Barclays LIBOR Rate Manipulation: In Banks We Trust?

Though this somewhat riveting financial news story is still developing, will the 453-million US dollar fine and subsequent civil lawsuit against Barclays for interbank lending rate manipulation herald a more transparent banking system? 

By: Ringo Bones 

The recent LIBOR Rate manipulation scandal first came to light to us in the general public when the major news providers did an investigative news reporting on Barclays being fined 453-million US dollars back in June 28, 2012 for manipulating the interbank lending or LIBOR Rate. Whether this will lead to increased transparency to the world’s banks and other financial institutions is still open to debate since this recent “financial scandal” could yet become another long-winded economic / financial epic akin to the recent Greek Debt Crisis. 

Leading tenured economists now cite that the very way the LIBOR Rate is regulated is very much outdated – compared to back in 1984 - in our somewhat austere economic climate of our post 2008 Global Credit Crunch world. But Barclays admitting of the “financial master stroke” of LIBOR Rate manipulation looks suspiciously criminal from the FSA’s point-of-view. 

By July 2, 2012, Barclays chairman Markus Agius – who held the position since 2006 – resigns as the rate fixing scandal ripples throughout the financial world. The next day, Barclays CEO Bob Diamond resigns after accusations of using Markus Agius as a “fall guy” on the LIBOR Rate fixing scandal became headline news in the financial world. And by the way, Markus Agius is also the head of the UK Banking Association. As the Barclays’ “top brass” reshuffles, the FSA cited that Barclays conduct was so serous and widespread that the agency also placed the RBS and HSBC under their watch list for complicity with Barclays on the LIBOR Rate fixing scandal. So what is this “LIBOR Rate” anyway? 

LIBOR Rate is defined as the rate at which an individual Contributor Panel bank could borrow funds, where it is to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to the 11:00 AM London time deadline. The rate at which each bank submits must be formed from the banker’s perception of cost of funds in the interbank market. The London Interbank Offered Rate is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks. It is usually abbreviated to LIBOR or Libor, or more officially to BBA Libor for British Bankers’ Association Libor or the trademark bba libor. It is a benchmark – along with the Euribor – for interest rates all around the world. 

LIBOR Rates are calculated for different lending periods – overnight, one week, one month, two months, six months, etc. – and published daily at 11 AM London time by the British Bankers’ Association. Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to – and typically higher than – the Libor. The current procedure of determining the LIBOR Rate was introduced back in 1984 when it became apparent that an increasing number of banks were trading actively in a variety of relatively new market instruments – namely: interest rate swaps, foreign currency options and forward rate agreements. 

Back in July 4, 2012, then Barclays CEO Bob Diamond declared that he is not resigning without a fight and that he may divulge evidence that UK financial regulators – including the Bank of England’s deputy governor Paul Tucker of giving Barclays the carte blanche – i.e. full discretionary powers – to reduce the somewhat high LIBOR Rate that was strangling the UK economy during their “wink-and-nod” laden phone call. Bob Diamond is due to be “grilled” by the MPs whether the Bank of England and Whitehall officials will be implicated in the recent LIBOR Rate manipulation scandal is yet to be determined. While the UK’s Serious Fraud Office (SFO) launches its own LIBOR Rate manipulation investigation.  

At present, the LIBOR interbank lending key rate plays a major role in global financial markets. But many tenured economists cite LIBOR as an anachronism and it doesn’t really work in practice. And the oft-cited proof of this was the global market events that lead to the 2008 Global Credit Crunch. Does the LIBOR Rate need to be reformed or to be replaced entirely by something more suitable to our increasingly globalized financial markets? 

Would Greece Be Better Off Leaving the Euro?

Even though the majority of the newly elected Greek cabinet is staunchly pro-euro and pro-bailout, would Greece be better off leaving the Eurozone? 

By: Ringo Bones 

Before the Greek pro-euro and pro-bailout political parties were elected into office in Greece’s recent election, many tenured economists – strangely none of them appeared to be Greek – suggested that Greece should leave the euro and reintroduce the good old Greek drachma as the best solution to the country’s ongoing debt crisis. These “tenured economists” oft cite on how the Argentine government solved the Argentine economic crisis of 1999 to 2002 in which the Argentine government drastically devaluated their own currency – the Argentine peso – in order to end its own debt crisis; a method which surpasses the dire expectations of economists at that time. The question now is: Will the “Argentine Method” work in solving Greece’s ongoing debt crisis? 

Before we proceed further, here’s a scope of the current Greek debt crisis – every Greek man, woman and child now owes 31,000 euros to the EU and other foreign lenders. An epic problem in which a few years of EU sanctioned austerity measures seems unable to solve. The Greek government’s rationale for joining the Eurozone when the euro was first introduced back in the New Year’s Eve of 2002 was that it was hope that EU members with weak economies – especially Greece – would be helped by the more economically prosperous EU members. Strange as it seems, Greece’s current dire economic situation mirrors that what it had experienced back in 1998. But will a Greek euro exit and the reintroduction of the good old Greek drachma and then drastically devaluating it – akin to how Argentina solve their own economic crisis back in 1999 to 2002 – be the ideal solution to Greece’s current debt crisis? 

Strange as it seems, the BBC sends some of its field reporters to Greece a few months before the recent election in order to interview everyday Greeks experiencing their country’s crippling financial crisis first hand. The report had shown that a little over 50% of Greeks believe that exciting the Eurozone and reintroducing the Greek drachma won’t solve its current economic crisis because they believe that their current economic problem is primarily caused by the collusion of corrupt Greek politicians and big financial firms – both Greek and foreign – not paying their full tax rates. Over half of the Greeks say that a reintroduction of the old Greek drachma and then drastically devaluating it will only give license to corrupt Greek politicians to print their own money.

Social Investments: Capitalism With A Conscience?

Given that the West faces a somewhat inevitable economic “lost-decade” in the foreseeable future with increasing unemployment and mass financial inequality and fiscally bankrupt governments, will social investments be the solution? 

By: Ringo Bones 

Maybe it was the dire warning put forth by Big Society Capital chair Sir Ronald Cohen during the BBC’s Hard Talk interview back in May 10, 2012 that got me worried about the prospects of Western capitalism in the foreseeable future. Especially given that Western capitalism, in general, usually don’t with the social consequence of its day-to-day activities in order to make a profit. Given a sobering outlook, will social investments offer a more ethical – and hopefully a more profitable – rework of “traditional” Western-style capitalism? 

At present, most tenured financial pundits see social investments as nothing more than mere charitable tax breaks that only boost a typical corporation’s public relation’s standing as opposed to genuinely adding tangible profits to its bottom line. But can it be tweaked to make traditional style Western capitalism economically viable again for the rest of the 21^st Century? 

A lot of successful persons who recently made it big in venture capitalism and investment are quite hopeful that social investments can be made to work in today’s uncertain economic times. Sadly, excesses often made by Western capitalism that lead to the 2008 Global Credit Crunch have still haven’t been dealt with yet. Bank executives with ridiculous risk taking are still awarded exorbitant bonuses by their overlords whenever they make short-term profits. And taxation schemes in most Western countries are for from progressive. Economic gains by awarding tax breaks to the richest 1% can only take a typical sovereign country’s GDP so far. 

Sadly the measure of entrepreneurial risk of doing social investments / social good, at present, is more perceptional and hearsay – rather than a genuinely mathematical and scientific risk assessment. And an overwhelming number of elected governments in the West are yet to make a sense of obligation for social investments that would put a dent on the growing mass inequality between the richest 1% and the rest of the population. Social investments have the most potential to improve folks mired in poverty. 

And the time is nigh to improve Western economies because most of the world’s economic activity has been geared on the paradigm that the Western economy had been growing for 3% per annum for 15 years before the Subprime Mortgage Crisis of September 2008 almost threw everything into haywire. The Western economy’s prospects for a “best-case scenario” in the foreseeable future would be an annual growth of 1% assuming Western capitalism does its business in the same “business-as-usual” manner. Can social investments improve this growth outlook?

Western Union: Migrant Workers’ Global Bank?

It may have started as a telegraph company back in 1851, but did Western Union manage to evolve into a global bank that serves the global migrant worker community?

By: Ringo Bones

It seemed the company had truly evolved into a wholly different beast from its mid 19thCentury beginnings to a truly global and somewhat altruistic one at that. In all intents and purposes, without Western Union, families of migrant workers left in their respective impoverished countries will be left economically high-and-dry if their bread-winning family member doesn’t have any means to send back money in a relatively efficient manner.

In a November 15, 2011 interview on the BBC, Western Union chief executive Hikmut Ersek spoke on how over 250 million migrant workers across the world are very dependent on their company to send money back to their families and dependents. Nearly half a million Western Union branches and agents across the world made it all possible.

Not only that, the funds and remittances sent by these migrant workers to their families and dependents allow them to establish a small business in their respective financially impoverished communities; Thus serving a very important role of establishing a grassroots microeconomic base to raise them out of extreme poverty in a way that isn’t dependent on foreign aid handouts. It seems like Western union is doing their part in helping small impoverished communities help themselves out of extreme poverty don’t you think?

Are Banks Nickel and Diming Their Clients to Death?

Given that in hard economic times, banks should be incentivizing the populace o save some money, shouldn’t banks avoid at all costs in nickel and diming their clients to death with exorbitant processing fees?

By: Ringo Bones

Since 2010, banks around the world had since increased their service charges on checking accounts on average greater than the intended deposited cash’s interest rates. Since then, minimum balance for savings accounts to earn interest and avoid penalties had been raised 137%. But what should bank clients do to avoid being nickel and dimed to death out of their due savings account interests?

As of late, many a smart saver had been moving to smaller community banks and credit unions because these smaller financial institutions offer better growth on savings accounts. On-line banks too ate gaining new customers because they offer deals that are as good as that of smaller community banks and credit unions with even smaller processing fees because all transactions are done electronically on line.

Even though community banks and credit unions are still the way to go for folks who are not very computer savvy, community banks and credit unions have a very distinct disadvantage of a lack of nearby branches. Transportation costs could become very significant when moving and checking your accounts from one community bank or credit union to another. But then, how much do you have to move around your savings and time deposits given the very attractive interest rates offered by credit unions and smaller rural community banks that they provide to their clients?

Occupy Wall Street: Capitalism Reforming Itself?

Now entering its third week of protests – and counting – will the Occupy Wall Street protests provide the first step in reforming 21st Century capitalism?

By: Ringo Bones

Now being supported by union groups and spreading to every major financial center across the United States, the Occupy Wall Street protest used to be facing an uphill battle when it started due to the alleged “media blackout” sponsored by major Wall Street financial firms. Not to mention the arrests of hundreds of peaceful protesters who just want an equitable portion of the “American Dream. But will these protests succeed in reforming 21st Century capitalism into something that’s more equitable to the working class?

The sentiments fueling the protests are not just those who’ve lost their jobs during the aftermath of the 2008 global credit crunch, but also those who’ve been recently laid off. Not only that, it seems that the “Calvinism” and the “Protestant Work Ethic” that used to serve as a “moral” cornerstone of the American Dream had been practicing a kind of double standard during the Bush administration of excluding everyone whose ethnicity is outside those of the white-Anglo-Saxon-Protestant sphere from the bountiful financial fruits of the American Dream.

Can 21st Century capitalism really reform itself this time around? Well, if the powers-that-be – i.e. the US Federal Reserve and those elected power-brokers on Capitol Hill – keep on using the working-class American taxpayer (the financially disadvantaged 99% of America) as the bailout of last resort, then there might be something to what Karl Marx said about capitalism’s systemic failure in the real world.

Global Economic Slump: Politician's Fault?

From Washington, D.C.'s faulty bipartisanship to the EU leaders' inability to tackle the region's looming debt crisis, are our elected officials ruining the global economy?

By: Ringo Bones

Ever since the faulty bipartisanship of Capitol Hill had inadvertently lowered the United States' credit rating for the first time in history since credit rating agencies began setting shop 70 or so years ago. The S&P downgrade of the United States' credit rating due to the "11th Hour" approval of the two parties in the Capitol Hill to raise the US government debt ceiling now made everyone harbor the perception that our elected officials lack the leadership skills to lead us out of the global economic slump. The fallout of the political infighting in Washington, D.C. had made every major stock exchange centers around the world in a free-fall hitherto unseen since the 2008 global subprime credit crunch. The EU leaders' inability to reach a consensus in tackling the looming Eurozone debt crisis also had shaken the confidence of investors around the world. So is the fear and panic stricken global securities markets rather caused by politics?

The US Credit Rating downgrade from Triple-A to Double-A status - from the securities traders' perspective here in South-East Asia - has been perceived as the most damaging of all. The looming EU debt crisis comes in at a distant second. Even the People's Republic of China - now the world's second largest economy - has now been calling for a replacement of the US dollar as the principal global currency in basket of currencies. Will all of this spark a change for the better?