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 Forecasting America's Destiny ... and the World's


Generational Dynamics Web Log for 4-Jul-2012
4-Jul-12 World View -- Barclays interest rate manipulation prompts desperate finger-pointing by British officials

Web Log - July, 2012

4-Jul-12 World View -- Barclays interest rate manipulation prompts desperate finger-pointing by British officials

Pakistan reopens supply routes to Afghanistan after apology

This morning's key headlines from

Barclays interest rate manipulation prompts desperate finger-pointing by British officials

Paul Tucker of Bank of  England vs Bob Diamond of Barclays Bank
Paul Tucker of Bank of England vs Bob Diamond of Barclays Bank

As long-time readers know, Generational Dynamics predicts that the world is facing deepening and accelerating economic slump that will cause a major global financial crisis triggered by a world wide financial panic. Well, on Tuesday we saw what I would call a "mini-panic," since behaviors and attitudes began to change extremely rapidly.

It's becoming clear that the public, particularly the people in the British public, are absolutely off-the-wall furious at what happened at Barclays Bank. One expression that I heard repeated several times was if an ordinary person shoplifts a sandwich to feed his family, then he goes to jail, while if the banksters at Barclays defraud millions of investors, then they go scot free, and still pay themselves six and seven digit salaries.

A particular target of contempt and scorn was Barclays CEO Bob Diamond, who finally resigned on Tuesday, after insisting that for the good of the bank and the world that he would not resign, infuriating even Barclays employees. Diamond admitted that, under his watch, numerous Barclays employees manipulated interest rates in order to pad their own bank accounts at the expense of others. Diamond, who paid himself £20 million last year, went before Parliament last year to defend large bonuses. "Frankly," he said, "the biggest issue is how do we put some of the blame game behind us?" CS Monitor

However -- and this is where it gets exciting -- on Tuesday he indicated that Barclays was ordered to manipulate interest rates by the Bank of England. Barclays produced an internal memo from October 2008 indicating that Paul Tucker of the BoE was getting phone calls from "senior" British government officials demanding to know why LIBOR interest rates were being set so high. Barclays takes the position that Paul Tucker was directing them to manipulate interest rates. Telegraph

The Bank of England got their revenge on Tuesday. Reports indicate that Sir Mervyn King, head of BoE, took steps to force Diamond's resignation. Daily Mail

Is it possible that Bank of England DID direct Barclays and other banks to manipulate interest rates in 2008? Of course it is. The politicians and the regulators were just as bad as the banksters and, as I've pointed out many times, the key characteristic that differentiates Generation-X from other generations is a refusal to investigate, accuse and prosecute even obvious examples of crime.

In 2008, I posted an article saying:

"Libor -- the London Interbank Offering Rate -- is an international bank to bank lending interest rates. Libor is determined each day by the British Bankers Association (BBA) by doing a daily survey of banks, asking them what interest rates they're charging each other.

A scandal broke out last week, when it was thought that banks were lying to the BBA about what interest rates they were paying. They were apparently understating the interest rates, in order to avoid embarrassment. If this was true, it would mean that the Libor rate was no longer credible.

On Wednesday of last week, the BBA announced that it would investigate whether banks were distorting the Libor rate, and would punish any offenders. As soon as that announcement was made, the Libor rate spiked up to new highs."

Obviously the BBA didn't investigate very hard, because that was the time that most of the manipulation was going on.

In 2008, I was writing about how Gen-X regulators and prosecutors were actually encouraging continued fraud. One of the worst offenders was New York Insurance Superintendent Eric Dinallo who spent several months in 2008 helping the banks and "monoline" bond insurance companies to collude to commit fraud. What Dinallo did was just as disastrous as what Barclays did, and the consequences will be fully realized. So there's little doubt in my mind that the Bank of England was knowledgeable about and encouraged Barclays' interest rate manipulations.

How serious is the damage done by Barclays? Long-time readers will recall that I've occasionally referred to the huge body of synthetic credit derivatives sitting in portfolios around the world. The total nominal value of these credit derivatives has been between $750 trillion and one quadrillion dollars for the last few years. Most of these synthetic securities are "interest rate swaps," which are a form of insurance against changes in interest rates. For example, if you're borrowing money at an interest rate keyed to Libor, then you might pay a bank for an interest rate swap which keeps your debt costs under control if Libor goes up.

Well, if Libor has been manipulated, then a lot of people are going to wonder if they should be suing somebody else, because the insurance policy didn't pay off when it should have, or because it did pay off when it shouldn't have. If even just 1% of these interest rate swaps are in question, that's $5-10 trillion dollars. And it could be much more than 1%.

So this is a very big deal, and could generate huge amounts of litigation, amounting to trillions or tens of trillions of dollars. So the fury that the British public is aiming at banksters is quite real and quite justified.

It's worth retelling the following story again. When I was growing up in the 1950s, I was aware that my parents and school teachers all hated bankers, often quite vitriolically. I never understood this, since bankers seemed to me to be quite reasonable people, or at least no worse than anyone else. But I've been puzzled for decades about where that hatred came from. Of course, in the last three years the reasons have become abundantly clear. The arrogant culture of fraud and extortion that banksters are in today is exactly the same as the culture that existed in the 1930s, when banksters were doing the same sorts of things, and paying themselves huge salaries. The hatred that grew in the 1930s continued for decades thereafter, as will today's hatred directed at banksters.

For years, I've been telling readers of my web site to follow decent, honest lives, and protect themselves and their families from the coming financial catastrophe. The Barclays situation shows you why. Just reading the e-mail messages that have been released, it's clear that the Barclays banksters thought that they could do anything they wanted, screw anyone they liked, and since they were smarter than anyone else, they could get away with anything. But sooner or later these things catch up with you. In the end, honesty is the best policy, no matter how hard it is sometimes to follow that policy.

David Cameron promises to protect Britain from Greek refugees

Britain's prime minister David Cameron has announced emergency immigration controls in the event of the failure of the euro. The controls were apparently directed at Greeks who might flee their country and seek work in Britain:

"We obviously have contingency plans for all sorts of eventualities – that is the right thing to do for any government.

The legal position is that if there are extraordinary stresses and strains it is possible to take action to restrict migratory flows, but obviously we hope that doesn't happen.

I would be prepared to do whatever it takes to keep our country safe, to keep our banking system strong, to keep our economy robust. At the end of the day as prime minister that is your foremost duty."

The opposition has accused Cameron's government of stoking racial tensions. Telegraph

Pakistan reopens supply routes to Afghanistan after apology

Pakistan has reopened the Nato supply routes to Afghanistan, after U.S. Secretary of State issued a carefully worded apology for the accidental killing of 25 Pakistani soldiers last November in an unmanned drone missile attack. The exact wording of Clinton's statement, including the word "sorry", was apparently negotiated for some time:

"This morning, I spoke by telephone with Pakistani Foreign Minister Hina Rabbani Khar.

I once again reiterated our deepest regrets for the tragic incident in Salala last November. I offered our sincere condolences to the families of the Pakistani soldiers who lost their lives. Foreign Minister Khar and I acknowledged the mistakes that resulted in the loss of Pakistani military lives. We are sorry for the losses suffered by the Pakistani military. We are committed to working closely with Pakistan and Afghanistan to prevent this from ever happening again. ...

The Foreign Minister and I were reminded that our troops – Pakistani and American – are in a fight against a common enemy. We are both sorry for losses suffered by both our countries in this fight against terrorists. We have enhanced our counter-terrorism cooperation against terrorists that threaten Pakistan and the United States, with the goal of defeating Al-Qaida in the region.

In addition, I am pleased that Foreign Minister Khar has informed me that the ground supply lines (GLOC) into Afghanistan are opening. Pakistan will continue not to charge any transit fee in the larger interest of peace and security in Afghanistan and the region. This is a tangible demonstration of Pakistan’s support for a secure, peaceful, and prosperous Afghanistan and our shared objectives in the region."

The word "sorry" actually appears twice -- once saying "we are sorry," and next saying "We are both sorry." The careful wording is intended to head off nationalistic criticism in both countries.

Incidentally, I don't believe I've seen the acronym GLOC before, standing for "Ground Lines of Communication." Several news stories referred to the GLOC and the GLOCs, so this is apparently the new word of the day. U.S. Dept. of State

Pakistan and U.S. will resume stalled talks

Pakistan and the United States will now resume talks stalled at various levels for the last seven months. Pakistan reaffirmed its commitment to the elimination of terrorism. It agreed that future drone flights will be based on mutual intelligence. Pakistan had previously threatened to charge a transit fee of $5,000 per truck, but Tuesday agreed to charge no transit fee. However, Pakistan will continue to receive foreign aid from the Coalition Support Fund (CSF), in the amount of $2-4 billion. According to one Pakistani minister, "Today the US showed softness in its stance and accepted our principled stance over the issue. We appreciate this decision which is not anyone’s victory or defeat." The News (Islamabad)

(Comments: For reader comments, questions and discussion, see the 4-Jul-12 World View -- Barclays interest rate manipulation prompts desperate finger-pointing by British officials thread of the Generational Dynamics forum. Comments may be posted anonymously.) (4-Jul-2012) Permanent Link
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