Libor Manipulation Well Known in London by 1991

A comment in today’s Financial Times is by a former Morgan Stanley trader, Douglas Keenan, confirms a passing comment in the Economist, that Libor manipulation goes back for more than 15 years. In fact, this piece makes it clear that is the time frame exceeds 20 years. From the Financial Times:

In 1991, I had live trading screens that showed the Libor rates. In September of that year, on the third Wednesday, at 11 o’clock, I watched those screens to see where the futures contract [on three month Libor] should settle. Shortly afterwards, Liffe announced the contract settlement rate. Its rate was different from what had been shown on my screens, by a few hundredths of a per cent.

As a result, I lost money. The amount was insignificant for me, but I believed that I had been defrauded and I complained to Liffe [ London International Financial Futures Exchange, which is where the contract traded]. Liffe explained that the settlement rate was not determined by what rates were actually in the market. Instead, the British Banker’s Association polled banks, asking them what the rates were. The highest and lowest quoted rates were discarded and the rest were averaged, giving the settlement rate. Liffe explained that, in doing this, they were adhering to the terms of the contract.

I talked with some of my more experienced colleagues about this. They told me banks misreported the Libor rates in a way that would generally bring them profits. I had been unaware of that, as I was relatively new to financial trading. My naivety seemed to be humorous to my colleagues.

So consider what this tells us:

1. Libor manipulation was already recognized by market participants in 1991 as a common phenomenon. That implies it had been going on at least a few years before that

2. The manipulation appears to have more than occasionally been more than a single basis point (Keenan says here the effect was “several” basis points, which I take to be three or more)

Oh, an an additional tidbit: Bob Diamond was in Morgan Stanley London as of then, in charge of interest rate trading, which means his claim that he had found out about Libor manipulation at Barclays mere weeks before his Treasury Select testimony was bollocks.

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22 comments

  1. Shawnna

    At one point will the “naive” wake up and revolt???

    How much evidence does one need to be outraged??

    I’m rooting for a bloodless revolt that brings in public banks (like a utility) and eliminates both the Banksters and corrupt government officials (think Geithner) that enable them.

    1. KnotRP

      Money is speech, now, and money has more to say
      than $0 (free) speech…

      The only action an individual has left,
      is to vote by how & where they spend
      and save.

  2. Austin F

    There’s a simple syllogism at play.

    Major premise: Political elites enjoy immunity from prosecution and international law, they can facilitate torture, launch wars of aggression, etc.

    Minor premise: Political elites are composed of financial elites. Same personnel; same suits.

    Conclusion: Financial elites are immune from prosecution.

    1. Fiver

      You leave 1 group out: the elite planners/technocrats in the military/security/geopolitical policy complex. This is the only group whose real power rivals that of financial and other multinational corporations. Obviously many are already outright bought and paid for, and the vast majority have so far at minimum gone along with this disaster. But it remains to be seen where and how the chips are going to fall when the situation truly unravels a little way down the road – if there own power base is threatened by instability, they just may act.

  3. Bill the Psychologist

    Yves, I see only one comment in the Links section, and I had to subscribe to a live feed to post a comment there, according to the info at the bottom. Also, there is no box there like this one, the usual one.

  4. Bob Swern

    Yves,

    I just experienced the exact same problem as described, immediately above. Wanted to note/comment how great it was to see you getting notice over at CJR, yesterday, on the Jackie Calmes’ critique/post!

    –Bob

  5. JohnC

    Yves,
    I think you will find that it all began in 1990.

    Remember that clip on Keiser featuring Ian Fraser? He reported how the word came down from on high that there would be no more prosecutions of City miscreants from 1990 onwards.

    John Major became the British prime minister in 1990.
    John Major was a banker by profession (Standard Chartered Bank).
    John Major was a close associate of Jeffrey Archer, a convicted criminal and general ne’er do well.
    John Major became prime minister without having fought a General Election. When Margaret Thatcher lost the leadership of the Conservative Party a new leader was elected, and that new leader became the prime minister.

    But you don’t actually become prime minister through a majority in Parliament. You become prime minister when, and only when, the Queen grants the seals of office.

    So if the Queen had not actually appointed John Major, he could do all sorts of mischief. Rather like a phony director of a company.

    Perhaps Leonova could research the Treason Felony Act of 1848, and tell you all what it means?

    JohnC

  6. Warren Celli

    “So consider what this tells us:

    1. Libor manipulation was already recognized by market participants in 1991 as a common phenomenon. That implies it had been going on at least a few years before that

    2. The manipulation appears to have more than occasionally been more than a single basis point (Keenan says here the effect was “several” basis points, which I take to be three or more)”

    It also tells us that the power of the internet — relatively non existent then — is now giving the masses real traction in terms of uncovering hypocrisy and deceptions. But enough is known of the evil doers and who they are, more needs to be said about how they will be institutionalized and cured of their aberrant sociopathic Xtrevilist behaviors.

    Deception is the strongest political force on the planet.

  7. Myshkin

    At some point the corruption becomes so endemic it is accepted as common practice and moral compasses spin free. Corruption on a global scale has gone beyond a tipping point, the institutions we rely on for stabilizing and regulating are compromised and run by the legitimized crooks. 21 trillion dollars, more than the GDP’s of Japan and the US, parked in the Cayman Islands and Swiss bank accounts. The largest banks, the largest countries with the largest economies are complicit and they own the media. I don’t see a way out. Brave New World here we come; pass the soma and all hail the Ford.

    1. KnotRP

      I still don’t think bankers and the FIRE sector
      are prepared to live in a world where everybody
      adopts their rules.

        1. Capt Ray

          So…
          When Jesus smashed the bankers; was that wicked?

          I think so…
          The smashing didn’t “stick”, you see.

          Perception is a matter of reality.

      1. Myshkin

        Doubtless they wouldn’t want everyone else playing by their rules, they don’t want everyone else even to know what their rules are. I think the goal would be that the bankers/FIRE sector live in a world where they must abide by our rules.

        A return to Glass Steagal type separation of commercial and investment banks would be a modest beginning but that is water under the bridge now, criminality is the norm, all system are compromised.

  8. Jessica

    I think this may be a more significant data point than it appears at first glance to us jaded cynics.
    What is says is that not only are our institutions now utterly corrupt but that they have been getting that way for a long time. This suggests that the problem is not likely to be random, accidental, or personality driven, but rather that it stems from deep structural causes.
    That is important because it suggests that that is also where the solutions must be found.

  9. tiger

    We need to divide and conquer. There needs to be a 3rd party that is simply anti-bank and neutral on other issues. Get somewhere, then advance more based on members’ input.

Comments are closed.