The Other McCain

"One should either write ruthlessly what one believes to be the truth, or else shut up." — Arthur Koestler

Ruh-Roh: Massive International Bank Scandal May Involve Tim Geithner?

Posted on | July 13, 2012 | 27 Comments

Just now watched James Rosen on Fox News explaining this to Jenna Lee and — despite the eye-glazing intricacies of the financial details involved — recognized it as a potentially major scandal:

Years before the Libor scandal ripped through the financial industry, Timothy Geithner sent a memo to the Bank of England calling for a slew of changes to make it harder for banks to rig this benchmark borrowing rate.
According to a June 2008 memo obtained by FOX Business, Geithner, who was then president of the New York Federal Reserve, listed six changes aimed at making it more difficult for banks to distort Libor.
The disclosure comes as lawmakers step up the heat on bankers and regulators in the wake of Barclays . . . reaching a $452 million settlement for allegedly intentionally manipulating its Libor rates. More than a dozen banks are being probed for their handling of Libor.

So, the Treasury Secretary who has been up to his eyeballs in the political manipulation of the U.S. economy warned against the private manipulation of financial data for profit.

UPDATEExplaining what LIBOR is:

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 the primary benchmark . . . for short term interest rates around the world.

If banks are manipulating LIBOR, this enables them to rig interest rates to their own advantage. James Rosen explained this on Fox News, and Jenna Lee nodded her pretty head as if she understood, but I’m not sure she really did. But this is no time to pick fights with feminists . . .

UPDATE II: What pushed this into the headlings was a massive document dump about the LIBOR scandal today:

The most recent revelations have suggested that the world’s central bankers knew about the rate manipulation before and/or during the [2008] financial crisis, and may have even leaned on banks to keep lending rates low.
These documents indicate that the Fed and the [Bank of England] had considered problems with the accuracy of LIBOR, and believed that Barclays was pushing down estimates of the rate at which it could borrow funds in order to appear more financially stable.

Read the whole thing by Simone Foxman of Business Insider who, I hasten to point out, is (a) female and (b) actually understands this stuff. That probably won’t help much with feminists outraged by my snarky comments about Jenna Lee, but I gotta try.

UPDATE III: The basic thrust of questions facing Geithner is whether he acted promptly and appropriately on reports that Barclays was deliberately manipulating LIBOR:

An unidentified employee of U.K. bank Barclays PLC told the New York Federal Reserve Bank more than four years ago that the bank was filing false reports on a key interest rate, according to documents released by the regional central bank on Friday. . . .
The New York Fed released the documents in response to inquiries from members of Congress about the role of Treasury Secretary Timothy Geithner, then the head of the New York Fed, and its questions about Libor.

So it’s a “what-did-he-know-and-when-did-he-know-it” kind of situation. And if I keep inserting inappropriately sexist comments into this story, it’s because people who probably wouldn’t pay attention to a complicated financial scandal might pay attention if I juice it up with a few gratuitous jabs at feminists.

Let’s face it: Amanda Marcotte doesn’t care if Tim Geithner was asleep at the switch while international bankers were wrecking the economy and robbing us blind, but she is outraged over “the epic and often confusing online battle over rape jokes” by the host of a cable TV show.

It’s a matter of priorities, you see.

Let the global economy go to ruin. The important thing is, somewhere a man is laughing, and feminism must put an end to that.

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Comments

  • Quartermaster

    The only surprise here should be at the surprise of anyone that is surprised by this. All the red flags were waving back in 2009 when he was appointed.

  • CPAguy

    This actually shows Geithner as “one of the good guys” as far as financial regulation is concerned.

    Companies shouldn’t be manipulating LIBOR as it is the basis of a large percentage of global finanial contracts.

    For instance, if somebody lent you moneyx the interest rate would be set at “LIBOR + 2%.” So if LIBOR is 3%, the total interest rate will be 5%.

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  • http://powip.com vermontaigne

     Tim Geithner told them they ought to reform the way they set the rate. When they didn’t, he shrugged his shoulders and still sent them billions in US bailout cash, borrowed from the Chinese or merrily printed by the Fed.

    Hero.

  • robertstacymccain

    I’m not sure whether Geithner was a “good guy” or not. He wrote a memo suggesting “reforms,” but did he have an obligation to do more than write a memo?

  • Pathfinder’s wife

    With this and the latest eruption from the futures sector, I’m beginning to wonder if it’s stupidity or wilful negligence — the big question is: who stands to make a mint off the bankruptcy of so many others?

    It’s pretty ugly stuff — sharpening the pitchforks sort of stuff.

  • EarlScruggs

    So hiring a tax cheat to be chief financier for the country was a bad idea?  Who knew?  

  • http://twitter.com/ilovegrover Thane_Eichenauer

    Will this inspire more Congressmen to cosponsor the Audit the Fed bill?

  • http://profiles.google.com/exxo03 richard mcenroe

     Hey, his ass is covered!  He wrote a memo, dammit!

  • http://profiles.google.com/exxo03 richard mcenroe

     He had an obligation to do his effing job. But he’s covered on paper and that’s all a bureaucrat cares about.

  • http://profiles.yahoo.com/u/EU5DQWQTTHTPO4A4ZYSL3AAV2U Adjoran

    Remember when the bankers rallied the markets at the news of Turbo Tax Timmy’s appointment?

    Well, it wasn’t because he was tough on them as Chairman of the New York Fed.  It was because he let them do whatever they wanted.

    His memo on LIBOR was an attempt to shift responsibility to UK regulators in lieu of doing his job.  Not an encouraging sign for a fellow about to entrusted with the financial stability of the nation and the currency.

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  • Quartermaster

    Alas, much of the activity of  a bureaucrat is CYA. And you are right about the memo and CYA.

  • Adobe_Walls

    From the linked article at BI: “The most recent revelations have suggested that the world’s central bankers knew about the rate manipulation before and/or during the financial crisis, and may have even leaned on banks to keep lending rates low”

    My money (if I had any) would be on before, way before the financial crisis. Central banks like low interest rates. Low interest rates facilitate deficit spending and help inflate bubbles masquerading as prosperity.

  • CPAguy

    There is nothing he can do. He has no power in regards to LIBOR. It is a European thing.

  • DaveO

    How could any banker of any reputation possibly follow the suggestions of Geithner, who at the time had cheated on his taxes, and was continuing to break the law with his taxes; and who was turning a fortuitous blind eye to the transgressions of Wall Street?

    They must have thought he was joking.

  • http://profiles.yahoo.com/u/EU5DQWQTTHTPO4A4ZYSL3AAV2U Adjoran

    Yep.  Just an innocent bystander, nothing to see here.

    If I was your client, I would be very afraid about now.

  • http://profiles.yahoo.com/u/EU5DQWQTTHTPO4A4ZYSL3AAV2U Adjoran

     Well, they didn’t know he was a tax cheat at the time.

  • http://profiles.yahoo.com/u/EU5DQWQTTHTPO4A4ZYSL3AAV2U Adjoran

     What they were doing wasn’t really manipulating the rate itself.  LIBOR is a complex calculation because every transaction is potentially at a different rate, so to estimate what they are paying requires figuring timing and amounts of overnight loans and the exact length of time until it is covered, all of which affect the final number.

    So what Barclay’s – and possibly other banks – was manipulating was the way they calculated it.  They had to pay what they were charged, but they estimated they were paying much less. 

    What’s the point of that?  Well, if investors realized Barclay’s was paying significantly higher rates than other major banks, they would realize something wasn’t good there.  Remember, this started well before the actual crisis, they were concealing an early warning sign from potential investors.

    It’s fraud.  There is no other way to describe it.  And Geithner couldn’t force them to stop, but he could have called an emergency summit, because the implications for our own banks were so serious.  He could have called a press conference and called them out.  He could have alerted Bernanke and the FRB of what he discovered.  He could have complained or at least copied Treasury and/or the Exchequer.

    Instead, he wrote an email, and put a copy in his CYA file, and went back to figuring his taxes.

  • http://profiles.yahoo.com/u/EU5DQWQTTHTPO4A4ZYSL3AAV2U Adjoran

    You understand we are all chauvinist pigs for discussing things over Amanda Marcotte’s head (I would have said her “pretty little head” but . . . well, you know), right?

    She doesn’t understand economics more complex than the price of Fluke-me pumps and the concept that panties are a waste of time and money for a busy working gal.

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  • Adobe_Walls

    The Central Banks and their governments had just as much incentive to ignore or even encourage this practice as the banks. I believe they thought the 08 crisis would be just another gale like the dotcom bubble and that in a couple of years there’d be a new bubble inflating to save us from reality. Who knows maybe they thought we’d win the galactic powerball at last and be able to cover all the fiscal/financial malinvestments.

  • CPAguy

    What do you suppose he could have done?

  • http://amusingbunni.blogspot.com Amusing Bunni

    And the liar oblahblah has the nerve and try to paint Mitt as a Felon.  O & Co. are the biggest collection of crooks and felons on earth.

  • http://profiles.google.com/exxo03 richard mcenroe

     But they do cut down on the whistling on windy days.

  • DaveO

    Not buying it. Everybody knows everybody at that level of the game. Geithner’s timidity in carrying out his enforcement duties meant he was either truly a coward, or he was busy covering up his own transgressions. Geithner isn’t a coward.