Archive for the ‘UBS’ Category
Libor and its euro counterpart, the Euribor, are benchmark rates determined by bank estimates of how much it would cost them to borrow from one another, in different timeframes and currencies. The banks submit sheets of numbers every weekday morning, London time. An adjusted average of the rates determines the size of payments on mortgages and corporate loans worldwide. The rates also serve as an indicator of the health of the banking system. Because some submissions aren’t based on real trades, the potential exists for manipulation.
So the submissions aren’t required to be based on actual trades eh? In other words the banks involved can just make it up! And they did.
A Barclays banker responsible for reporting borrowing rates was told to make the bank look healthier by not revealing that borrowing costs had risen. An e-mail he wrote to a supervisor confirms that he complied: “I will reluctantly, gradually and artificially get my libors in line with the rest of the contributors as requested,” he wrote. “I will be contributing rates which are nowhere near the clearing rates for unsecured cash and therefore will not be posting honest prices,” he continued, referring to rates in the overnight money market.
No, you probably don’t.
Libor and Euribor are benchmarks that are used as a base to set rates for damned near all lending in the economy in one form or another — directly or indirectly.
You, personally, got screwed. Everyone who borrowed money got screwed. You might have been screwed by a few pennies a day, but you still got screwed.
This sort of rigging was absolutely standard, it appears:
Here’s an e-mail about the three-month rate from a senior Barclays trader in New Yorkto the London banker who submitted the rates: “Hi Guys, We got a big position in 3m libor for the next 3 days. Can we please keep the lib or fixing at 5.39 for the next few days. It would really help. We do not want it to fix any higher than that. Tks a lot.”
Bankers submitting rates responded to such requests as if they were routine: “For you, anything,” and “done … for you big boy,” according to the e-mails. Not that the efforts went unappreciated: “Dude. I owe you big time!” one trader wrote to a Libor submitter. “Come over one day after work and I’m opening a bottle of Bollinger.”
Yeah. An outright scam and the guy who did it was rewarded too.
Heads should roll at other banks, too. Regulators and criminal prosecutors, including the U.S. Justice Department, are investigating at least a dozen other firms to determine whether they colluded to rig the rate. Among them: Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc and UBS AG.
Heads should roll all right. But until the Just-US Department along with other alleged regulators and “law enforcement”, which have proved to be nothing other than lapdogs for the banksters, ignoring outright criminal conduct as a matter of business and refusing to bring criminal charges against both people and institutions, change their stripes and start enforcing the law I will not be expecting anything other than “more of the same.”
The simple fact of the matter is that until we, the people, rise and demand that this crap stop and the people involved go to prison, and back up our demand with our willingness to act, this will not change.
Showing up at some protest and waving a sign may feel good, but if you go home at the end of the day and then vote for the same jackasses who are in office now, or one who doesn’t insist on and demand prosecution of this activity you’ve told the politicians that you have and will consent to this lawless behavior.
I will not vote for, support, endorse or otherwise give legitimacy to any politician who fails or refuses to demand and make as one of his first and foremost priorities the return of the Rule of Law and criminal prosecution for this, and all other myriad economic frauds.
Those who argue that I should do so, irrespective of why, have in the past and will continue to get my middle finger in response — both publicly and privately.
Discussion (registration required to post)
Posted by Karl Denninger
Gee, now The Swiss are warning that UBS could “collapse” if UBS lost it’s US banking license:
“The actions of UBS in the United States are very problematic. Not just because they are punishable but also because they threaten all of the bank’s activities,” Eveline Widmer-Schlumpf told Le Matin Dimanche newspaper.
“The Swiss economy and the job market would suffer on a major scale if UBS fails as a result of its licence being revoked in the United States,” she said.
Let’s boil this down, shall we?
Is UBS a US company that locates itself in Switzerland for the express purpose of evading US law or is it a Swiss company that happens to do a significant (but not critical) amount of business in The United States?
The difference is in fact crucial.
If UBS is a Swiss Company located in Switzerland as it’s primary domicile because that’s where it transacts most of its business, but it happens to do some business here in the US then a revocation of its US banking license (which I have repeatedly argued should happen, including here) would be inconvenient but hardly catastrophic.
But if UBS is in fact a US company – that is, in form, volume and character of the business it does it is US-centric, and continues to be domiciled in Switzerland as a means of dodging enforcement of US law, including that pertaining to customers that are US citizens, then we have a larger problem.
I think we are owed an answer as to which case we’re dealing with, and the simplest way to find out is to revoke UBS’ United States banking charter.
And before the usual cadre of “useful idiots” pipes up and starts attacking me without engaging their brain first, let me be perfectly clear:
The Swiss are free to set any sort of legal standard up for their corporations they wish. I have no argument with their national sovereignty and in fact kind of like some of their viewpoints.
HOWEVER, this is immaterial to the point at hand, which is that just as they demand we respect their sovereignty and the rule of law with regard to their citizens, we have the right to demand the same of all firms that wish to do business inside the United States.
Therefore, if UBS wishes to have a US Banking License they must be forced to comply in all respects with US law irrespective of where the transaction takes place, and when it comes to accounts held by US Citizens this means they have an absolute obligation to report to the IRS as does every United States domiciled bank. If they do not like this obligation they must surrender their US Banking License and then are free to deal with US Citizens as they desire anywhere else in the world – but they may not have an office, representatives, or business presence in The United States nor may they enjoy the benefits of US Government Support as is offered to all US-licensed financial firms.
Stock markets around the world cracked on Friday with the Dow Jones industrial average down more than 150 points (Fig. 1), and commodities plunging as Dubai debt woes unnerved investors, and sent tremors of uncertainty throughout all markets.
Concerns that a government-backed investment company risked default ripped through world markets. Investors read it as a sign of yet another sovereign implosion after Iceland and Ireland, and recoiled from risk and piled into dollars.
Deutsche Bank estimates that Dubai’s property prices, both commercial and residential, have halved since August last year, and could fall a further 15-20% this year.
U.S. Banks Less Exposed
Most analysts believe U.S. banks are probably less exposed than European rivals to a potential debt default by Dubai World, but a lack of transparency and the interconnection of the modern financial system make it difficult to know which institutions are ultimately exposed.
Dubai World’s largest creditors are reportedly domestic banks in Dubai and Abu Dhabi. MarketWatch noted data from the Bank for International Settlements which put cross-border banking exposure for the UAE as a whole at $123 billion at the end of June. Of that total, European banks hold 72%, with the United States and Japan only holding 9% and 7% of the exposure, respectively. The United Kingdom is by far the biggest creditor with a share of 41%.
Reminder of Other Risks
As pointed out in my previous article that the commercial real estate sector posed a much greater threat than the over-hyped “mother of all carry trades.” The Dubai debt crisis further reinforces this viewpoint.
As commercial property values fall, debt defaults rise. The $3.4 trillion outstanding in debt backed by commercial real estate poses a real threat to the recovery. Trepp LLC reported that last month, delinquencies on U.S. commercial real estate loans that were packaged into commercial mortgage-backed securities reached 4.8%, more than six times the year earlier level. Hotel loans, at 8.7% distressed, have begun falling into delinquency faster than any other kind of commercial real estate debt.
Write-downs and losses at banks around the world have risen to more than $1.7 trillion since 2007 as the credit crisis undermined the value of assets owned by financial institutions, according to data compiled by Bloomberg. Any further deleveraging and the resulting credit tightening from commercial real estate would impede the financial sector and probably derail the U.S. economy sending it into another recession.
Housing Market Mortgage Crisis
Based on a study released by Zillow.com, the foreclosure crisis has moved beyond subprime mortgages and into the prime mortgage market. (Fig. 3) While subprime borrowers are still a factor in the current foreclosure epidemic, it’s becoming increasingly apparent that the weak labor market is the driving force behind the mortgage crisis we face today.
According to the Mortgage Bankers Association, one in seven U.S. home loans was past due or in foreclosure as of Sept. 30, putting that quarterly delinquency measure at its highest level since t
he report’s inception, 1972, and up from one in ten at the beginning of the year.
The continued surge in delinquencies suggests that a recovery in the housing market could be hindered by the weak job market as well as by further fallout from the easy money and loose lending practices of the past. The foreclosures and delinquencies are expected to keep rising well into 2010, not leveling off until the unemployment rate starts to moderate.
In a study by First American CoreLogic found that one in four of all U.S. mortgage-borrowers owe more than the value of their properties in the 3rd quarter. And many experts didn’t expect U.S. home prices to hit bottom until early 2011, perhaps falling another 5-10%, as more foreclosures get pushed onto the market.
Negative equity is another outstanding risk hanging over the mortgage market.
Dubai Is No Lehman
The circumstances behind Dubai’s moves are murky, making it hard to gauge the exact risk to the pertaining bonds and Dubai’s own general creditworthiness. UBS cautioned that Dubai’s overall debt “might be higher than the generally assumed $80 billion to $90 billion, due to potential off-balance sheet liabilities. These could include unlimited and unquantifiable amount of credit default swaps (CDS) and other derivatives against the underlying assets, and once unraveled, could potentially erupt into a subprime-like crisis.
The current expectation; however, is that there’s a good chance that Dubai’s problems will probably prove a local issue. Most likely, Dubai, or its neighboring emirate, Abu Dhabi, won’t risk tarnishing their images and reputation further, and will come up with a reasonable resolution.
Even if Dubai goes into sovereign default, the amount is probably not enough on its own to threaten the financial system since any actual losses would be a fraction of the total. So, the problems in Dubai are unlikely to be as serious as last year’s Lehman Brothers collapse, nor is it a reflection on the ability of emerging markets to lead a global economic recovery.
But Dubai could well spur a broader crisis of investor confidence in overly leveraged economies as market confidence world-wide is still fragile from the severity of the financial crisis. The debts of many emerging markets have risen even further as the countries governments have fought the ravages of the global recession by issuing more stimulus debt to fill the gap voided by private investment.
The spread of credit-default swaps on developing-nation’s bonds jumped 14 basis points after the Dubai news broke, the most in a month, to 3.24 percentage points, according to JPMorgan Chase & Co.’s EMBI+ Index. There is also a clear sign of potential contagion effects of global risk aversion on basically all risky assets, with the dollar and yen being the prime beneficiaries.
Rational expectations or not, for now, the Dubai crisis is simply a reminder that the severe global recession has relegated much debt to near junk status, and there still remains a high degree of uncertainty as to the percentage recoverable on all outstanding debt which is going to be coming due over the next 5 years.
Despite some seminal signs of green shoots in the news headlines during this 9 month liquidity driven rally in many asset classes around the globe, we should be reminded that all that glitters is not gold, and that the global economic recovery is still on shaky ground.