Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world\u2019s largest banks may be fixing the prices of, well, just about everything.<\/p>\n
You may have heard of the Libor scandal, in which at least three \u2013 and perhaps as many as 16 \u2013 of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that\u2019s trillion, with a \u201ct\u201d) worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history \u2013 MIT professor Andrew Lo even said it \u201cdwarfs by orders of magnitude any financial scam in the history of markets.\u201d<\/p>\n
That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world\u2019s largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world\u2019s largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.<\/p>\n
Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It\u2019s about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.<\/p>\n
It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks \u2013 including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland \u2013 that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.<\/p>\n