By Shah Gilani, Capital Wave Strategist, Money Morning
July 3, 2013
You want to know why the entire global financial system almost collapsed in 2008?
There seems to be a simple answer. Not encouraging, but simple: The European Commission is exploring the possibility that there was a conspiracy among 13 of the world's major banks that colluded to keep the entire house of cards a secret.
In a press release Monday the European Commission announced it sent a "statement of objections" to Bank of America Merrill Lynch (BAC), Barclays (BARC), Bear Stearns , BNP Paribas (BNP), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), HSBC (HBC), JP Morgan (JPM), Morgan Stanley (MS), Royal Bank of Scotland (RBS), UBS (UBS) as well as the International Swaps and Derivatives Association (ISDA) and data service provider Markit.
This statement of objections is a formal step in EU investigations that charges the banks, the dealers' association, and the swaps pricing agent and index controller of "colluding to prevent exchanges from entering the credit derivatives business between 2006 and 2009."
The companies are then expected to answer the charges.
"If, after the parties have exercised their rights of defence, the Commission concludes that there is sufficient evidence of an infringement, it can issue a decision prohibiting the conduct and impose a fine of up to 10% of a company's annual worldwide turnover."
Part of the antitrust behavior of the accused, besides controlling pricing of derivatives to their exclusive benefit, would likely address their complicity in veiling the entire market to deflect fears of counterparty exposure, concentration of risks and leverage in the financial system.
Behind the Veil: Where the Elite Meet
The ISDA, the trade and lobbying group for users of over-the-Counter (OTC) derivatives that was named as a colluding partner, said last August that after eliminating more than $200 trillion in notional value of interest rate and credit-default swaps by cancel ing offsetting trades, on an adjusted basis interest rate swaps totaled $262 trillion.
According to the ISDA's website it has 840 members. There are 196 "primary members" that include all the big banks in the statement of objections and most of the world's trading banks.
Associate members include banks, corporations and some of the most powerful law firms around the world. Among them: Washington power lobbying firm Patton Boggs LLP, bank and securities law firms Davis Polk & Wardwell, Wachtell, Lipton, Rosen & Katz, and Weil Gotshal & Manges.
The ISDA's "subscriber members" include the 12 Federal Home Loan Banks, Freddie Mac and Fannie Mae, the Student Loan Marketing Association (Sallie Mae), New York Life Insurance Company, Intel Corporation (INTC), the Bank of England, Luxembourg and GMAC Inc. are all subscriber members.
Markit, according to its website, "is a private company headquartered in London. The company is owned by employees, private investors, private equity investors and numerous buy-side and sell-side financial institutions."
But Markit wants to change that. The company, which competes with Bloomberg and Thomson Reuters Corp, has been planning a public offering to raise $1 billion.
Outrage Upon Outrage
A Reuters story on June 25 quoted a source saying, "A registration statement for the deal could be filed with U.S. regulators during the fourth quarter of this year, although timing is still in flux and could change depending on market conditions."
The story names Goldman Sachs as the lead coordinator for the deal, but points out Markit's other large stakeholders, including JPMorgan Chase and Bank of America Merrill Lynch want to be lead syndicate partners.
An IPO may be a long way off if Markit, in large part owned by the big banks who also are all primary members of the ISDA, are all accused of antitrust violations and face potential multi-billion dollar fines.
In addition to its current woes, Markit would have to disclose that back in July 2009 the Justice Department's antitrust division had sent civil notices to banks that own Markit to find out if they had unfair access to price information.
Justice, or Just Cold Comfort?
A July 14, 2009 New York Times Dealbook post pointed to William Cohan, a former investment banker and financial crisis commentator, who said any potential investigation into Markit and its owners was overdue.
"The fact that they control Markit and it provides information about the prices of credit default swaps and they've benefited from this for many years without any challenge or investigation was outrageous," he was quoted as saying by Bloomberg News.
To date, nothing has come out of the Justice Department's investigation.
Yet again, the world's biggest banks, those principally responsible for driving the global financial system off a cliff, are being exposed for what they've done and how they did it. That's the bad news - for them.
The good news - for them - is they still have the earnings power to pay whatever fines are levied against them and that no one at the top of any of these criminal enterprises has gone to jail.
http://moneymorning.com/2013/07/03/the-big-banks-on-trial-again/
It is just a crying shame that it is the EU taking the lead on this.... Given the LIBOR rate fixing that was uncovered I see no reason to believe that the banks didn't collude to create the mess we are in now.... Where to hell is our Department of Justice!
ReplyDeleteTS, thank you for posting this. I've blabbered about my years in the futures market before, but I have to admit I'm a bit bemused that people here are shocked about this. I don't know if you've read The Big Short or not, but that book alone gives stunning insight into this debacle.
DeleteIt's simple, the banks, with the help of the Fed, deregulated their industry and made it nearly impossible to ever be prosecuted for what they have done. The bigger problem, there flat out isn't the political will to do it. Look at the settlement with HSBC awhile back. That was PROVEN criminal activity and negligence. Did we demand that someone go to jail? Nope. It would be too destabilizing to the banking industry if the fucking bankers actually had to worry about consequences for the raping of the world's finances they have committed.
Of course the banks colluded and there is clear evidence of that, at least, there is evidence to anyone who remotely understands how the market works. When the banks stop lending to each other, it is because they each know THEIR assets are way overvalued and by default, they know the assets of every other bank are overvalued. The solution? stop lending to each other and begin manipulating market prices to prevent fire sales and insolvency.
A fantasy I have seen suggested by many free market types is that we should regulate the entire banking industry with nothing more then maybe a hundred pages of rules. Greed and moral bankruptcy is the real cause of this, but it couldn't have happened without deregulation. THAT piece of the story won't come out here. At best, some fines will be imposed and we will continue with business as usual.