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Barclays’ Rate-Fixing Is the Tip of a Much Larger Scandal, Bank Officials Say
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| Contributor | RP |
| Last Edited | RP Jul 11, 2012 04:27pm |
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| Category | Commentary |
| Author | Peter Jukes |
| News Date | Wednesday, July 11, 2012 08:20:00 PM UTC0:0 |
| Description | You ain’t heard nothing yet. If you thought the admission by Barclays Bank that it manipulated the key interbank lending rate was shocking, be prepared for a series of larger jolts which could expose the banking system to its worst crisis yet.
The loan market (the prize money if you like) determined by the LIBOR rate, is worth some 10 trillion dollars annually. But the betting market, the various “over the counter derivatives” that depend on LIBOR, is a hundred times bigger at least. As the FSA pointed out in its document on the Barclays scandal, just one contract based on the rate traded out of Chicago was worth a staggering volume of $564 trillion U.S. dollars in 2011.
LIBOR is not the only horse race in town, not by a long shot. Other key markets in sovereign debt, exchange rates, commodity or energy futures, are also subject to trillions of dollars in speculative swaps, and this is where the price fixing just scandal could really go global.
No one knows where the next unexpected ‘black swan’ crisis will come from, except all eyes are turned to false reporting of indexes and the derivatives market. There have been rumors about oil price fixing for decades, as well speculation about silver and Brent crude. A decade ago, the U.S. Commodity Futures Trading Commission found that the practice of false reporting and price manipulation was rife but mostly “beyond the reach of any other federal financial regulator.” As a former securities regulator pointed out to The Daily Beast, “The mechanism for fraud through quotation manipulation was the same as Libor.”
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