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Post 11 Jul 2012, 12:03 pm

My exact statement was "it is increasingly obvious that the BoE was at least complicit...."

Based on information that has come to light in Treasury committee investigations, including a contemporaneous note of Bob Diamond of a conversation with BoE Deputy Governor Paul Tucker, it is quite clear to me that the BoE knew of, and took no action with regard to, the misreporting of LIBOR components by its members. Indeed, anyone working in the financial markets over the past four years or so would have to be entirely daft not to realize that LIBOR had no connection to the actual funding costs of the member banks--which, of course, is why they all started imposing LIBOR floors in the LIBOR-based credits they funded.
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Post 11 Jul 2012, 1:03 pm

Hmmm. This the same Bob Diamond who was forced to resign and who is being accused of being 'economic with the truth' when he gave evidence to the Select Committee last week about the relationship his bank had with regulators?

The memo you cite is about concern, at the height of the banking crisis, that Barclays would need bailing out. Two days later they got investment fro Gulf state sovereign funds that meant they didn't need to be. But there were eyebrows being raised at the high Libor rates for Barclays.
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Post 12 Jul 2012, 7:49 am

More here--Fed admits to complicity, too.
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Post 12 Jul 2012, 7:51 am

And here.
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Post 12 Jul 2012, 11:13 am

Sorry, but do you blame the police or the robbers for burglaries? The police 'know' that burglary can happen, but that doesn't mean they can stop it. Even after the fact they need it to be reported and evidence provided.

I definitely agree there was a regulatory failure, though. The failure was in being too lax, too trusting of financial groups, too afraid of the political pressure to 'let sleeping dogs lie' and not cause problems for the City and Wall Street through 'red tape'.

Which is why I hope you will agree that more effective regulation is the key. It would have meant a lower chance of the sub-prime CDS instruments problem too.
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Post 13 Jul 2012, 8:13 am

I still, however, don't think you've shown complicity, let alone. Fed admission of complicity.

The Fed had concerns. They talked to the BoE in Spring 2008 about those concerns. Recommendations were drawn up by the Fed and agreed by the BoE. Those went to the BBA, which set up and oversees the Libor process. The BBA said they would implement those recommendations. These conversations took place in the summer of 2008.

The main allegations of rate fixing related to the period before then, and so it would appear that these conversations were a response to allegations of rate fixing for trader profit. The Barclays activity of late 2008, which seems to be related to the concurrent banking crisis and worries about the high reported Libor rates Barclays were posting, was picked up at the time and passed to the appropriate regulators.

They got Barclays to co-operate and after a long investigation fined them. What is happening now may give more depth in due time, because Barclays are only the first to get punished because the co-operated. Either the other banks will have had less of a problem (and so didn't see the need to hold their hands up) which would be good, or they'll have as much or more of a problem and then I would expect larger fines and more action.

I can see some argument that the regulators did not find out in good time, but 'complicity' would mean more than that - it would involve knowing and not doing anything. What is coming out is that they may not have known - only suspected - but were doing something. Should they have known? Probably, but then the banks' compliance departments should have spotted it and raised it too, and the BBA should have been able to spot it and raise it. In both cases that is a failure of self-regulation by the industry, not of 'government'.
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Post 11 Dec 2012, 11:51 am

Has the Euro failed yet? Or is it still in it's death knell? So hard to keep these things straight.
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Post 11 Dec 2012, 12:38 pm

So far it's holding up. A deal was done to keep Greece going, and there are negotiations ongoing on how to proceed. There has been unrest in Spain and other places where austerity measures have been accelerated, but the system is holding. Mach's prediction does not look like it will come to pass.
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Post 11 Dec 2012, 1:11 pm

Not within his timescale perhaps, but I wouldn't be so quick to announce that the Euro has survived. Youth unemployment is running at over 50% in Spain and Greece, touching 40% in Portugal, Italy and France. Even Germany is tipping over into recession. The price that the people of these countries are having to pay to save the Euro is immense, something will have to give in the end.
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Post 11 Dec 2012, 1:17 pm

Machiavelli wrote:This is the end game--we'll see several sovereign defaults in Europe within the next 12 months, and the Euro will, quite simply, come apart. I still see Germany delivering the coup d'grace when it bails, but there are other ways the end might come (but it will come).


OK, thanks. I wasn't sure since Mach made this prediction a year and a half ago. Greece is in a state of "selective default," I think is what Moody's calls it, but people are still using the Euro, right? You can still buy stuff with it without having to shelp around wheelbarrows full of the stuff, or am I wrong about that?

I don't mean to be a jerk, but it's impossible to predict these things with any level of certainty. Never put timeframes on these kind of predictions.
Last edited by geojanes on 11 Dec 2012, 1:20 pm, edited 1 time in total.
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Post 11 Dec 2012, 1:20 pm

No, you're quite right. Mach's prediction has failed to come to pass, although I believe that he actually predicted the collapse of the Euro by the end of this year, and we're not there yet.

My guess is that if any country is going to leave the Euro it will probably be Italy. They have the most to gain and the least to lose by doing so, and Berlusconi is already sniffing round the idea as a way to launch himself back into frontline politics.
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Post 21 Jun 2013, 2:21 pm

Sassenach wrote:No, you're quite right. Mach's prediction has failed to come to pass, although I believe that he actually predicted the collapse of the Euro by the end of this year, and we're not there yet.

My guess is that if any country is going to leave the Euro it will probably be Italy. They have the most to gain and the least to lose by doing so, and Berlusconi is already sniffing round the idea as a way to launch himself back into frontline politics.


So how's that Euro doing? Six months after Mach's failure date he hasn't been giving us the updates as he had in the past. I wonder why? Did it fail and I just didn't notice?
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Post 21 Jun 2013, 2:51 pm

Mach underestimated a couple of major factors, both of which are political rather than economic and he couldn't have been expected to really understand them. The first was the sheer determination of the political class in the EU to make it work no matter what the cost and the second, arguably more important, is the complete lack of faith among certain Mediterranean countries in their own institutions. Spain and Portugal (and probably Italy) really should have quit the Euro ages ago but the people in those countries have tended to view their own politicians even more negatively than they do the current unelected Eurocrats who are imposing rampant unemployment upon them. As such there's no real desire to return to their own currencies because they believe this will only end up being even worse. The fact that the Spanish people are apparently willing to put up with 50% youth unemployment, 25% overall unemployment and no end in sight is astonishing to me, but that does seem to be the case. Whether the German people will be willing to keep on bankrolling it all remains to be seen though.
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Post 21 Jun 2013, 11:27 pm

Sass - you are assuming that the Euro is causing the unemployment. Is it, though?

In the new year one of the Baltic states (Latvia I think) is due to join the Euro and there are other Eastern members of the EU going through the process.
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Post 23 Jun 2013, 3:56 pm

The conditions of their accession to the EU included mandatory membership of the Euro.

And yes, I do think the Euro is largely to blame for runaway unemployment in the Eurozone. How else do you explain that Britain, which began the financial crisis with a much bigger deficit and significantly worse economic fundamentals than many Euro members, has managed to avoid it while Eurozone countries have sunk into a death spiral ? We did it by devaluing our currency and printing money through QE. Eurozone countries lack any of the monetary tools that we've been able to deploy so they only have the option of 'internal devaluation', which is economics speak for mass redundancies and drastic cuts to wages and employment conditions.

Membership of the Euro has quite obviously been a disaster for almost all members. Some of us predicted this all along. I don't often have kind words to say about Gordon Brown but his decision to keep us out of the Euro was one of the most important decisions any British politician has made in decades.