Adonis Diaries

Archive for July 19th, 2012

Libor, Not Labor: Everyone was affected

What is this benchmark rate, the London interbank offered rate (Libor)? The Libor is supposed to be based on the average rate at which large banks can borrow money overnight. It’s not based on actual transactions, and that leaves room for mischief.

Manipulating the Libor is a big deal because it affects the cost of money for almost everyone. The Libor is used to set rates on mortgages, credit cards and all manner of loans, personal and commercial. The amount of money affected by the phony rates is at least $500 trillion, British regulators have estimated.

 published in the New York Times this July 7 under “The British, at Least, Are Getting Tough”:

“THE unfolding story of how Barclays — and, in all likelihood, other big banks — rigged interest rates is full of telling tidbits about the way Wall Street works. It also represents yet another teachable moment.

By now the world knows that Barclays manipulated the most widely used benchmark rate, the London interbank offered rate.  But Barclays is just one member of the cozy club that sets the Libor. And mischief there was, according to e-mails and other documents that Barclays has turned over to regulators in the United States and Britain.

The upshot: traders colluded by posting rates that either helped their bets in the markets or their bank’s perceived financial strength during the harrowing days of 2008.

Barclays is not the only bank under investigation for rigging the Libor. It was simply the first to own up to the behavior and settle with regulators, paying $450 million. Other banks will almost certainly follow, and the documents bound to bubble up in those cases will surely prove fascinating.

One of the most revealing exchanges in the Barclays documents came when a bank official tried to describe why Barclays’s improper postings were not as problematic as those of other banks. “We’re clean but we’re dirty-clean, rather than clean-clean,” an executive said in a phone conversation. Talk about defining deviancy down.

“Dirty clean” versus “clean clean” pretty much sums up Wall Street’s view of cheating. If everybody does it, nobody should be held accountable if caught. Alas, many United States regulators and prosecutors seem to have bought into this argument.

British authorities have not bought on the argument that “dirty clean” is an acceptable basis to be absolved of outright cheating.

Last week’s defenestrations of Marcus Agius (Barclays chairman); Robert E. Diamond Jr.,(chief executive); and Jerry del Missier, (chief operating officer), apparently occurred at the behest of the Bank of England and the Financial Services Authority, the nation’s top securities regulator.

(Mr. del Missier have lost his post as chairman of the Securities Industry and Financial Markets Association, the big Wall Street lobbying group. His name vanished last week from the list of board members on the group’s Web site.)

MR. DIAMOND seemed shocked to be pushed out. An American by birth, he probably thought he’d be subject to American rules of engagement when confronted with evidence of wrongdoing at his bank.

You know how it works on this side of the Atlantic (USA): faced with a scandal, most chief executives jettison low-level employees, maybe give up a bonus or two — and then ride out the storm. Regulators, if they act, just extract fines from the shareholders.

British officials are taking a different approach with this scandal.

George Osborne, the chancellor of the Exchequer, said in a statement on June 28: “It is clear that what happened in Barclays and potentially other banks was completely unacceptable, was symptomatic of a financial system that elevated greed above all other concerns and brought our economy to its knees. Punish wrongdoing. Right the wrong of the age of irresponsibility.”

Mr. Osborne voiced the question that so many have asked recently in the United States: “Fraud is a crime in ordinary business — why shouldn’t it be so in banking?”

Perhaps the biggest lesson from the Libor scandal is how dangerous it is to rely on interested parties to set interest rates or prices of financial instruments, rather than on actual transactions conducted by investors.

The Libor has been set in the current and vulnerable manner since the late 1960s. Maybe it has never been rigged before, but who knows?

It is far better to have the transparent and verifiable record of prices created by a tape of electronic trading. Such records are standard pricing mechanisms for many securities. But not all.

Prices of derivatives, especially credit default swaps that trade one-to-one, can still be based on one dealer’s say-so. That’s why a rule proposed by the Commodity Futures Trading Commission that would require pre-trade price transparency in the swaps market is so important.

But it is also why Wall Street is pushing back, especially on the commission’s proposal that swap execution facilities provide market participants, before they buy or sell, with easily accessible prices on “a centralized electronic screen.”

The commission’s rule would eliminate the one-to-one dealings by telephone that are so lucrative to traders and so expensive to investors.

A bill intended to gut the commission’s proposed rule and to maintain dealers’ profits in derivatives failed to go anywhere after being passed last year by two committees in the House of Representatives — Financial Services and Agriculture. That was a good thing.

But there are rumblings in Washington that this bill has resurfaced and that it may be quietly attached to a House Agriculture Committee appropriations bill scheduled for a vote this month. The bill, if passed,

1. would bar the requirement for a centralized pricing platform to shed light on the enormous swaps market.

2. would prevent regulators from requiring that a number of participants provide price quotations to customers, a way to ensure fairness.

It’s hard to believe, in the wake of the Libor mess, that Wall Street and its supporters in Congress would continue to battle against price transparency in any market. Then again, that’s precisely what they did after the credit crisis.

With each new financial imbroglio, the gulf widens between Main Street’s opinion of Wall Street and the industry’s view of itself.

When Mr. del Missier took over as chairman of the Securities Industry and Financial Markets Association last November, he said: “We will continue to work on maintaining and burnishing the level of confidence investors have in our markets, in our own financial institutions, and in the general economic outlook for the future.”

Given the Libor scandal, let’s just say good luck with that.


Is Lebanon ripe for another civil war round? Politically yes, militarily not yet…

You may first read

The strongest indicator for a coming civil war, in a confessional political structure, is when every religious sect is divided on its leading political representatives. A civil war is the preferred mechanism to unite the clergy and various warlords around a unique leader to represent the religious sect…

The previous civil war (1975-91) was mainly internal wars within each religious sect for political hegemony over the entire sect, representing its confessional rights and speaking in its name.

The internal war in Lebanon started as a mass civil disobedience against a political system that refused to reform…Before it transformed into a major and lengthy civil war…

The previous civil war ended when almost all religious sects resolving their internal political struggles and were ready to talk with the other religious sects as a unified front.

Only the Christian Maronite sect was still politically divided on its leadership and kept resuming the armed confrontation while the other sects were “reforming the Constitutions” in Taef (Saudi Arabia) and dividing up the political power, appointing the public servants in the administration, and budget…

After the Taef agreement, the Moslem Shia sect elected Nabih Berri (Chairman of the Chamber of Deputies) to be their political representative within this confessional structure, though Hezbollah had secured the military power behind the sect and the unifying force for the sect.

Berri was the main Syrian representative (agent and still is) in Lebanon, while Hezbollah the representative of Iran’s ideological reflection.

Rafic Hariri, was the Sunni leader and the representative of Saudi Arabia political ideological and interests in Lebanon.

During the Syrian mandate of Lebanon up to 2005, Rafic was forbidden to visit Tripoli and the norther part of Lebanon, predominantly Sunnis. After Rafic assassination and the withdrawal of the Syrian troops, the Mustakbal movement (the Hariri clan party) managed to gain an aura in the north, not commensurate to the promises it failed to deliver during election periods…

The Maronite had no exclusive powerful political leader, and was represented by the assigned and unknown President of the Republic Hrawi (put forward by Syria Hafez Assad). The General of the army and Prime Minister Michel Aoun was forced into exile to France for 15 years. Samir Geaja (head of the militia Lebanese Forces) was sent to jail for 11 years…

Samir Geaja was the only militia warlord to be incarcerated. All the other warlords enjoyed appointments as ministers and deputies after the war…and were allocated secret “money boxes” to be spent on their associates and fattening their stashed away finances…

Geaja can be considered the worst political and military warlord failure for the duration of the war: He never won a war and failed to reap any political advantage…

The emerging front triumvirate of Berri, Hariri, and the President of the Republic divided up the treasury of the State and allocated the budget into personal Financial Boxes to spend on their respective regions…and a sizable portion of the budget and commercial dealing diverted to the coffers of the Syrian regime and their oligarchs

The Druze leader Walid Jumblat was allocated the “Displaced Box” of the Christians who fled the Shouf district during the war and who never returned, not yet…

Nabih Berri was allocated the “South Box” in order to reconstruct the southern districts…

Rafic Hariri was allocated the “Calamity Box” to spend on the reconstruction of Beirut and Saida.  This Box circumvented half a dozen ministries and took over every project meant to upgrade Lebanon infrastructure.  For example:

The airport received the name of Rafic Hariri. The main public hospital got the name of Rafic Hariri, the center of Beirut was reconstructed under the Solidere company owned by Rafic Hariri, the trash collection and disposal was run by a company owned by Rafic Hariri “Suklene”, the two mobile phone companies were owned by Rafic Hariri and Nagib Mikati (current prime minister)….

The successive Presidents of the Republic, seemingly representing the interest of the Christians and the Maronite in particular, have been mostly impotent in turning the tide into “fairer” representation of the Christians in the public administration…and the two main Maronite parties “The Lebanese Forces” of Samir Geaja and the “Tayyar of reform and change” of Michel Aoun were unable to reaching a unifying consensus…

Lebanon is ripe politically for another civil war round:

1. Nabih Berri, the main Syria Man, is scrambling to keep a political presence after the Assad regime of Syria. All the activities of Berri is to prove that he is the master mediator among the factions to maintaining the archaic system of Lebanon. Berri knows that without Syria’s support he cannot hope for more than being elected a simple deputy in 2013…

Mikati PM is the front of the Syrian regime, and basically obeying to Berri decisions on critical issues…Consequently, Berri has reduced this government to total impotency and the ridicule of the people because he needs to please all the confessional powers…

2. Hezbollah is re-organizing in order to maintain its status as the main Iranian stronghold in the region and will inevitably be forced to taking the front scene as the political representative of the Shia sect…

3. The Sunni sect that is mainly represented by the Mustakbal movement (The Future) of the Hariri clan is losing credibility because:

First, this movement is still working to privatize the public institutions in order to own them for cheap,

Second, this movement sided with the US and Israel when Israel invaded Lebanon in 2006 against the resistance of Hezbollah,

Third, this movement proved not to care about its election promises to the poorer districts, and failed the expectations of the Sunni people again and again…Their investments were placed in Beirut, and mostly in Real Estates…and ruined the electricity and water infrastructures

Many other Sunni “leaders” are emerging to contest the hegemony of the Mustakbal, and partially succeeding in restricted localities…

The Maronites are still divided.

The main political power of the Tayyar of Michel Aoun has over 30 deputies out of 120, and 10 ministers out of 30. And the Tayyar has been the target of all the confessional parties in order to fail its programs and projects in the government and in the Parliament…

Even the Greek Orthodox Christian sect is divided and unable to reach any consensus on the political figures to representing its interest as a unified front…

Politically, Lebanon is ripe for another round of civil war, and the troubles in Syria in the last 16 months are the main catalysts for this dangerous divisions in the Lebanese confessional fabric.

Militarily, Lebanon is stable.

The army and Hezbollah are the main military powers and can foil any armed uprising.

For this reason, Saudi Arabia, Qatar, and the US have been fomenting “discourses” meant to weaken the credibility of the army as the unifying institution for all the Lebanese.

The Tayyar (movement of Michel Aoun) reacted vigorously and is taking to the street demanding firm actions by the government against any actions and speeches defaming the army and weakening the moral of the officers and soldiers…

Hezbollah is confident of his representation of the Shia in the districts and regions of Shia majority, but is being aware that engaging in a second civil war in order to catapult the Shia as the main power broker in Lebanon will sap its reduced resources, divert its focus on Israel threats, and encourage Israel (the US) to wage a 7th preemptive war on Lebanon…




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