Matt Taibbi on Manipulation of the Swap Market

Thursday, April 25, 2013

Matt Taibbi talks about the manipulation of the swaps market. The Commodity Futures Trading Commission recently subpoenaed brokers at the interdealer broker ICAP and bankers at 15 Wall Street institutions to find out if they colluded to manipulate the ISDAfix rate. ISDAFix impacts global borrowing costs as well as the price of $379 trillion interest-rate swaps, and other important benchmarks in the wake of the Libor rigging scandal.


Matt Taibbi

Comments [18]


All the FED needs to do to control derivatives is raise the Margin Requirement substantially and go back to real interest rates. These actions would drastically reduce the leverage that is driving the insanity. But we know the FED will not do that since it is the cause of all this gambiling and admits no wrong.

May. 15 2013 03:05 PM
caesar romaine

Peter Talbot -

When these infractions were supposed to have happened there was a "credit crisis" underway. Banks didn't want the markets to know that they were paying higher rates than their peers/competitors. They wanted the market to think that they were paying lower rates, which would indicate they were in better shape. Higher interest rates would have been a red flag to the "street" that the bank might be in trouble. In 2009 no one wanted to look like they were in trouble.

Libor manipulation was nothing new in 2009. Bloomberg News was reporting on mis-reported Libor rates as far back as 2007; way before the "crash".

By the way, libor isn't the ONLY rate lenders can use to base loans on, or swap counterparties have to use for mark-to-market valuation of their interest rate (or other) swaps/derivatives. Institutional investors, banks, hedge funds, corporations, etc can use other rates; a "futures based curve" - meaning real market rates coming from the interest rate futures markets - is frequently used, rather than the voluntary survey data coming from the few banks who participate in the British Banker's Association survey called LIBOR. When libor becomes untrustworthy no one will use it. The markets don't need more laws, regulation or music magazine reporters going through some big discovery process. Borrowers and lender will recognize that the British Banker's Association is not credible and they will negotiate borrowing terms based on a different number. Libor isn't law.

Apr. 25 2013 08:22 PM

How the New York Stock Exchange Really Works

Apr. 25 2013 01:59 PM
Peter Talbot from Harrison, NJ

Jgarbuz, resident alien: two thumbs up.

Ben Brantlee was wrong in thinking that all readers (auditors) eyes (ears) glaze over when the subject is economics. I recall riots in the streets over bimetalism once upon a century. Kudos to Matt: a voice crying (with precision) in the wilderness, and to Leonard and the staff for good questions on topic.

Cesare Romaine: I don't follow. I would have thought the banks would just as profitably (moreso?) declared their interest payments at higher than their actual experience as one way to justify increasing the credit term yields on the other side of the house. That would be the winning move for Bank of Amerika and Wells Fargo. I'm very unpersuaded.

Noach: Points conceded, but compared to the Murdochian horde, Bloomberg's newspeak and the fascisti on CNBC hawking their client's wares, WNYC is enlightened. NPR's Marketplace needs to lose the snark and take a major IQ injection, though. Too many corner office lunches and show and tell with shills, no depth and no dissenting voices.
I suggest that WNYC drop it entirely from their conract and give Matt Taibbi that half hour to rant daily. We'd all benefit.

Apr. 25 2013 01:42 PM
resident alien from Williamsburg

what can i say, i completely agree with jgarbuz ;-)
most trading(multiples of GNP) on wallstreet is a zero sum game & pure gambling.
Especially financial, virtual products like derivatives get a virtual price slapped on and the sum of this is just a artificial increase of the "money" floating around just like when/if the fed keeps printing currency.
then the gamblers & market makers chase the market from one corner to the other, making money all the way through fees & commissions, and hoping that their bets will be the lucky ones. To increase their gambling odds, any legal & illegal means will be explored. If not, who cares, it wasn't their money to begin with and if the losses are just big enough, they will get bailed out by the taxpayer.

Every attempt should be made to separate real, long term investment from short term gambling! High frequency trading, my ass. Trading needs to be slowed down, way down! Gambling on wallstreet should be treated like gambling: highly regulated and taxed and broken down in smaller pieces that won't be to big to fail! Feeling lucky? Wanna gamble? Then you have to take the downside with the upside. Of course markets and market gambling are global, so any policy and regulations need to be coordinated.

Apr. 25 2013 01:12 PM
Jf from Future

The dystopians have stolen utopia from us. The biggest crime in history? The .01 percent will have to wipe our brains to keep this in the box forever. Utopia must come if we are to survive. Jail the people responsible and dont close the company, there, no need to fire innocent people.

Apr. 25 2013 12:56 PM

This is how the ruling class exercises its power - they are above the law.

Apr. 25 2013 12:41 PM
Caesar Romaine from New York

Libor has always been based somewhat on the "honor system". It is an indicative benchmark rate. It is a survey - not market data. Banks report what their borrowing costs - from each other - are (london interbank borrowing rate LIBOR. There is also EURIBOR, SIBOR, and several other "BORs" around the world. They exist to provide some level of transparency among private transactions between private firms.

The report banks deliver is based on a broad portfolio of loans - not just one. Rates can vary greatly from loan to loan. If anyone was "fudging" numbers they did so to report they were paying lower interest rates than the higher rates they actually were paying. The reason they did this is because their real rates were high. Their rates were high because their credit worthiness was in question. Had banks reported the actual higher interest rates that they were, in fact, paying, all the loans pegged to LIBOR would have been higher. Meaning your credit card would have been higher, your home loan would have been higher, all other loans based on libor (loans are frequently quoted as "libor plus", i.e. "libor plus 3", meaning libor plus 3 basis points).

The international swaps and derivatives association (ISDA) fixing rate number is similar to LIBOR. Swaps are over-the-counter contracts between a borrower and a lender. Rates that firms engage in are purely voluntary and done to provide some transparency. They are not complicated and corporations and banks have been doing them for years.

ICAP is an interbank broker - they facilitate trades between banks. They don't take positions they only take a spread. They are not incentified to "rig" a market. They get a piece either way.

Rolling Stone should stick to covering music.

Apr. 25 2013 12:41 PM

Have y'all had a look at this Frontline piece??

Apr. 25 2013 12:37 PM

Let's chat about that milquetoast weenie Assistant Attorney General Lanny Breuer.

Apr. 25 2013 12:36 PM
MC from Manhattan

This is how they are expanding the money "supply" and the central banks are perpetually playing catch up to see where the new balance point of real economic gain and faux exploitation is.

IT is all numbers in virtual accounts so to speak .. so policy should not be based on this house of cards.
The real economy should not be allowed to be manipulated by these conventions

Apr. 25 2013 12:30 PM

Why is NONE of what Matt writes about actionable?!?

Apr. 25 2013 12:30 PM
Joe from nearby

So much for the so called 'free markets.'

Apr. 25 2013 12:24 PM
jgarbuz from Queens

Everything that CAN be rigged WILL be rigged!

But when it comes to the stock market, or that matter all "investments," the idea that over the long run that they can grow faster than the growth of the economy overall is a delusion and a gamble. Individual gambles can certainly pay off big in the short run, but over the long term, by definition, the growth of the economy overall is the aggregate result of the aggregate results of its businesses. If an economy is growing only by 2% a year, and to expect ongoing returns on investments of say 7% per year annually is a DELUSION! And if global growth is stagnant, so will be the results of investments.

So anything that sounds to good to be true, is too good to be true over the long run. But short term risky gambles OCCASIONALLY but rarely do pay off handsomely.

Apr. 25 2013 12:15 PM

Please comment on the work of Robert Scheer and Gleen Greenwald on this topic.
@Peter Talbot:

Do you, perhaps, recall how long it took WNYC to cover Occupy Wall Street?

I'd have to think pretty hard to try to recall the last time I heard someone on economic issues on WNYC who wasn't an establishment apologist.

Neither Doug Henwood nor Richard Wolff, both of whom are right here in NYC, have ever, to the best of my knowledge (and I searched) been on WNYC.

Apr. 25 2013 12:14 PM

@Amy from Manhattan

Put them all in jail and recover the ill-gotten proceeds. Nothing short of it will work...

Apr. 25 2013 12:12 PM
Amy from Manhattan

That's what I want to know: what "is da fix"?

Apr. 25 2013 12:09 PM
Peter Talbot from Harrison, NJ

Jittery in Jersey

Recent divergence of nearly all stock indices from the actual health of the companies that inhabit them has most small investors (including me) spooked. We see nothing but shills and traders desperate for "churn" money inviting us back into the markets. But we see continued evidence that bullion markets are rigged, that inflation numbers are underreported and massaged, that unemployment metrics have been watered down to meaningless, that housing sale and foreclosure numbers are being deliberately misreported. The proliferation of blogs purporting conspiracies to rig trades, bids, calls and even market activity and the lack of reporting in mainstream media with regard to these concerns has caused a huge disconnect that will keep many players out of the market unless their income is truly disposable. Trade volumes support my contention. Notice how new lower average trade volumes are no longer "news"?

I wonder how prevalent Matt feels these "fixes" are, and would welcome his more informed comment on any or all of them. PS: I note that WNYC (and you of course, Leonard) has tried to be more balanced, citing Pro Publica and Guardian sources, but have seen a more troubling tendency toward towing corporate party lines over at NPR. . .What gives at Marketplace?

Apr. 25 2013 11:08 AM

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