A New Corruption Scandal - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 30 June 2012
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- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
When we see a headline article about a new corruption scandal, we'd probably think it has something to do with the Indian government. After all, who can match their record on corruption scandals?

This was a week of big news in the financial markets. The Eurozone leaders came to a new agreement to stabilize the crisis and markets surged as a result. But there was another noteworthy news item. Barclays bank was recently found to be manipulating the LIBOR rate during the financial crisis, and they were fined close to half a billion dollars as a result.

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LIBOR, or the London Interbank Offered Rate, is reported by various banks each day as an estimate of their borrowing costs. LIBOR is used in numerous derivative transactions around the world, and many mortgages and other loans are based on LIBOR. Essentially, it is a critical part of the financial system.

Barclays was found to be guilty of manipulating their LIBOR submissions in order to benefit their own trading book. LIBOR is a rate that markets, individual, and governments have always trusted to accurately reflect borrowing costs (hence basing loans on these rates). Now, this is no longer the case. The whole thing is a sham and a farce.

This is another example of corruption taking place in the global financial system. It was corrupt unethical behavior that led to the creation of subprime mortgages. It was corrupt behavior that led to the Greek government falsifying statistics to enter the Eurozone and eventually put it in crisis. Corrupt behavior is also responsible for the policy paralysis in the Indian economy.

It is a sad fact that the bigger the crime, the lower the penalty. If the police catch a man stealing from a shop, he could possibly face jail. But if a corporate executive or government bureaucrat is caught stealing a much larger sum of money, they get a relatively small fine, if anything. Barclays has been fined half a billion dollars, and this is miniscule given that their annual profit is a few billion per year. Though the Barclays executives have given up their bonus for the year as a result of the scandal, they still stand to earn more than most of us will ever earn.

Such lax penalties are hardly going to eradicate corruption in the banking culture or anywhere else. Instead, those responsible for such corrupt behavior should face significant jail time, just like someone stealing from a shop would. If all those Barclays staff involved in this scandal went to jail, I'm sure we'd see less corruption in the future.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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3 Responses to "A New Corruption Scandal"

Harleen Kaur Sethi

Jul 6, 2012

I just don't understand one thing. Now that it is causing trouble to the whole of the currency and other nations connected to it, we say that Greece cooked up its financials and then got into the Euro family. But then what were the ECB officials doing when the wrong figures were submitted? Isn't it the fault of the ECB as much as it is of Greece's?

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Harleen Kaur Sethi

Jul 6, 2012

I just don't understand one thing. Now that it is causing trouble to the whole of the currency and other nations connected to it, we say that Greece cooked up its financials and then got into the Euro family. But then what were the ECB officials doing when the wrong figures were submitted? Isn't it the fault of the ECB as much as it is of Greece's?

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Sivaramakrishnan

Jul 1, 2012

Dear Mr Dossani, As you know the number of newspaper copies which publish such corruption scandals have not even touched 1% of our population and the no of people who have subscribed to newsletters like yours are hardly in single digit lakhs of subscribers and out of this 1% i am sure just 3-5 out of 10 would be interested to read such news or watch it in a business channel only to safeguard his derivative position which resumes the next day. Please tell me who is bothered about the society or the economics of a country or the world? Or even if an individual or group of people raise the voice by protest or agitation which government in the world is going to take action against these powerful economists and politicians and the Occupy Wall Street or India against corruption are few examples where only the protestors are beaten up or forced to disperse.

But the Godly act of punishment is there for sure for the individual by way of lower realms of re-birth according to Hinduism or Buddhism and that is the real reason behind the huge population explosion in the last 200 years where man has decided not to give death penalty for wrong doers describing it as a crime. And this is the major reason why man has not been able to eradicate poverty and disease such as autism (only 75 yrs old) despite printing money in billions and billions of dollars and hundreds and thousands of educated people passing out from the world's best universities only to beat around the bush with no higher level of thinking of peaceful co-existence and a total ignorance thro' greediness and social unrest by way of inequality and disparity.

For sure in this corruption scandal too the derivative transactions are the major culprit as the mortgage or other loans have a definitive accounting principles and LIBOR officials need not depend on the figures submitted by the greedy floor traders as in the case of derivatives. So all in all the corruption has increased or in other words greediness has increased only after introduction of the derivative instruments in the last 15-20 odd years and the world economy is paying for it now. All bad karmas follow bad actions or deeds of the past.

There are no heaven or hell or Devalogham or Swarga logham or Narakha logham and everything is experienced, be it joy or sorrow, only on this planet, Earth. The Western developed countries are the new age Devaloghams and the sinners there are re-born in lower realms of re-birth in Karma bhoomi like India, Africa or China by suffering poverty and less malnutrition or autism or permanent disability.

This is the reality of life cycle of man or woman's birth and re-birth.

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