Market Manipulation
Previous posts show the level of control held over the entire Australian sharemarket by financial giants. Major Holdings shows that that
a very small group of players have the power to completely control the market if
they were to collude. The latest scandals from the Northern Hemisphere
that show traders from different organisations have commonly been acting together to manipulate
a number of markets in their own interests.
Libor Market Manipulation & Interest Rates
The latest scandal to
rock Banking and Finance is in regard to Barclay’s traders $453 million fine
for collusion with traders from other banks in manipulating the London
Interbank Lending Rate (LIBOR) to maximise profits. The (now famous) “Done … for you big boy”
response is typical of the 257 known requests from Traders in deliberately fixing rates in the
interests of the banks. These artificially
derived rates were used by Barclays (and it appears others) in justifying
the interest rates it passed on to mortgage holders from 2005 – 2009. Citigroup, HSBC, JP Morgan, Lloyds, Deutsche
Bank and Royal Bank of Scotland are now also under investigation for their part
in the same scandal.
Barclays Chief Executive, Bob Diamond is reported to be the
highest paid chief executive in Britain with a take home salary of £20.97 million. The widespread manipulation and known illegality
either occurred with his knowledge or without.
If he was aware, his astronomical
salary has come as a result of quiet approval to scandalous activity. If he didn’t know what was going on in the bank,
one may question why he would be paid so much in the first place.
The Libor scandal has had a direct impact on every person who has been subject to interest rates set by the major banks as the retail lending rate has been determined in response to the supposed cost of borrowing by the banks themselves. According to a confidential report leaked from International Organization of Securities Commission, fewer than half of the benchmark interest rates (Europe, America and Asia) are calculated by methodologies that were unclear, not transparent and only rarely subject to specific regulatory standards. In essence, a large component of the financial industry isn't based on anything tangible at all!
Municipal Derivatives Manipulation
The Libor scandal is only one in a long line of
allegations of collusion and market manipulation against major investment
banks. On June 5th, JP Morgan
agreed paid $44.6 million to resolve allegations that it had conspired to fix Municipal
derivatives. This followed a $211
million settlement with the US Government from the previous year as part of a
probe that also snared Bank of America $137 million and UBS $160 million for
deliberate overcharging.
Gold and Silver Price Manipulation
The latest revelations as to collusion amongst the financial giants
come amidst an on-going but reluctant investigation by the US Commodity Futures
Trading Commission as to strong evidence that JP Morgan and HSBC traders had
worked to manipulate the price of silver.
In October 2010, CFTC Commissioner Bart Chilton stated there have been “fraudulent efforts to persuade and deviously
control” silver prices and that violators should be prosecuted. Essentially, HSBC and JP Morgan used their collective
dominance to flood the market so profits could be made from short term price fluctuation.
In 2010, London based Trader Andrew Maguire became a whistle-blower to the CFTC in providing real-time
& advanced notification of silver and gold price manipulations allegedly occurring
as a result of collusion between traders from JP Morgan and HSBC. The email trail is here. Ted Butler has done a great piece related to the silver market manipulation on his blog:
http://crocodileslament.blogspot.com.au/2012/06/us-government-and-jp-morgan-collude-to.html
In July 2012, the Telegraph published an article titled "The price of gold has been manipulated. This is more scandalous than Libor". This highlighted that the behavior of Gold prices is not what would be expected in a text-book market environment.
Energy Market Manipulation
http://crocodileslament.blogspot.com.au/2012/06/us-government-and-jp-morgan-collude-to.html
In July 2012, the Telegraph published an article titled "The price of gold has been manipulated. This is more scandalous than Libor". This highlighted that the behavior of Gold prices is not what would be expected in a text-book market environment.
Energy Market Manipulation
The Federal Energy Regulatory Commission (FERC) has filed charges against JP Morgan Chase for manipulating California's energy market. The Financial Times writes:
The electricity investigation involves whether JP Morgan's bidding strategies extracted "inflated" or "excessive" payments from two wholesale power markets serving California and several Midwest states. The bank's commodities business owns or has rights to output from several electric generators.
This follows a preliminary finding against Deutsche Bank AG for the same manipulation.
Conclusion
Every major market shows signs or evidence of manipulation by large institutions when opportunities for financial gain present themselves. The ongoing Libor scandal has clearly demonstrated that the small group of decision makers within all of the powerful financial firms know each other and were prepared to cooperate with each other if collective financial rewards could be gained.
The concept of market rates being determined by relationships of supply and demand is a simplistic fiction that doesn't relate to the reality of the modern world.
