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The Eagle

Everything Is Rigged: The Biggest Price-Fixing Scandal Ever

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You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets."

That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.

Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.[...]

Read detailed 4 page article at: http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425

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Another quote from the article:

The idea that prices in a $379 trillion market could be dependent on a desk of about 20 guys in New Jersey should tell you a lot about the absurdity of our financial infrastructure. The whole thing, in fact, has a darkly comic element to it. "It's almost hilarious in the irony," says David Frenk, director of research for Better Markets, a financial-reform advocacy group, "that they called it ISDAfix."
From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we're forced to trust.

"In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together," Masters notes glumly.

That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) 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.

Edited by The Eagle

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Another quote from the article:

If the government was incentivised to actually go out into the world on our behalf and create automated processes that govern the market place for our commodities these cabals wouldn't exist. In real life, people with means and a willingness to achieve go out into the world and create opportunities to benefit themselves by giving people what they want. Its nothing new. If you want to get out there and spend your time creating an oil exchange and getting every oil producer on board you too could create a cabal. The dynasties that got here first will dominate old industries. The innovative software industry is the only place a new entrant can come in and change everything. Even these are being mastered by a few top firms.

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So once more:

What is the $379tr? Is it just a sum of notionals? In which case somewhat meaningless.

Who rigged the markets the most? Traders understating the cost of their debt by a few basis points or governments artificially setting IRs 200... 400 ... 1000 basis points below where they should be?

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So once more:

What is the $379tr? Is it just a sum of notionals? In which case somewhat meaningless.

Who rigged the markets the most? Traders understating the cost of their debt by a few basis points or governments artificially setting IRs 200... 400 ... 1000 basis points below where they should be?

Numbers quoted in the MSM press are almost always notional values. They rarely understand netting. Although from my point of view, if you don't have TBTF then any bank can fail and your "netting" would be worth diddly squat.

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Numbers quoted in the MSM press are almost always notional values. They rarely understand netting. Although from my point of view, if you don't have TBTF then any bank can fail and your "netting" would be worth diddly squat.

It's not netting (although that would reduce it greatly too). Notionals are used for a calculation of the trade. They are not exposure.

If I bet someone $10,000 per basis point that IRs will rise up to a maximum loss of $100,000 each side?

That trade would be booked (for calculation only) with a notional of $100,000,000, so that a movement of 0.01% would equal $10,000.

Adding up all the notionals is meaningless.

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The bankers are corrupt shocker.

Rigging food prices is going to cause them the most problems.

Rigging food prices is going to cause them the poor most problems.

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I think it has always been thus - Confessions of a Monopolist from around a century ago has a fictional(?) account of banks' price fixing commodities.

There is no such thing as a free market.

Edited by StainlessSteelCat

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The bankers are corrupt shocker.

True, this is not news on HPC, but it's the details about the extent of the corruption that the article reveals which are shocking.

Basically most (if not all) profits the big banks make are based on outright theft.

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Guest eight

If I bet someone $10,000 per basis point that IRs will rise up to a maximum loss of $100,000 each side?

Then you would have an incentive for manipulating IRs?

All this funny money stuff leaves me cold. Man up and get a real job FFS.

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The biggest price fixing scandal ever is to be found in the monetary policies of the ECB, BoE, Fed, BoJ etc.

Because it is done with a veneer of central bank respectability, many overlook the fact that it is price fixing at its basest form.

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  • 243 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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