{"id":703,"date":"2012-10-10T22:15:52","date_gmt":"2012-10-10T22:15:52","guid":{"rendered":"http:\/\/righteousandjustgovernance.wordpress.com\/?p=703"},"modified":"2022-04-12T00:54:49","modified_gmt":"2022-04-12T00:54:49","slug":"manipulating-financial-markets","status":"publish","type":"post","link":"https:\/\/sunesishq.com\/notes\/manipulating-financial-markets\/","title":{"rendered":"Manipulating Financial Markets"},"content":{"rendered":"<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">On September 15, 2008, Lehman Brothers declared bankruptcy the magnitude of which surpasses General Motors, Washington Mutual, Enron, and Worldcom combined according to <a href=\"http:\/\/www.cbsnews.com\/8301-18560_162-57417397\/the-case-against-lehman-brothers\/\" target=\"_blank\" rel=\"noopener\"><span style=\"color: #00b050;\">CBS news<\/span><\/a>. Being the largest bankruptcy in history, it no doubt worsened the unraveling of the U.S. financial system and the thrust of the global economy in the trough we still find ourselves in 4 years down the line.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">Listed as causes for this debacle are mismanagement by the firm&#8217;s top managers, misinformation by top U.S. accounting firms and possible economic warfare orchestrated via a series of targeted bear raids. An argument against an economic warfare hypothesis is the assumption that markets are too big to manipulate. Is such an assumption correct?<br \/>\n<\/span><\/p>\n<h1>LIBOR Scandal<\/h1>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">LIBOR is an acronym for the London Inter-bank Offered Rate. &#8220;It is a base interest rate for hundreds of trillions of dollars in loans\u2026supposed to represent the rate charged from one bank to another as reflective of the best available private-sector rates&#8221;\u2013 Kevin D. Freeman. According to <a href=\"http:\/\/www.nytimes.com\/interactive\/2012\/07\/10\/business\/dealbook\/behind-the-libor-scandal.html\" target=\"_blank\" rel=\"noopener\"><span style=\"color: #00b050;\">a New York Times article<\/span><\/a>, &#8220;At least an estimated $350 trillion in derivatives and other financial products are tied to it.&#8221; This gives us an idea of how large a market we are talking about.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">2012 saw the revelation of massive collusion between banks in manipulating the LIBOR going back to 2005. Barclays was one of the banks implicated in the LIBOR mess. According to the <a href=\"http:\/\/www.nytimes.com\/interactive\/2012\/07\/10\/business\/dealbook\/behind-the-libor-scandal.html\" target=\"_blank\" rel=\"noopener\"><span style=\"color: #00b050;\">New York Times<\/span><\/a>, &#8220;from 2005 to 2007, swaps traders often asked the Barclays employees who submit the rates to provide figures that would benefit the traders, instead of submitting the rates the bank would actually pay to borrow money&#8221; It adds, &#8220;<\/span>I<span style=\"font-family: Corbel; font-size: 12pt;\">n 2008, Barclays submitted artificially low figures to deflect scrutiny about its health.&#8221; Why would Barclays commit such a crime? <a href=\"http:\/\/www.forbes.com\/sites\/parmyolson\/2012\/07\/04\/amidst-libor-scandal-diamond-feared-barclays-would-be-nationalized\/\" target=\"_blank\" rel=\"noopener\"><span style=\"color: #00b050;\">A Forbes magazine article <\/span><\/a><span style=\"color: black;\">suggests<\/span> the likelihood that then Barclays group chief executive Bob Diamond Jr. manipulated LIBOR to protect Barclays&#8217; interests with regards to a looming deal which was to help Barclays secure investments from two Middle Eastern Sovereign Wealth Funds.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">Mr. Diamond was on record as saying Barclays was not alone. Other banks posted rates below that of Barclays. If there is anything the LIBOR scandal teaches us, it is that even large markets that manage trillions of dollars can be manipulated.<br \/>\n<\/span><\/p>\n<h1>Bank run saga<\/h1>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">In a Feb. 6, 2009 <a href=\"http:\/\/www.c-span.org\/Events\/Rep-Paul-Kanjorski-D-PA-Chairman-of-the-Capitol-Markets-Subcmte\/12733\/\" target=\"_blank\" rel=\"noopener\"><span style=\"color: #00b050;\">CSPAN interview<\/span><\/a> with then Chairman of the United States House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, it was revealed that $550 billion was withdrawn from US money markets within a space of 2 hours on September 15 2008.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">In countering the possibility that this could have resulted from market manipulation, it is argued that the cause of such a mass drain was entirely panic driven as a result of the collapse of huge financial firms and news of<a href=\"http:\/\/www.nytimes.com\/2008\/09\/18\/business\/yourmoney\/18money.html?_r=0\" target=\"_blank\" rel=\"noopener\"> <span style=\"color: #00b050;\">the Reserve Primary Fund, a giant money market fund which &#8220;broke the buck&#8221;<\/span><\/a> meaning instead of customers receiving a dollar per share invested, they would receive less\u2014in this case 97 cents.<br \/>\n<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">But is this assumption true? Partly but not entirely! Though one cannot ignore the negative effects of the collapses of financial firms, neither can one discount the fact that panic which accompanied the decline of investor confidence began much earlier than the period after the incidents cited but never did it result in such a colossal drain within just two hours.<\/span><\/p>\n<h1>The Cox letter<\/h1>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">The decline of investor confidence that led to withdrawal of large chunks of money from U.S. Money Markets did not suddenly emerge in the autumn of 2008. In a letter by former U.S. Securities and Exchange Commission Chairman, Charles Christopher Cox to Dr. Nout Wellink, Chairman of the Basel Committee on Banking Supervision, this occurrence was already ongoing and even contributed to the later collapse of Bear Stearns.<br \/>\n<\/span><\/p>\n<p style=\"text-align: justify; margin-left: 28pt;\"><span style=\"font-family: Corbel; font-size: 12pt;\">&#8230;the fate of Bear Stearns was the result of a lack of confidence, not lack of capital\u2026Beginning late Monday, March 10, and increasingly through the week, <span style=\"text-decoration: underline;\"><strong>rumors<\/strong><\/span> spread about liquidity problems at Bear Stearns, which eroded investor confidence in the firm.<br \/>\n<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">Instead of blaming this mass blood-letting of the U.S. financial markets on solely panic, maybe additional variables should be considered such as a deliberate manipulation of the markets. But even if this is considered, the current opaque nature of transactions created by some financial regulations does not allow for easy identification of possible culprits.<br \/>\n<\/span><\/p>\n<h1>Challenges<\/h1>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">There is no question that the global financial system needs a reset with better transparency, accountability and regulations as some of its features. That said, regulation can be a double edged sword depending on how flexible or cumbersome it is. The problem is not more or less regulation. Quantity is not the problem. Quality, effectiveness and efficiency are. Current regulation should be either honed to reflect this or where not feasible, it should be replaced.<br \/>\n<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">Another challenge is an excessive fetish with confidentiality. Until February 6, 2009 when Congressman Paul Kanjorski made public the tremendous bank run of September 2008, no information about this had reached the public and had he not done this during the CSPAN interview, it might have stayed confidential. Keeping a few technocrats in the information loop vis-\u00e0-vis opening up the information to all constrains society from benefitting from the potential gains of a well managed democratic network knowledge system.<br \/>\n<\/span><\/p>\n<h1>Conclusion<\/h1>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">Modern civilization will do well to glean some wisdom from those who have gone before us. George Washington was a Founding Father of the United States, served as commander-in-chief of the Continental Army during the American Revolutionary War, presided over the convention that wrote the American Constitution, signed it, presided over the framing of the Bill of rights and was the first President for two terms. After giving 45 years of his adult life to American public service, he gave a <a href=\"http:\/\/avalon.law.yale.edu\/18th_century\/washing.asp\" target=\"_blank\" rel=\"noopener\"><span style=\"color: #00b050;\">farewell address<\/span><\/a> in 1796 in which he left us some words of wisdom. In this address he states, &#8220;Of all the dispositions and habits which lead to political prosperity, religion and morality are indispensable supports.&#8221;<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">That indicates that even if the world gets financial regulation and transparency issues right in global financial governance, but the people who run the system, especially the top managers still suffer from serious laxity in morality manifested through the unrestrained greed, lack of integrity and utter disregard for the consequence of individual actions on the global family\u2014the crux of what has landed us in this quagmire in the first place\u2014we will have accomplished nothing. Unfortunately for the globe, morality is not something we can regulate or legislate.<br \/>\n<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-family: Corbel; font-size: 12pt;\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>On September 15, 2008, Lehman Brothers declared bankruptcy the magnitude of which surpasses General Motors, Washington Mutual, Enron, and Worldcom combined according to CBS news.&hellip; <\/p>\n","protected":false},"author":1,"featured_media":2669,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[353],"tags":[641,395,839,515],"class_list":["post-703","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-policy-advocacy","tag-bank-run","tag-economic-warfare","tag-libor","tag-paul-kanjorski"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.0 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Manipulating Financial Markets | SUNESIS NOTES<\/title>\n<meta name=\"description\" content=\"On September 15, 2008, Lehman Brothers declared bankruptcy the magnitude of which surpasses General Motors, Washington Mutual, Enron, and Worldcom\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/sunesishq.com\/notes\/manipulating-financial-markets\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Manipulating Financial Markets | SUNESIS NOTES\" \/>\n<meta property=\"og:description\" content=\"On September 15, 2008, Lehman Brothers declared bankruptcy the magnitude of which surpasses General Motors, Washington Mutual, Enron, and Worldcom\" \/>\n<meta property=\"og:url\" content=\"https:\/\/sunesishq.com\/notes\/manipulating-financial-markets\/\" \/>\n<meta property=\"og:site_name\" content=\"SUNESIS NOTES\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/sunesislearning\" \/>\n<meta property=\"article:author\" content=\"https:\/\/web.facebook.com\/sunesislearning\" \/>\n<meta property=\"article:published_time\" content=\"2012-10-10T22:15:52+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-04-12T00:54:49+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/sunesishq.com\/notes\/wp-content\/uploads\/2012\/10\/P16.5.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1300\" \/>\n\t<meta property=\"og:image:height\" content=\"975\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Solomon Appiah, Ph.D.\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@SunesisLearning\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Solomon Appiah, Ph.D.\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/sunesishq.com\/notes\/manipulating-financial-markets\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/sunesishq.com\/notes\/manipulating-financial-markets\/\"},\"author\":{\"name\":\"Solomon Appiah, Ph.D.\",\"@id\":\"https:\/\/sunesishq.com\/notes\/#\/schema\/person\/75fe43ac2403c70d6e7fd41da21ba2a8\"},\"headline\":\"Manipulating Financial Markets\",\"datePublished\":\"2012-10-10T22:15:52+00:00\",\"dateModified\":\"2022-04-12T00:54:49+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/sunesishq.com\/notes\/manipulating-financial-markets\/\"},\"wordCount\":1074,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/sunesishq.com\/notes\/#organization\"},\"image\":{\"@id\":\"https:\/\/sunesishq.com\/notes\/manipulating-financial-markets\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/sunesishq.com\/notes\/wp-content\/uploads\/2012\/10\/P16.5.jpg\",\"keywords\":[\"bank run\",\"Economic Warfare\",\"Libor\",\"Paul Kanjorski\"],\"articleSection\":[\"Policy &amp; 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