Too-Big-to-Fail Banks: Do We Even Stand a Chance?

Matt Taibbi

Rolling Stone's Matt Taibbi says no. Here's some background on the excerpt below: The Libor scandal -- which resulted in hundreds of millions of dollars in fines for some of the biggest banks in the world -- was a situation in which banks submitted false data to set an interest-rate benchmark low or high in order to profit from trades. This is illegal, but that's okay. It would be just too hard to jail our bankers so, bygones! Now there's another fix that may be in with setting the ISDAfix (no irony there, "fix" is in the name of the process), in which the rates for interest-rate swaps are determined. Add that to the Libor fix and, sez Taibbi, you get this:

Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks.

"It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. "It's the height of criminality."

The bad news didn't stop with swaps and interest rates. In March, it also came out that two regulators – the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions – were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver prices. "Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks – many other benchmarks – are legit areas of inquiry," CFTC Commissioner Bart Chilton said.

But the biggest shock came out of a federal courtroom at the end of March – though if you follow these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants' incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place.

As far as I can figure out, the judge dismissed the case because it's not the bank's fault that their clients didn't understand that the banks were colluding, not competing. So you can't sue the banks for anti-competitive practices!

Sheesh. We're so screwed. Anyway, read the whole Taibbi piece, then slit your wrists, or, in the alternative, go into investment banking and get your piece of the action.

Remind me why I have a conscience...