark interest rate. Authorities in the United States, Britain and elsewhere have so far fined UBS, RBS, Barclays, Rabobank and ICAP $3.7 billion for manipulating rates. Seven individuals face criminal charges. The London inter-bank offered rate (Libor) and its European cousin (Euribor) are used to price hundreds of trillions of dollars in assets, from Spanish mortgages to derivatives. The six banks involved in the cartel case involving rigging Euribor are:Deutsche Bank, JP Morgan, HSBC, RBS, Credit Agricole and Societe Generale

If you notice, there are a couple of names missing from the list of usual suspects. Switzerland's UBS will not be fined because it was the first member of the group to come clean during the European Commission's investigation into wrongdoing; and Barclays, which alerted the European Commission to the suspected wrongdoing in relation to Euribor, will not be fined. A settlement with the EU over cartel allegations would require the banks to admit liability, potentially paving the way for lawsuits from investors and others who believe they have lost money because of the rates manipulation.

But wait, there's more. The foreign exchange or FX market is the largest financial market in the world, with a daily trading volume of nearly $5 trillion, and there are allegations the big banks may have been involved in widespread manipulation of currencies for a very long time; specifically, placing big bets immediately before and after release of the WM/Reuters rates. World Markets, or WM, is a unit of Boston based State Street. WM calculates daily standardized spot and forward rates for global foreign exchange transactions, using rates provided by Reuters. These rates are recognized globally as the standard. The inherent conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges.

A few months ago, Bloomberg reported traders at  some of the world’s biggest banks had been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during 60 second windows when the benchmarks are set. The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives. 

The WM/Reuters rates are used by fund managers to compute the day-to-day value of their holdings and by index providers that track stocks and bonds in multiple countries. While the rates aren’t followed by most investors, even small movements can affect the value of the estimated $3.6 trillion in funds including pension and savings accounts that track global indexes, which track baskets of securities from around the world each day, are particularly vulnerable because they need to place hundreds of foreign-exchange trades with banks using WM/Reuters rates. The funds buy securities to match their holdings to the indexes they are required to track. 

The issue is most acute at the end of the month, when index-tracker funds invest new money from clients. By concentrating orders in the moments before and during the 60-second window, traders can push the rate up or down, a process known as “banging the close.”

Last week, seven banking giants were sued by A Haverhill, a Massachusetts-based benefit fund, alleging the banks’ manipulation of WM/Reuters rates impacted the value of financial transactions in the US, including foreign exchange trade, and also the pensions and savings accounts that are dependant on the global foreign exchange rates. Additionally, the Massachusetts-based benefit fund alleged that the banks violated Section 1 of the Sherman Antitrust Act. The banks being sued in this case are Barclays, Citigroup, Credit Suisse, Deutsche Bank, Royal Bank of Scottland, UBS, and of course JPMorgan Chase.

If you're wondering why we haven't heard more on the potential JPMorgan $13 billion settlement, one of the sticking points might be the taxes, or more specifically the tax deductions JPMorgan would like to claim on the settlement. Up to $9 billion of the settlement is tax deductible and that means the bank could write $3 billion off their corporate tax bill as a business expense. On Monday, Americans for Tax Fairness and the U.S. PIRG presented Congress with a 160,000 signature petition asking the Justice Department to add a provision to the settlement that would stop this from happening, and a bunch of Congressmen have jumped on board, calling U.S. Attorney General Eric Holder to do something.

Congressman Peter Welch also introduced a a bill to the House that would end the corporate tax deductibility of all legal settlements; he also sent a letter to CEO Jamie Dimon, which reads in part: “It was the taxpayer who initially funded the bailout of Wall Street. It was the taxpayer who continues to endure the consequences of the worst recession since the Great Depression. The taxpayer should not, therefore, be required to contribute a nickel towards the fines imposed for conduct that got America into this mess in the first place.”

Just a reminder that this latest round of rigging means that global benchmarks for interest rates, energy, derivatives, and now currency trades have all been manipulated. It's a rigged game, and and a very expensive game that permeates all facets of commerce and siphons off the profits for the gambling banksters.