Dishonesty, scandals, fraud and manipulations are now the accepted norm
by Silver lining
“Achievements on the golf course are not what matters, decency and honesty are what matter.”— Tiger Woods
“Honesty is for the most part less profitable than dishonesty.”— Plato
Honest money requires honest stewardship. If, therefore, the dollar is to be an honest, trustworthy currency, the Chairman of the Federal Reserve and the Secretary of the Treasury must also be honest and trustworthy. Anything less is a threat to the dollar’s value, which is a threat to the very foundation of the US economy.Given this inescapable truth, what are we to make of the revelation that the Chairman of the Federal Reserve and the Secretary of the Treasury allowed the multi-trillion-dollar Libor fraud to operate for more than four years?“LIBOR, which stands for London Interbank Offered Rate, may seem like a meaningless financial obscurity to most folks, ”But this particular obscurity happens to determine the pricing of trillions of dollars’ worth of credit lines and credit derivatives. “Therefore, rigging Libor is a little like rigging the world's gps system. According to press reports,” we continued, “only three of the 16 banks that establish the Libor rate have admitted — or sort of admitted — to posting fraudulent LIBOR rates... But very few filthy kitchens contain just three cockroaches. ”Just a few days later, the world learned that the Federal Reserve and US Treasury were scuttling around with the roaches. Chairman Bernanke and Secretary Geithner knowingly allowed the Libor fraud to operate for four years! Incredibly, this outrageous revelation produced very little outrage. But the public non-reaction does not make the behavior of Bernanke and Geithner any less outrageous.If the stewards of the world’s reserve currency are able to tolerate four years of cheating in the Libor market, what other frauds do they consider insignificant? Or worse, what other frauds might they be directly aiding and abetting? This fraud was not victimless, quite the contrary. Day after day, week after week, unwitting investors lost money they did not deserve to lose...as the Libor-riggers made money they did not deserve to make. The cumulative losses would be incalculable.But that’s not all... The biggest victim of this crime may be the US economy, itself. Dishonest financial markets paralyze capital. Generally speaking, investors refuse to invest in markets they perceive to be rigged or highly manipulated. And paralyzed markets tend to paralyze economic activity. What’s more, the Libor scandal is not the first instance of large- scale, clandestine market-rigging that has occurred with the full knowledge — if not full cooperation — of the Federal Reserve and/or US Treasury. Remember all those secret, not-so-little loans the Fed doled out in 2009 to various financial firms? These were loans the Fed never disclosed at the time and never expected to disclose...ever. They were secret.“Recent disclosures from the Federal Reserve reveal
that honesty was one of the earliest casualties of the 2008 financial crisis. “These disclosures contain a number of juicy tidbits, like the fact that Goldman Sachs received tens of billions of dollars in direct and indirect succor from the Fed...“Thanks to the Fed’s massive, undisclosed assistance, Goldman Sachs managed to project an image of financial well-being, even while accessing tens of billions of dollars of direct assistance from the Federal Reserve...“On June 17, 2009, thanks to some timely, undisclosed assistance from the Federal Reserve, Goldman repaid its $10 billion TARP loan. Just six days before this announcement, Goldman sold $11 billion of MBS to the Fed. In other words, Goldman ‘repaid’ the Treasury by secretly selling illiquid assets to the Fed...“During the three months following Goldman’s re-payment of its $10 billion TARP loan, the Fed purchased $27 billion of MBS from Goldman. In all, the Fed would purchase more than $100 billion of MBS from Goldman during the 12 months that followed Goldman’s TARP re-payment.“Did private investors not have the right to know that the Federal Reserve was secretly recapitalizing Goldman’s balance sheet during this period? Did they not deserve to know that the Fed’s MBS buying was producing Goldman’s ‘perfect’ trading record during this timeframe?“Yes, would seem to be the obvious answer. ”But instead, private investors were forced to match their wits against massive, secret manipulation by the Federal Reserve. This secret manipulation would not become public until 18 months after the fact — long after unwitting investors had lost (or won) the capital the Fed’s dishonesty caused them to lose (or win). Clearly, secret market-rigging is the Fed’s lifestyle, not an occasional lark. So the investment capital that is now huddled on the sidelines is unlikely to be thinking, “I’m sure glad the Libor scandal is over and done with. Now I can invest with confidence.” Instead, it is likely to be thinking, “Wow! What’s next? If the Fed allowed Libor-rigging, what other frauds is it allowing...or directly conducting?”By his own admission, as early as 2008, Bernanke knew large banks were posting fraudulent LIBOR postings. Geithner has also admitted to knowing about it in 2008. But when the Congressional Financial Services Committee asked the Chairman last month why he never put a stop to the fraud, he replied, “The Libor rate
is constructed by a private organization in the UK, and so our direct ability to influence that is limited.” Geithner provided a similarly feeble defense.Seriously?
The United States deserves better.The financial markets deserve better. The US dollar deserves better. And yet, the most scandalous aspect of the LIBOR scandal is that it has produced almost no scandal whatsoever. The Chairman is still the Chairman, doing the same stuff he’s been doing for the last six years, whatever that stuff might be.