Tim Geithner's Libor Recommendations Came Straight From Banks, Documents Show

[Soul Crusher]

Tim Geithner's Libor Recommendations Came Straight From Banks, Documents Show


Posted: 07/16/2012 12:01 am Updated: 07/16/2012 9:09 am


http://www.huffingtonpost.com/2012/07/16/tim-geithner-libor_n_1674552.html






WASHINGTON -- Treasury Secretary Timothy Geithner has so far escaped responsibility for the spreading Libor fixing scandal by releasing documents showing that when he became aware of the problem in 2008, as head of the Federal Reserve Bank of New York, he made recommendations to address it.

"The New York Fed analysis culminated in a set of recommendations to reform LIBOR, which was finalized in late May. On June 1, 2008, Mr. Geithner emailed Mervyn King, the Governor of the Bank of England, a report, entitled 'Recommendations for Enhancing the Credibility of LIBOR,'" a Fed statement released Friday reads. "As is clear from the work culminating in the report to Mr. King of the Bank of England, the New York Fed helped to identify problems related to LIBOR and press the relevant authorities in the UK to reform this London-based rate."

With that, Geithner earned a rash of headlines focused on his foresight, as well as criticism for the cozy relationship between regulators and bankers that had led to the controversy.

But the Fed, along with its statement, also released the staff work that led to the recommendations. Those documents reveal that the recommendations Geithner sent to London did not come from staff, but rather were proposed by major banks and more or less forwarded on verbatim.

The policy recommendations Geithner forwarded in an attachment on June 1 first appear in a staff memo dated May 20 that reads: "A variety of changes aimed at enhancing LIBOR's credibility has been proposed by market participants, and seem to be under consideration by the BBA. These proposed changes include, but are not limited to..."

A comparison between Geithner's recommendations and those put forward by "market participants" -- shorthand for banks -- makes it clear that Fed staff asked banks how to fix the problem, then presented those answers as their own. (Most of the banks consulted were likely U.S.-based institutions, as several of the recommendations are aimed at giving more power, not surprisingly, to U.S. banks.)

Below are excerpts from the recommendations, side by side:

Geithner: Strengthen governance and establish a credible reporting procedure. To improve the integrity and transparency of the rate-setting process, we recommend the BBA work with LIBOR panel banks to establish and publish best practices for calculating and reporting rates, including procedures designed to prevent accidental or deliberate misreporting. The BBA could require that a reporting bank's internal and external auditors confirm adherence to these best practices and attest to the accuracy of banks' LIBOR rates.
Banks: lmplementing an audit process designed to ensure that reporting procedures and quotes adhere to an agreed and published set of best practices.

Geithner: Increase the size and broaden the composition of the USD panel. The BBA should increase both the size and tile proportion of US banks on the USD panel. Currently, the only US banks on the panel are Bank of America, Citibank, and JPMorgan, but there are several other US banks active in tills market and potentially eligible for inclusion in the panel, including Wachovia, State Street, Northern Trust, and BoNY.

Banks: lncreasing the size of the panel and including more US institutions, so that the resulting rate is more representative of the global demand for unsecured interbank dollar funding, and less susceptible to issues concentrated within any particular region's banking sector.

Geithner: Add a second USD LIBOR fixing for the U.S. market. The BBA should consider adding a second USD fixing to capture rates for transactions that occur when the US market is active.

Banks: Changing the time of the fixing, or adding a second fixing that occurs when US-based sources of dollar funding are active.

Geithner: Specify transaction size. … [T]o reflect the fact that actual transaction sizes can fluctuate markedly with changes in market conditions, the BBA should consider allowing the transaction size it specifies to adjust flexibly over time, with these adjustments occurring either at regular frequency in response to significant changes in market conditions.

Banks: Specifying transaction size, which could adjust flexibly to market conditions.

Geithner: Only report the LIBOR maturities for which there is a net benefit.
 We recommend that, in consultation with panel banks, the BBA adopt guidance on consistent methods for determining quotes across the range of maturities of LIBOR. In addition, we recommend that the 13BA consider reducing the number of maturities for which it solicits quotes and publishes rates. For tenors such as the 3-month tenor, LIBOR quotes provide valuable information to the public because of the volume of activity occurring at that tenor, while quotes for tenors at which little or no trading occurs, such as the 11-month, are less indicative and therefore less valuable. The current practice of soliciting rate quotes across 15 tenors, when only a subset of those tenors reflect meaningful market activity, likely leads to more subjective and formulaic responses across all tenors. By asking banks to quote fewer rates, the BBA may solicit higher quality responses for those more informative tenors, with relatively little value lost by excluding less informative tenors.

Banks: Reducing the number of maturities quoted. The high number of maturities may lead to formulaic responses, and it is not clear that the market highly values, for example, a 7-month LIBOR quote. A key issue here may be the existence of derivatives contracts that reference all existing maturities.

Geithner: Eliminate incentive to misreport. If the combination of best practices and audit recommendations in (1) above seems unlikely to be sufficiently effective in ensuring accurate reporting, a complementary approach might be to adopt the following process for collecting, calculating, and publishing LIBOR rates. The BBA could collect quotes from all members of the expanded panel, and then randomly select a subset of 16 banks from which the trimmed mean would be calculated. The names and quotes for the 8 banks whose rates are averaged to calculate the LIBOR fixing would be published. The banks whose reports fall above or below the midrange would not be publicly identified, nor would the level of their outlying rates. This random sampling from an expanded panel would lessen the likelihood that the market would draw a negative inference regarding a particular bank's continued absence from the list of published quotes.

Banks: Making some or all of the individual quotes anonymous, so that even if the quotes refer to own-borrowing rates, banks at the high-end of the rate spectrum won't fear reporting accurately.


A Treasury spokesperson referred questions to the New York Fed, which did not respond to a request for comment.

[Soul Crusher]

Geithner yawned at epic fraud

Last Updated: 11:11 PM, July 15, 2012
 
Posted: 10:36 PM, July 15, 2012

Charles Gasparino



 
Tim Geithner had evidence of a financial crime of epic proportion — so he wrote a memo.

That’s about the only way you can sum up the then-New York Fed boss’ actions several years ago, when he was confronted with fairly compelling evidence that banks under his direct supervision were manipulating Libor — a key benchmark of global finance.

The Libor scandal has become pretty big news, with Barclays ousting its CEO and agreeing to pay a large fine even as it cooperates with civil and criminal law-enforcement authorities now investigating other big banks.
 
What, me worry? Geithner only wrote a memo.


But it doesn’t end there: There’s also evidence that top regulators, including Geithner, now Treasury secretary, knew about and largely ignored the mess.

On Friday, the New York Fed released documents that supposedly exonerate Geithner. Selective leaks to friendly news outlets ensured kind first-day coverage, with one headline reading “Geithner tried to curb bank’s rate rigging in 2008.”
 
But that’s a bizarrely generous read of Geithner’s action (or inaction) on learning that Barclays actually admitted to one of his investigators that it had submitted false data for the computation of Libor, and that other banks were doing the same.
 
As I wrote last week, the New York Fed has long enjoyed a cozy relationship with the banks under its regulatory umbrella — ignoring even the stuff that brought down the financial system in 2008.

A close associate of former Clinton Treasury Secretary and top Citigroup exec Robert Rubin, Geithner has spent most of his professional life as a federal financial bureaucrat — a member of a community that keeps close ties with the heads of the major banks. Yet even by that standard, his behavior in the Libor scandal is incredible.
 
Libor, the London Interbank Offered Rate, is set by a UK banking trade group, which uses the big banks’ borrowing costs to compute a single benchmark rate that’s widely used on complex financial products as well as consumer loans.
 
In other words, rigging Libor is a pretty big deal. Yet Geithner treated it like a parking violation.
 
In 2007 and 2008, as the banking crisis began to heat up and big investors started demanding higher interest rates when lending to the banks, evidence began to build that banks were submitting falsely low borrowing costs to mask their financial distress.
 
Barclays was one such bank. Indeed, the New York Fed learned as early as December 2007 that Barclays may have been manipulating Libor — but Geithner’s crew waited until April 2008 to make its initial inquiry, documents show.
 
That’s when a New York Fed official contacted a trading executive at Barclays — who admitted the dirty deed with very little pressure: “We know that we’re not posting, um, an honest Libor.”

The trader’s rationale: If the bank posted its real borrowing costs, then spiking in the runup to the banking crisis, “It draws, um, unwanted attention on ourselves.”

The trader indicated that other banks were submitting fake info, too. The New York Fed regulator conducting the interview didn’t seem particularly outraged, answering with a simple “OK.”
 
Maybe the Fed official didn’t want to show her cards, but you’d think that a competent regulator hearing a concession like would get the wheels of justice moving pretty quickly. But not at Tim Geithner’s New York Fed.
 
Geithner was brought in right after the call — and his response was more of the same. He sent a single e-mail to his counterpart at the Bank of England recommending a handful of ways to address Libor rigging, including how UK regulators “should eliminate incentive to misreport.”
 
So here you have it: In Geithner’s world, rate-rigging fraud is “misreporting.”
 
His UK counterpart, Bank of England Governor Mervyn King, didn’t do much better. He e-mailed Geithner that he’d ask the trade group “to include in their consultation document the ideas contained in your note.”
 
Other than a few followup calls from his staff to traders, that’s about the end of Geithner’s real interest in the matter — until it came to light that the practices were much worse and more pervasive than even the Barclays trader had suggested, and that other big banks directly under the New York Fed’s jurisdiction were manipulating one of the world’s most important financial barometers.
 
Or, as Geithner put it, “misreporting.”
 
Charles Gasparino is a Fox Business Network senior correspondent.


Read more: http://www.nypost.com/p/news/opinion/opedcolumnists/geithner_yawned_at_epic_fraud_ixr2rjBL9s16VKG673U4GO#ixzz20nwQXTLi

[whork]

Geithner is the banks guy in D.C

A corrupt dirtbag

But lets be honest here if Geithner was republican you would be defending him not attacking him.

Just like you defend Romney

[Soul Crusher]

Geithner is the banks guy in D.C

A corrupt dirtbag

But lets be honest here if Geithner was republican you would be defending him not attacking him.

Just like you defend Romney

stfu.   


Geithner was obama's boy from day 1.   

[whork]

stfu.   


Geithner was obama's boy from day 1.   

You just told me to stfu.

Does that mean you disagree with me that Geithner is a corrupt dirtbag?

[Soul Crusher]

Where Is the Press With the Outrage?’ This Major Financial Scandal Has Santelli Up in Arms
Posted on July 16, 2012 at 9:29pm by Becket Adams



Rick Santelli on Monday tore into the mainstream media for ignoring the London Inter-Bank Offer Rate (LIBOR) scandal and chided them for wasting time on petty and useless headlines.
 
Wait, what’s the LIBOR scandal?
 
“LIBOR … is the average interest rate the world’s largest banks pay when they borrow money. And this figure … is used to price hundreds of trillions of dollars worth of financial instruments, from high-yield corporate debt to student loans,” Christopher Matthews writes for TIME Business.
 
Simply put, LIBOR isn’t just some “financial services sector thing” — it affects the everyday interest rates associated with loans, credit cards, etc.
 
This is where things start to go downhill.
 
Barclays, one of the world’s largest banks, admitted two weeks ago that it had submitted false data in order to keep its borrowing rates low. And while that alone is enough to cause concern, the real problem lies in the fact that Barclay’s wasn’t the only bank pulling this kind of stunt.
 
“We’ve only seen the tip of the iceberg, yet the LIBOR rate rigging scandal has rocked the financial world,” writes Sam Dwyer for BostInno, adding that other banks are involved in the growing scandal.
 
It gets worse: the New York Fed, headed by none other than Secretary of the Treasury Timothy Geithner, knew as far back as 2007 about the rate rigging. 2007? You know that this means, right? It means that at least a few key players involved in TARP [Troubled Asset Relief Program] knew big banks were understating their borrowing costs!

 


And this is why Santelli is angry.
 
“You know, in the spring of 2008, there were a lot of e-mails that have now become at least, for the most part (a lot of it is blanked out), open for public consumption,” Santelli said.
 
“nformation … was coming out as late as this Friday 13th regarding e-mails from the Federal Reserve, some from Tim Geithner [and] some from the Bank of England, with the notion, of course, that central bankers had a pretty darn good idea there were issues regarding LIBOR,” he added.
 
Yes, according to even the Associated Press, way too many people knew about this.
 
“Let’s think about this all from a different vantage point. Let’s think about this as taxpayers. Let’s think about the government and lack of due diligence,” Santelli continued.
 
“So, when we had that vote in October for TARP, where Congress was basically giving a green light to a program that was ill-fated, ill-designed,” he added, “How much due diligence did they do for our role as taxpayers in basically bailing out the banking system? Obviously zero.”
 
“Here you have regulators like the Federal Reserve Bank of New York highly aware there were issues. Did they put stipulations in that from this point forward this behavior has to be modified as part of the conditions for those checks?” he asked. “No, they didn’t.”
 
Watch Santelli explain the LIBOR problem [via CNBC]:
 



Seriously, just think about that. The Bank of England and the New York Fed knew about these problems and U.S. politicians still rushed forward with TARP.
 
“Where is the press with the outrage?” Santelli shouted.
 
“I love my Sunday shows. What did I learn? Things like jet skis are un-American. Oh, yeah that’s what I learned. Things like outsourcing un-American. Like hell it’s un-American!”
 
“What’s un-American is we now have Federal Reserve bank of New York and Treasury taking the heightened importance in regulating us in the future through Dodd/Frank. Shame on their legislation. They were aware of this, did nothing!” he added.
 
Read the Full TIME report here.

[GigantorX]

Geithner is the banks guy in D.C

A corrupt dirtbag

But lets be honest here if Geithner was republican you would be defending him not attacking him.

Just like you defend Romney

Totally disagree.

[Soul Crusher]

http://finance.yahoo.com/blogs/daily-ticker/tim-geithner-aided-abetted-libor-crimes-jim-rickards-131709068.html




Bump for team kneepad.