'A cesspit': Libor scandal may be going on elsewhere …The market for determining one of the world's key interest rates was a "cesspit" and banks cannot be trusted … The market for determining one of the world's key interest rates was a "cesspit" and banks cannot be trusted to be honest in several other major markets, the deputy governor of the Bank of England has warned. Paul Tucker told MPs that Barclays' abuse of the Libor system may be only one part of the banks' dishonesty over crucial financial information, suggesting that other markets should now be investigated. An official inquiry into Libor – which helps determine interest rates for householders and businesses – should be broadened to include several over markets where banks are trusted to report their own data, he said. – UK Telegraph
Dominant Social Theme: Gold is not manipulated and neither is silver.
Free-Market Analysis: Now gold is being sucked directly into the Libor scandal. Of course, we are on record as pointing out that it can hardly be much of a scandal when central banks set the price and volume of money every day. But nonetheless, the mainstream press has been buzzing about the idea that commercial banks were setting LIBOR rates in ways that accommodated their business practices.
And why should a cabal of banks announce certain rates anyway? Shouldn't there be rare competition? But that is not the way it works in modern finance. Modern finance is all about centralization and regulation. The more centralization there is, the more regulation there needs to be.
It is ultimately all about control. Gold and silver prices are apparently not subject to open marketplace competition for a reason. And now the Libor scandal threatens to unearth the seamy side of metals manipulation from the standpoint of the world's biggest banks. Here's more from the article above:
Mr Tucker's evidence to the Treasury Select Committee also reignited the political row over the Libor scandal as he insisted that members of the last Labour government had not "absolutely not" put pressure on him to reduce Libor. George Osborne, the Chancellor, has said that that the last government was "clearly involved" in the banks' dishonest under-stating of the interest rates they were paying to borrow on money markets.
Labour last night demanded Mr Osborne withdraw his claims, but Treasury sources insisted that question remain about Labour's direct dealings with dishonest banks during the 2007-08 financial crisis. Barclays has been fined almost £300 million for deliberately lying about the rates it was paying during the financial crisis, in order to downplay the financial pressure it was under.
Other banks are also being investigated for distorting Libor, which is calculated on major banks' own reports of their borrowing costs. Mr Tucker said he could not be sure that abuse of the Libor system is not continuing to this day, telling the committee: "I can't be confident of anything after learning of this cesspit."
The Libor scandal could be repeated in a number of other "self-certifying" markets where prices are determined, he said. "Self-certification is clearly open to abuse, so this could occur elsewhere," he said.
A Financial Services Authority inquiry into Libor should be extended to other self-certifying markets, he said. The Treasury said last night that the review, led by Martin Wheatley, was free to examine markets other than Libor.
An expansion of the FSA review could take in a number of other interest-rate-related data as well as some complex financial instruments measuring the difference between banks' borrowing costs and that of the US government. Some markets in gold and oil are also based on self-certification.
You see? Now gold and oil are being mentioned as manipulated markets. In fact, such markets ARE likely manipulated – and in ways that are far more significant than via Libor.
What is interesting is that this Libor scandal has not been snuffed out by the powers-that-be. We've made the point that the plan may be to continue to agitate for reform until the financial industry is bound by regulations even more Draconian than current ones.
The Libor scandal may be a manufactured one but it will certainly not be without consequences.