Libor Scandal, Barclays, Royal Bank of Canada and NDP

$800 trillion is the right number according to the Wall Street Journal. Most of this comes in the form of derivatives.  This huge market is essentially a casino in which banks daily make bets with money borrowed from other banks in a mutual wink-wink I'll scratch your back-you scratch mine loan system that allows larger and larger bets in order that traders and their managers earn multi-million dollar bonuses. At the same time they put the world economy at risk when these bets go hugely wrong, as happened in 2008. Today the bets and risks are even larger. Since money, mainly supplied by the financial sector, has become the fuel of the advertising campaigns for elections, many of the politicians around the world, including Blair, Obama and virtually all right-wing ones, toady to these interests. Unless public financing of elections occurs, we will be at risk of losing our democracy.

http://en.wikipedia.org/wiki/Derivatives_market

"The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets. ...

Global:

US: Figures below are from SECOND QUARTER, 2008 [5]

• Total derivatives (notional amount): $182.2 trillion (SECOND QUARTER, 2008)
  • Interest rate contracts: $145.0 trillion (80%)
  • Foreign exchange contracts: $18.2 trillion(10%)"

http://www.washingtonsblog.com/2012/07/big-banks-criminally-conspire-to-...

According to the CIA’s World Factbook, the global economy – as measured by the world’s gross domestic product – is less than $80 trillion. In contrast, over $800 trillion dollars worth of investments are pegged to the Libor rate.   In other words, a market more than 10 times the size of the entire real world economy is effected by Libor. ... Interest rate derivatives comprise the lion’s share of all derivatives, and could blow up and take down the entire financialsystem. The largest interest rate derivatives sellers include Barclays, Deutsche Bank, Goldman and JP Morgan … many of which are being exposed for manipulating Libor ... on virtually a daily basis since 2005.

http://www.zerohedge.com/contributed/2012-07-01/big-banks-have-criminall...

The U.K. bankers and regulators charged with reviewing Libor in the wake of regulatory probes are resisting calls to overhaul the rate because structural changes risk invalidating trillions of dollars of contracts. The group, established by the British Bankers’ Association in March after probes into allegations that traders rigged the London interbank offered rate … won’t propose structural changes such as basing the rate on actual trades or taking away oversight of the benchmark from the BBA, the people said. Libor is determined by a daily poll that asks banks to estimate how much it would cost them to borrow from each other for different timeframes and in different currencies. Because banks’ submissions aren’t based on real trades, academics and lawyers say they are open to manipulation by traders. At least a dozen firms are being probed by regulators worldwide for colluding to rig the rate,

There are serious loopholes in the election contributions law as noted in the following (I've bolded some key major issues): 

http://www.dwatch.ca/camp/actmoney.htm

While the new law limits the influence of money in politics, the following loopholes still exist that allow for secret, unlimited donations:

• donation limits and disclosure requirements are needed for “volunteer labour” donated to parties and candidates during nomination race, election and party leadership campaigns, to close this existing secret donations loophole that allows corporations, unions and other organizations to give employees paid time off to work on campaigns; 
• loans to parties, riding associations, nomination race candidates, election candidates and party leadership candidates from corporations, unions and all other types of organizations (including political parties and riding associations lending to candidates) must be banned (as donations have been), or at least strictly limited, and loans from individuals must be limited (as donations have been) so that loans cannot be used to influence the government or politicians;
• disclosure of the identity of each individual donor's employer must be required (as in the U.S.) and disclosure of each donor's direct organizational affiliations must also be required (to help ensure that corporations, unions and other organizations are not funnelling donations through their employees or board members);
• secret, unlimited donations of money, property and services to candidates in nomination race and political party leadership campaigns must be banned (NOTE: Bill C-2 (the FAA) bans secret donations to election candidates, but not to nomination race nor to party leadership candidates);
• secret donations are still effectively allowed because the federal Conservatives are not complying with the UN Convention Against Corruption nor other international standards that require the monitoring of the bank accounts of all public officials who have decision-making power (for details, go to: Democracy Watch's December 9, 2008 news release);
• riding associations and political parties are still allowed to have a secret trust fund and take secret, unlimited donations to the fund (as long as they don't use the donations for campaigns);
• the penalty for taking a secret donation of money, property or services, or having a secret trust fund, must be increased to $100,000 and a jail term (NOTE : the FAA establishes ridiculously low penalties of $500 to $2,000);
• given that federal election dates are now fixed every 4 years, spending by candidates, riding associations and political parties must be limited for at least 6 months before each election day;
• tdonations by political parties to riding associations and candidates must be limited to decrease the possibility of party headquarters influencing the selection of candidates by riding associations, and to make associations and candidates more independent from party headquarters;
• establish public funding that matches the donations made to any nomination race, election, and party leadership candidate who raises a specific minimum amount of money that shows they have voter support; 
• spending limits must be established for political party leadership campaigns to ensure a level playing field for all candidates (spending by nomination race candidates, election candidates, and political parties is already limited during campaigns).

There are therefore ways to get around this law. Secret donation penalties are way too low, and the Mulroney Airbus scandal shows how secret payments to a leadership candidate can payoff big time illustrate how these flaws can create problems that this law does not fix. 

Quote:

While I would agree that regulators moving to institutions that they regulate can be a conflict, I am not aware that such movement is widespread in Canada (unlike the US) and would be interested in any Canadian examples where such a move has led to a failure of regulation in Canada.

Mark Carney is a former Goldman Sachs employee, who as the articles below note, helps the corporation in the pursuit of its interests. Having one's employees in key regulatory and government roles can help the firm achieve one's goals either through a direct conflict of interest or simply because of the group think of being part of similar thinking group. With the austerity program in Europe devastating the economy, as government regulators and even politicians from the financial sector have advised, we can see how this can be disastorous for a national economy. Are you willing to bet Carney never rules in favoour of the financial sector instead of Canada when he already was involved in a such a situation in Russia for Goldman Sachs (see below). 

http://en.wikipedia.org/wiki/Mark_Carney

ventureforth wrote:

On the conflict you point out in this post (hiring from the industry), who are the candidates to be the head of the regulators of the Banks. 

You seem to assume that such people must come from the financial industry or related economic fields and since we have not had problems of the same severity as the US and Europe we can safely leave things as they are, even though there are signs the real estate bubble is about to burst in Vancouver and Toronto, the same kind of problem that initiated the US turndown. I do not have a list of names but I do not think it is wise to not have all or nearly all cabinet ministers and regulators from a similar mindset (until recently) - something that has contributed to Europe's growing austerity problems. 

Roosevelt resisted advice on picking the usual candidates for financial cabinet and regulatory positions during the Great Depression because he distrusted turning over these jobs to people with the same mindset as those who helped bring aboout the problem. 

For example, he appointed Henry Morgenthau Secretary of the Treasury. Morgenthau "became interested in agriculture and bought a farm in Dutchess co., N.Y., where he became an intimate of Franklin Delano Roosevelt. In 1922, Morgenthau purchased the American Agriculturalist, a leading Eastern farm journal. After Roosevelt's election (1928) as governor of New York, he appointed Morgenthau chairman of the state agricultural advisory committee and later made him state conservation commissioner. ... As secretary of the treasury in Roosevelt's cabinet (1934–45), he was responsible for financing the programs of the New Deal and the enormous military expenditures of World War II. Over $370 billion was spent during the period, three times more money than was spent by the 50 previous secretaries of the treasury." This helped lead to the American WWIi boom as well as the postwar boom. Hardly a conventional pick for the job. 

http://encyclopedia2.thefreedictionary.com/Morgenthau,+Henry,+Jr.

ventureforth wrote:

 

How far down into the civil service should your proposed ban on regulators going from regulators to financial institutions go?

That would require an internal analysis that is beyond me.

However, Canada has long had a history of poor regulation with regard to stock markets (the Vancouver Stock Exchange was considered to be a beehive of fraudsters (so much so that 60 Minutes did an expose) but little was ever done to clean it up). Pension fund fraud is rarely prosecuted ( due to his Conserative party connections Alan Eagleson was only prosecuted in Canada after more than a decade of revelations because he was being prosecuted in the US). Conrad Black was jailed in the US but not in Canada because "white collar crime is not considered as serious in Canda (compared to the US) because it is not violent" (http://montreal.ctvnews.ca/barry-wilson-reflects-on-the-earl-jones-scand...).  Earl Jones was able to defraud investors in Montreal of $50 million for twenty years starting in 1984 despite being neither a liceensed financial advisor or even a financial planner. 

Throughout Jones’ career he developed a vast network of professional and financial liaisons, which included lawyers and notaries, mortgage and insurance brokers, and banks. By his own admission, Jones was an unregistered financial advisor and relied on these business relationships to perpetrate his fraud. While the Crown Prosecutor and Sûreté du Québec investigators could not find sufficient evidence of criminal complicity, pending legal action in the Civil Courts has sought compensation for the victims in the far-reaching fraud (http://en.wikipedia.org/wiki/Earl_Jones_(investment_advisor)).

When John Manley was interviewed as Minister of Finance about the defrauding of elderly fragile seniors by scam artists he replied that they had to take responsibility for their own finances. A recent CBC news report detailed the low priority given to criminal fraud investigations because the government feels it has to use its limited resourcs to deal with violent crime. 

During the 1990s Savings and Loans crisis in the US a different approach was taken to financial criminal activity, but as time passed regulations and prosecution slackened considerably.

http://www.fool.com/investing/general/2011/04/26/why-so-few-ended-up-in-...

After the savings and loan crisis of the early '90s, 800 financial executives went to prison in the US. Not only have most bank execs avoided prosecution this time around, but many are still gainfully employed by the banks that ran the economy into the ground.

That few execs have been charged doesn't mean they're all innocent, of course.

High-level fraud cases are typically referred to the US Justice Department by industry regulators. The Department of Health and Human Services, for example, works in tandem with the Justice Department to reel in medical fraud. Same for the Department of Agriculture. And the National Association of Insurance Commissioners.

Bank regulators are different. Since 2000, the Office of Thrift Supervision has not referred a single case of fraud to the Justice Department, according to The New York Times. The Office of the Comptroller of the Currency has referred just three cases.

There could be many reasons for this. The two regulators, though, have a long history of coddling the banks they oversee. They have every incentive to do so: Regulators' existence depend on banks -- or "clients," as the OCC refers to them as -- since fees paid by banks fund their operations. In some cases, banks can shop around for the regulator with the lightest touch.

That's what Countrywide did in 2007. Then-CEO Angelo Mozilo was frustrated with the demands of the OCC. Regulators were getting in his hair. Easy solution: Countrywide changed charters to fall under the purview of a gentler regulator, the OTS. As Connie Bruck of The New Yorker pointed out, the OTS actually lobbied Countrywide to make the switch.

Not that the OCC was a regulatory pit bull itself. When West Virginia tried to sue Capital One  (NYSE: COF  ) for credit card abuse in 2005, the company applied for a national charter with the OCC. By doing so, Capital One escaped West Virginia's jurisdiction, and the state lost authority to pursue its case. This wasn't an isolated incident. The OCC stopped Georgia when it attempted to enforce predatory lending laws. New York regulators were intervened while pursuing discriminatory lending investigations. The head of the Financial Crisis Inquiry Commission told former OCC head John Dugan, "You tied the hands of the states and then sat on your hands.

If regulators didn't make it hard enough, the FBI has seen a radical cut in the number of agents available to investigate financial crime. During the saving and loans crisis 1,000 FBI agents worked the financial crimes scene. Today, just 240 do. (http://www.fool.com/investing/general/2011/04/26/why-so-few-ended-up-in-...)

With a Canadian government, regulatory agencies, and police forces that have rarely investigate white collar crime or those with connections to the elite, there is surprise that such criminal prosecutions tend to occur only after being revealed in the media. While the US is the same boat today, the savings and loans shows that there can be criminal prosecution of white collar criminals if the resources are provided and there is an attitude that this should be done. The current situation in Canada hardly reassures me.

The problems that Eisenhower warned us about with regard to the military-industrial complex in 1960 (by 1980 20% of retired generals enter the military industry - today its 80% of retired generals who know that their beds will be well featherd if they do right by the industry while still generals) now infect our financial control system.

You seem mighty determined to defend the Conservative record on their election contributions law and their appointments to regulatory positions. I don't plan on answering any more of your questions because I think you are simply trolling. 

The Democracy Now video below discusses how the Libor scandal worked. One key point is that all or nearly all of the banks involved (including RBC in Canada) had to be involved and not just the three who have so far admitted it since the rate for interbank loans was set by throwing out the top 4 and bottom 4 daily bids on the rate and taking the average of the remaining 8 banks. In order to rig such a system, virtually everbody must be involved. The video makes clear that the American and British regulators knew what was going on since at least 2008. It also discusses how HSBC was laundering money from organized crime. This discussion starts at 47:00 minutes of the video.

http://dncdn.dvlabs.com/ipod/dn2012-0719.mp4