Later On

A blog written for those whose interests more or less match mine.

How bankers collude to defraud the public

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“The bankers” in the title include Ben Bernanke, who helped cover up the Libor fraud that affected trillions of dollars and hundreds of millions of people. This is the level of dishonesty, deceit, and unethical behavior that is endemic in the banking sphere—against which the Department of Justice takes no action whatsoever. Dean Baker has a column that lays it out:

The case of the rigged Libor turns out to be the scandal that just keeps on giving. It reveals a great deal about the behaviour of the Federal Reserve Board and central banks more generally.

Last month, Federal Reserve Board Chairman Ben Bernanke gave testimony before Congress in which he said that he had become aware of evidence that banks in the UK were rigging the Libor – the inter-bank lending rate and one of the primary benchmarks for short-term interest rates – in the autumn of 2008. According to Bernanke, he called this to the attention of Mervyn King, the head of the Bank of England. Apparently Mervyn King did nothing, since the rigging continued, but Bernanke told Congress there was nothing more that he could do.

The implications of Bernanke’s claim are incredible. There are trillions of dollars of car loans, mortgages and other debts, in the United States, tied to the Libor. There are also huge derivative contracts whose value depends on the Libor at a moment in time. People were winning or losing on these deals not based on the market, but rather on the rigged Libor rate being set by the big banks.

Bernanke certainly had an obligation as Fed chair to expose and stop this rigging which was interfering with the proper working of US and world financial markets. But hey, Sir Mervyn didn’t want to take any action, what could Bernanke possibly do?

It is truly incredible that Bernanke would make such a statement to Congress and the public. There was nothing he could do about the rigging?

Suppose that he told the head of the Bank of England that he had no choice but to stop the rigging. Bernanke could have said that if King didn’t immediately take the necessary steps to end the rigging, then he would hold a press conference in which he would publicly display the evidence of the rigging and report King’s failure to take action.

Is it conceivable that this threat would have left King unmoved? Would King continue to tolerate the rigging even if could cost him his job and leave him open to public humiliation for failing to carry through his responsibilities to the people of the United Kingdom? That seems unlikely.

Of course, such a threat would have been rude. It would have required Bernanke to tell a fellow central bank head that he was failing in his job and that Bernanke was prepared to ruin his career in order to force him to act responsibly. Apparently, Bernanke never even considered this course of action.

Continue reading. And Bernanke is getting away with it. He clearly played the role of an accessory, yet nothing is done: no punishment, no censure, nothing.

What will it take?

Written by LeisureGuy

9 August 2012 at 8:19 am

Posted in Business, Government, Law

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