How many beans will Motormouth spill?
Slog’s investment bank contacts call LIBOR ‘a joke’
Last Thursday, The Slog asserted as follows in relation to the LIBOR scam, under the sub-head ‘Is Bob Diamond being forced to apologise for something hatched way above his level?’:
‘…..much as I would love to lump every last kilo of smelly silage on the Diamond Geezer for this, it looks like even he was, on this occasion, merely a cog in a much bigger wheel. By time 2011 got under way, the LIBOR manipulation scam was being investigated by every major bourse regulatory body on the planet. And it may well be that the Treasury was willingly providing Barcap with the data it craved as a means of survival…..In short, must have been a concerted effort involving several central banks.‘
Yesterday at around 11.55 am (the ultimate dead period for website visits – Sunday lunchtime) Robert Peston wrote this on the BBCNews site:
‘In making false submissions about their borrowing costs, managers at Barclays believed they were operating under an instruction from Paul Tucker, deputy governor of the Bank of England, I have learned. This belief was fostered after a telephone conversation in the autumn of 2008 between Mr Tucker and Bob Diamond, who at the time ran Barclays’ investment bank, Barclays Capital, and is today chief executive of Barclays.
Mr Tucker did not issue this instruction. But he and Mr Diamond have different recollections of their conversation. So what Mr Diamond recalls about this telephone conversation may turn out to be the most explosive and important part of his testimony to MPs on the Treasury Select Committee, which will take place on Wednesday.when providing data to the committees that set the Libor rate. [While] Barclays managers were very worried that the appearance of the bank paying more to borrow than other banks was damaging confidence in its health….a central question is why Barclays’ managers came to believe, after the conversation between Mr Diamond and Mr Tucker, that the Bank of England had sanctioned them to lie about what they were paying to borrow.
But this is the key observation: (my emphasis)
‘So Barclays so-called “submitters”, the managers who gave borrowing data to the British Bankers Association’s Libor-setting committees, consistently told these committees that Barclays was paying a lower interest rate to borrow than was actually the case….what is striking is that even the artificially suppressed quotes for Barclays’ borrowing costs provided to the BBA committee were higher than other banks’ quotes….’
Or put more succinctly, they were all at it. And this is an observation confirmed by Slog sources in the investment banking sector. For obvious reasons, the following informant email descriptions have to remain anonymous:
“The idea that LIBOR as generated by banks reporting estimate rates on a ‘best guess’ basis to the BBA, has been a standing joke in the industry since about mid-2007. As the, now old, joke runs, “LIBOR is the rate at which banks used to pretend they’d lend to each other”. I remember working on transactions in 2008 where some of the smaller UK banks or building societies would borrow on a SECURED basis at rates of around LIBOR+2% or 3%, which is obviously absurd if LIBOR is the rate that banks are supposed to lend to each other on an unsecured basis.”
Quite so. Also this startling assertion: (Again, my emphasis)
“After mid/late 2007, banks largely stopped really lending to each other on an unsecured basis. In the terminology of the industry, the ‘interbank market froze up’. It remains largely frozen across Europe to this day. In this context the banks and the BBA had a challenge on how to report LIBOR. To admit that this freeze up had happened would risk a credibility crisis, bank runs, etc. as the media caught on the the scale of the crisis which, at this point, everyone was trying to ignore. So the banks and the BBA chose (or were told, maybe) to keep reporting LIBOR as if everything was alright, business as usual, even though it was essentially un-anchored from the real world.”
I refer you back to my opinion of last week:
“….the British Bankers’ Association (BBA) denied any [manipulation], stating that the BBA ‘observes rigorous standards in our scrutiny and governance of the Libor mechanism, and works with the industry to ensure their continued full confidence in one of its most accurate and reliable benchmarks.’ But in the four years since, the world at large has grown up bigtime about this kind of denial bollocks…”
Indeed. Or again put another way, the BBA release was a catalogue of lies from start to finish.
My conviction remains the same as it was from the outset: key politicians must have known what was going on – as indeed one assumes did large and somewhat close to the wind donors to the Tory Party – and Labour Prime Ministers trying to get re-elected despite never once hand on heart ever considering the idea of having an election.
But for the time being, while aptly named Barclays Chairman Marcus Agius prepares to fall on his praetorian sword, hard-as-Diamond Black Bob stays in his job….and may be about to blow the lid completely off this Teapot Dome when he faces the Select Committee this week.
Stay tuned: as I predicted last week, this is a developing and potentially explosive story.