Sep 19

Banks Rig Treasury Market … And EVERY OTHER Market As Well:

Banks Rig Treasury Market

Bloomberg reports today:

The same analytical technique that uncovered cheating in currency markets and the Libor rates benchmark [details below] — resulting in about $20 billion of fines — suggests the dealers who control the U.S. Treasury market rigged bond auctions for years, according to a lawsuit.

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The plaintiffs built their case against the 22 primary dealers who serve as the backbone of Treasury trading — including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley — using data from Rosa Abrantes-Metz, an adjunct associate professor at New York University who has provided expert testimony in rigging cases.

Her conclusion: More than two-thirds of a certain type of Treasury auction appear to have been rigged. She found issues with other auctions, too.

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Treasury traders at some banks learn of customer demand hours before auctions, and were communicating with their counterparts at other firms via chat rooms as recently as last year, Bloomberg News reported earlier this year.

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Among the lawyers representing the investors is Daniel Brockett, a Quinn Emmanuel attorney who recently won a $1.87 billion settlement against Wall Street’s largest banks in a case alleging they conspired to limit competition in the market for credit-default swaps.

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Another group of investors, including Boston’s public employee retirement system, has filed a similar suit against Wall Street primary dealers. Experts interviewed by Labaton Sucharow LLP, the law firm that filed that suit, analyzed auctions and the market for when-issued securities, which are essentially agreements to buy or sell Treasury bonds, notes or bills once they’re issued.

They claim that banks colluded to push prices artificially low at auctions, and to drive prices for when-issued securities to artificially high levels, until December 2012, when news broke of investigations into how Libor was set.

“These scenarios all turn on a very simple conflict of interest,” attorney Michael Stocker said in a telephone interview. “You had banks who were auction participants who also had the power to move the prices that those markets depended on.”

High-frequency trading has also long been used to manipulate the treasury market.

Banks Rig Currency Markets

It has long been known that currency markets are massively rigged. And see this, this, and this. Indeed, not only do the banks share confidential information with each other … they also shared it with a giant oil company.

A number of giant banks pleaded guilty to manipulating currency markets, and agreed to pay a $7.5 billion dollar fine. New York’s state financial regulator called it “a brazen ‘heads I win, tails you lose’ scheme to rip off their clients.”

The formal admissions by the banks include a trader saying, “We trying to manipulate it a bit more in ny now . . . a coupld buddies of mine and I.” And a vice president of a big bank said:

  • “If you aint cheating, you aint trying.”

Derivatives Are Manipulated

Runaway derivatives – especially credit default swaps (CDS) – were one of the main causes of the 2008 financial crisis. Congress never fixed the problem, and actually made it worse.

The big banks have long manipulated derivatives … a $1,200 Trillion Dollar market.

Indeed, many trillions of dollars of derivatives are being manipulated in the exact same same way that interest rates are fixed (see below) … through gamed self-reporting.

Reuters noted last year:

A Manhattan federal judge said on Thursday that investors may pursue a lawsuit accusing 12 major banks of violating antitrust law by fixing prices and restraining competition in the roughly $21 trillion market for credit default swaps.

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“The complaint provides a chronology of behavior that would probably not result from chance, coincidence, independent responses to common stimuli, or mere interdependence,” [Judge] Cote said.

The defendants include Bank of America Corp, Barclays Plc, BNP Paribas SA, Citigroup Inc , Credit Suisse Group AG, Deutsche Bank AG , Goldman Sachs Group Inc, HSBC Holdings Plc , JPMorgan Chase & Co, Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG.

Other defendants are the International Swaps and Derivatives Association and Markit Ltd, which provides credit derivative pricing services.

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U.S. and European regulators have probed potential anticompetitive activity in CDS. In July 2013, the European Commission accused many of the defendants of colluding to block new CDS exchanges from entering the market.

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“The financial crisis hardly explains the alleged secret meetings and coordinated actions,” the judge wrote. “Nor does it explain why ISDA and Markit simultaneously reversed course.”

In other words, the big banks are continuing to fix prices for CDS in secret meetings … and have torpedoed the more open and transparent CDS exchanges that Congress mandated.

The managing director at Graham Fisher & Co. (Joshua Rosner) recently said that the big banks are frontrunning CDS trades … and manipulating decisions on whether a the party “insured” by CDS has defaulted on its obligations, thus triggering an “event” requiring payment on the CDS.

By way of analogy, whether or not an insurance company pays to rebuild a house which has burned to the ground may turn on whether it finds the fire was arson or accidental.

This is a big deal … while hundreds of thousands of dollars might be at stake in the home fire example, many tens or even hundreds of billions of dollars ride on whether or not a country like Greece is determined to have suffered a CDS-triggering event.

Rosner notes:

The potential use of CDS to artificially manipulate corporate solvency, the imbalances in the amounts of CDS outstanding relative to referenced debt and ongoing allegations that ISDA’s Determinations Committee is deeply conflicted and “operates as a quasi-Star Chamber or cartel”, are finally being scrutinized.

As one source recently suggested, “It would be a surprise if determinations of default, made by a committee of interested parties, don’t lead to findings of manipulation similar to those found in LIBOR and FOREX”.

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The fact that Pimco’s Chief Investment Officer criticized the determination that Greece had not triggered its CDS, even though Pimco was part of the unanimous vote making that determination, is profoundly troubling to say the least.

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The fact that the [ISDA’s Determinations Committees] has no obligation to “research, investigate, supplement or verify the accuracy of information on which a determination is based” and members “may have an inherent conflict of interest in the outcome of any determinations” only adds credence to suggestions that the “CDS market is being manipulated and gerrymandered by the all-powerful investment banks”.

Energy Prices Manipulated

Energy markets are manipulated as well …

For example, oil prices have been manipulated for many years.

And the U.S. Federal Energy Regulatory Commission says that JP Morgan has massively manipulated energy markets in California and the Midwest, obtaining tens of millions of dollars in overpayments from grid operators between September 2010 and June 2011.

And Pulitzer prize-winning reporter David Cay Johnston noted last year that Wall Street is trying to launch Enron 2.0.

And the Senate’s Permanent Subcommittee On Investigations found that Enron itself (which massively manipulated energy markets) was enabled by the fraud of big banks such as Citigroup and Chase.

Commodities Are Manipulated

The big banks and government agencies have been conspiring to manipulate commodities prices for decades.

The big banks are taking over important aspects of the physical economy – including uranium mining, petroleum products, aluminum, ownership and operation of airports, toll roads, ports, and electricity – to manipulate market prices.

And they are using these physical assets to massively manipulate commodities prices … scalping consumers of many billions of dollars each year. (More from Matt Taibbi, FDL and Elizabeth Warren.)

Gold and Silver Are Manipulated

Last November, Switzerland’s financial regulator (FINMA) found “serious misconduct” and a “clear attempt to manipulate precious metals benchmarks” by UBS employees in precious metals trading, particularly with silver.

Reuters reports:

Swiss regulator FINMA said on Wednesday that it found a “clear attempt” to manipulate precious metals benchmarks during its investigation into precious metals and foreign exchange trading at UBS …

Gold and silver prices have been “fixed” in daily conference calls by the powers-that-be.

Bloomberg reported in 2013:

It is the participating banks themselves that administer the gold and silver benchmarks.

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So are prices being manipulated? Let’s take a look at the evidence. In his book “The Gold Cartel,” commodity analyst Dimitri Speck combines minute-by-minute data from most of 1993 through 2012 to show how gold prices move on an average day (see attached charts). He finds that the spot price of gold tends to drop sharply around the London evening fixing (10 a.m. New York time). A similar, if less pronounced, drop in price occurs around the London morning fixing. The same daily declines can be seen in silver prices from 1998 through 2012.

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For both commodities there were, on average, no comparable price changes at any other time of the day. These patterns are consistent with manipulation in both markets.

Interest Rates Are Manipulated

Bloomberg reported last year:

Royal Bank of Scotland Group Plc was ordered to pay $50 million by a federal judge in Connecticut over claims that it rigged the London interbank offered rate.

RBS Securities Japan Ltd. in April pleaded guilty to wire frauda s part of a settlement of more than $600 million with U.S and U.K. regulators over Libor manipulation, according to court filings. U.S. District Judge Michael P. Shea in New Haventoday sentenced the Tokyo-based unit of RBS, Britain’s biggest publicly owned lender, to pay the agreed-upon fine, according to a Justice Department statement.

Global investigations into banks’ attempts to manipulate the benchmarks for profit have led to fines and settlements for lenders including RBS, Barclays Plc, UBS AG and Rabobank Groep.

RBS was among six companies fined a record 1.7 billion euros ($2.3 billion) by the European Union last month for rigging interest rates linked to Libor. The combined fines for manipulating yen Libor and Euribor, the benchmark money-market rate for the euro, are the largest-ever EU cartel penalties.

Global fines for rate-rigging have reached $6 billion since June 2012 as authorities around the world probe whether traders worked together to fix Libor, meant to reflect the interest rate at which banks lend to each other, to benefit their own trading positions.

To put the Libor interest rate scandal in perspective:

  • Even though RBS and a handful of other banks have been fined for interest rate manipulation, Libor is still being manipulated. No wonder … the fines are pocket change – the cost of doing business – for the big banks

Everything Can Be Manipulated through High-Frequency Trading

Traders with high-tech computers can manipulate stocks, bonds, options, currencies and commodities. And see this.

Manipulating Numerous Markets In Myriad Ways

The big banks and other giants manipulate numerous markets in myriad ways, for example:

  • Engaging in mafia-style big-rigging fraud against local governments. See this, this and this
  • Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here and here
  • Pledging the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car
  • Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this
  • Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this
  • Bribing and bullying ratings agencies to inflate ratings on their risky investments

The Big Picture

The experts say that big banks will keep manipulating markets unless and until their executives are thrown in jail for fraud.

Why? Because the system is rigged to allow the big banks to commit continuous and massive fraud, and then to pay small fines as the “cost of doing business”. As Nobel prize winning economist Joseph Stiglitz noted years ago:

“The system is set so that even if you’re caught, the penalty is just a small number relative to what you walk home with.

The fine is just a cost of doing business. It’s like a parking fine. Sometimes you make a decision to park knowing that you might get a fine because going around the corner to the parking lot takes you too much time.”

Indeed, Reuters points out:

Switzerland’s regulator FINMA ordered UBS, the country’s biggest bank, to pay 134 million francs ($139 million) after it found serious misconduct in both foreign exchange and precious metals trading. It also capped bonuses for dealers in both units at twice their basic salary for two years.

Capping bonuses at twice base salary? That’s not a punishment … it’s an incentive.

Experts say that we have to prosecute fraud or else the economy won’t ever really stabilize.

But the government is doing the exact opposite. Indeed, the Justice Department has announced it will go easy on big banks, and always settles prosecutions for pennies on the dollar (a form of stealth bailout. It is also arguably one of the main causes of the double dip in housing.)

Indeed, the government doesn’t even force the banks to admit any guilt as part of their settlements. In fact:

The banks have been allowed to investigate themselves,” one source familiar with the investigation told Reuters. “The investigated decide what they want to investigate, what they admit to, and how much they will pay.

Wall Street has manipulated virtually every other market as well – both in the financial sector and the real economy – and broken virtually every law on the books.

And they will keep on doing so until the Department of Justice grows a pair.

The criminality and blatant manipulation will grow and spread and metastasize – taking over and killing off more and more of the economy – until Wall Street executives are finally thrown in jail.

It’s that simple …

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One Response to “Banks Rig Treasury Market … And EVERY OTHER Market As Well”

  1. Marilyn Gjerdrum Says:

    The banks, especially the TBTF ones, are empty shells. They have rigged everything because they are hiding some serious stuff. Once the truth gets out, the entire western economy will collapse….Financial credibility is essential to having and keeping any orderly economy running. Unfortunately, the US has lost our hard won once sterling reputation by doing nothing after the 2007-08 crash that caused entire nations to go bankrupt. US corruption in the markets was so deep that it caused a global depression from which we have never recovered.

    All the happy horse shit they blare from the financial channels and propaganda network news doesn’t alter the facts. Financial truth is impossible to hide forever, it is implacable in its persistence. Cracks in the latest round of market gyrations are still causing financial results. US markets are still down over $2 trillion from the end of June…..It is just the beginning.

    I am very sick, and will be gone very soon. This might well be my last posting…it depends, but I am not sorry I am going to miss the fallout. It will make 2008 look like a picnic……US credit might well be downgraded, it depends on how soon China, Russia and Japan can get rid of US treasuries. As soon as they get their money out, the financial war will be on in earnest. The US will be the target this time……It will be a mess.

    If I were still strong and healthy, I’d have my passport ready. The only stable economy that is still autonomous is perhaps Switzerland……I don’t know how difficult it would be to be allowed to live there….If Trump becomes president, he would usher in total chaos….If anyone thinks that isn’t possible, look at all the other candidates. The only decent one is Sanders, and he would have a good chance of beating him. If the fools in the DNC run clinton or biden, Trump will win…..

    The banks are empty shells. Every financial transaction from home, auto, business or credit cards……..are all passed over to Wall Street and packaged as high return investments. They are sold as assets, but they are all debt. That is all they sell now…..The stock market is empty, all the numbers are on computer screens. The scams likely being run are endless, there is no oversight. A few people in control of multi billion dollar funds have free run of the market. Those funds are full of so-called securities that are all debt.
    It is incredible. Everything is rigged because they are hiding those facts….

    Thanks for this site, it is one of the few where different viewpoints are allowed to be covered.

    Its a mess. Like all empires, we have been destroyed by greedy guts.

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