There is a single number at the heart and core of the world’s financial system. This number sets the interest rate for a whopping $800 trillion of financial products, including your car loan, your adjustable-rate mortgage, the student loans you are still paying off, your credit card, any personal loans you have, and even your savings account at the bank. And even though you probably don’t deal with hundreds of trillions’ worth of complex financial instruments, like swaps and futures, they too are linked to this number, and they affect you.
The number is called libor, the London Interbank Offered Rate.
And apparently it’s rigged.
That’s right. The world’s largest banks and financial institutions stand accused of colluding to manipulate the most important benchmark in global finance. Some have already admitted to it. And if regulators allow lawsuits to proceed, and if banks are proven in court to have manipulated libor rates, the financial consequences will be massive.
More importantly, the damage to confidence in the English-speaking world’s financial system will be catastrophic.
And what will happen if this crisis obliterates the great financial institutions of Britain and America? Who will the world look to next?
The good news—if you can call it that—is that so far, only British bank Barclays has actually admitted to fixing the libor rate.
The bad news is that British regulators seem to be trying to dodge the scandal. As punishment, authorities fined Barclays $455 million—not too tough for an organization whose pre-tax profits last year were more than $9 billion. Barclays’ stock price plunged and its ceo resigned, but so far, no one has been prosecuted or gone to jail.
America and Britain’s other big banks have been implicated. JP Morgan Chase, Citi Group, Bank of America and others are under investigation. If they are guilty, they may have defrauded investors, states, municipalities, pension plans—even everyday homeowners—tens of billions of dollars. Maybe more.
According to allegations, once the banks colluded to set interest rates, they passed on the information to their trading units, which were then able to speculate with impunity—at the expense of virtually the whole world.
But the scandal goes beyond banks cheating. Barclays has indicated that both the Bank of England and the Federal Reserve of New York (then under current U.S. Treasury Secretary Timothy Geithner) were aware of the manipulation at least as far back as 2007—but chose to do nothing. The Bank of England stands accused of actually encouraging Barclays to manipulate the interest rate so as to let it appear financially stronger than it actually was during the 2008 financial crisis.
But most shocking of all is the lack of shock. The consensus of some analysts is that, yes, the banks were cheating—but they are banks! Isn’t that what they do? One Barclays manager excused the bank’s actions this way: “So, to the extent that, um, the libors have been understated, are we guilty of being part of the pack? You could say we are.”
Everyone was lying. Everyone was cheating. Everyone was stealing. And for years nobody had any problem with that!
Jeremy Warner, assistant editor at the Daily Telegraph, has been following British finance for years. “In all my years as a financial journalist,” he wrote June 28, “it’s hard to recall a case quite as shameful as [libor]—and I’ve certainly seen a few.” It’s as if people check their moral coats at the door when they become global bankers. “Dude! I owe you big time!” wrote one happy bank trader in an e-mail to a Barclays staffer after colluding to manipulate the interest rate. “Come over one day after work and I’m opening a bottle of Bollinger.”
Since national regulators were in on it, the banks pillaged with abandon. “It was a criminal conspiracy from the start, and a whole slew of regulators and politicians were in on it. And still are,” wrote popular economics blog The Automatic Earth. “[A]ll the evidence over the past week, if not long before, suggests that libor was set up the way it was, because the idea was to make it prone to manipulation” (July 10).
The Nation’s Robert Scheer calls it the crime of the century: “Modern international bankers form a class of thieves the likes of which the world has never before seen. Or, indeed, imagined .… It reveals that behind the world’s financial edifice lies a reeking cesspool of unprecedented corruption. The modern-day robber barons pillage with a destructive abandon, totally unfettered by law or conscience and on a scale that is almost impossible to comprehend” (July 6).
Another retired FX trader, Bruce Krasting, stated, “I don’t believe that there is a money pro on either the buy or sell side over the past 30 years who didn’t understand that the libor fixing was fixed. If they claim to be ‘shocked’ today, they are either lying or stupid. The same goes for every central banker and treasury official …” (July 13; emphasis added throughout).
Compared to this, Bernie Madoff is a carnival sideshow. Bank of England Deputy Governor Paul Tucker says his investigation has revealed a rotten system. He says that beyond libor, other indexes and markets need to be investigated too. “I can’t be confident about anything after learning about this cesspit,” he said.
If all the allegations prove true, this is by far the biggest financial scandal the world has ever seen.
The whole Anglo-American financial system—from head to toe—is sick. And that’s an understatement.
Is the Whole System a Racket?
Everyone knows that the crude oil market is subject to manipulation. The opec cartel exists for that reason. Similarly, everyone knows the Federal Reserve, the Bank of England, the Bank of China and other central banks manipulate the values of their currencies to achieve policy goals.
But now investigators are finding that even the most widely relied-upon and important indexes—ones that the public has been led to believe are accurate reflections of the free market—may actually be fixed too. Markets for natural gas, various metals, foodstuffs and other commodities may be just as fraudulently manipulated by financial institutions and their traders as libor.
On July 2, the U.S. Federal Energy Regulatory Commission sued JP Morgan over possible manipulation of electricity markets in California and the Midwest. On June 27, hsbc admitted to allowing money laundering by terrorist organizations and Mexican drug cartels. Investigators say it is a “case study” of the rampant problems in the finance industry. The revelations keep coming and coming.
The global financial system was apparently a racket all along; the bankers just temporarily convinced the world otherwise. “If you can’t trust what is believed to be a market-based price, then you have to question all market-based prices,” says Cumberland Advisers chief investment officer David Kotok. “libor is probably the single-most supposedly market-based price of credit in the world,” he says. “And now we see it may have been rigged—and rigged for a long period of time. It’s destructive of confidence to the ‘nth’ degree and calls into question huge elements of finance.
“If you can’t trust the regulatory authorities, who are supposed to be protecting investors, institutions and participants, then who can you trust?”
That’s a hugely important question that investors and governments around the world are asking: Can the Anglo-Saxon financial system be trusted?
If not, it’s the death knell of Anglo-American financial dominance.
Yet, there is much more at stake—especially for Britain.
Here Comes Europe
Across the English Channel, European politicians and bankers are watching this saga and licking their chops.
From the moment Britain joined the European Community in 1973, it has been the goal of European elites to beat their Anglo-Saxon “partners” into submission. For nearly four decades, Brussels has worked toward this end by bombarding Britain with an ever increasing number of laws, regulations and policies. One of the loftiest aspirations of European elites has been to directly or indirectly Europeanize British finance.
For Europe, this scandal is a giant opportunity.
“European policymakers will delight in the ammunition they have been given to rein in the Anglo-Saxon bankers and make them subject to the rule of Brussels and Frankfurt,” warned Warner. Bloomberg reported that in Europe “the Barclays fine [has] provoked renewed calls for tougher oversight of the financial system and pushed regulatory probes of interbank lending rates to the top of the political agenda.”
On July 25, the European Commission published proposals designed to “put an end to the criminal activity in the banking sector.” That sounds noble and altruistic. In reality, it’s an attempt by the EU to impose its will on British banking. According to the Daily Mail, the European Commission also warned “the EU could take over the supervision of benchmarks used to set mortgage rates and trillions of pounds in financial investments” (July 25).
One EU politician even suggested that the EU be vested with more authority, including the power to “break up big institutions,” like the banks.
Watch out Britain, Germany and its cohorts are coming after you!
The damage Europe could potentially inflict is devastating. Banking and finance is Britain’s most important industry. It is the one industry that gives Britain global relevance. The sector comprises about 10 percent of Britain’s entire economy, contributes more than 50 billion annually to the nation’s coffers, and directly employs more than 1 million people, accounting for roughly 4 percent of total UK employment. It is the only industry that consistently generates a large trade surplus and is the only sector that continues to attract business to Britain on any significant scale. (For example, 80 percent of Europe’s hedge funds are based in London.) Additionally, London’s concentration of big banks attracts other companies, which means more money and jobs for Britain. In fact, more multinational corporations are headquartered in London than in any other city in the world.
Banking and finance is the last vestige of Britain’s greatness.
And now Germany and Europe have even more of a reason to come after this industry!
No one denies that something needs to be done to stop the corruption and deceit. But the fallout from this scandal—which will undoubtedly include massive fines, more regulation and laws, and greater government oversight—could have debilitating consequences. Not just for banking and finance, but for Britain’s larger economy too. “Finance’s golden age may be drawing to a close; with no new industry or manufacturing renaissance coming up in the wings, it is not entirely clear what’s going to take its place as a source of British wealth, jobs and tax revenues. It is not just finance for which hard times lie ahead,” explained Warner.
The potential economic crisis, initiated by the loss of tens of billions in banking revenue and the loss of hundreds of thousands of jobs, is cause for deep alarm!
More alarming, however, is the way this debacle could thrust Europe forward—especially Germany—as the world’s leading financial power!
What God Says Will Happen
Written around 790 b.c., Hosea’s prophecy contains a strong message for Britain, the modern-day descendant of ancient Ephraim. In it, God explicitly warns that Britain in the end-time would still look relatively good on the surface, but be riddled with corruption, injustice and lawlessness within. The prophecy also shows that this condition will result in Germany dominating Britain.
In Hosea 5:11, God says, “Ephraim is oppressed and broken in judgment .…” In verse 12, God likens end-time Britain to a moth-eaten rag. Trumpet editor in chief Gerald Flurry expounds on this prophecy in his booklet Hosea—Reaping the Whirlwind (request a free copy). “A moth-eaten garment looks good in the closet,” he writes, “but take it off the hanger, and it falls apart. God says Britain is like a moth-eaten garment. … Even though certain things may look good on the surface, [this nation is] ready to fall apart!”
In Hosea 7, God describes end-time Britain using the analogy of a baker and a fiery hot oven. Verses 7-8 read, “They are all hot as an oven, and have devoured their judges .… Ephraim, he hath mixed himself among the people; Ephraim is a cake not turned.” Again Mr. Flurry explains, “The phrase ‘hot as an oven’ refers to Britain’s corruption. There is no true justice left in the land. Britain may look good on the surface. But God says in verse 8 that it is like a ‘cake not turned’—already burned out underneath.”
Using the authority of Bible prophecy, Mr. Flurry then warns explicitly: “Serious crises are going to make our nations crumble suddenly, like a burned-out cake!”
The libor scandal threatens to make Britain crumble!
Amazingly, the book of Hosea also specifically forecasts that a German-led European power will exploit Britain during this period of weakness and vulnerability. In Hosea 5:13, it says that “when Ephraim saw his sickness, and Judah saw his wound, then went Ephraim to the Assyrian .…” Modern-day Germany is the descendant of ancient Assyria (this is proved in The United States and Britain in Prophecy; request a free copy). God prophesies that Britain will become so weak that it will feel compelled to turn to Germany and Europe for sustenance and protection. In Hosea 7:11, God says that “Ephraim also is like a silly dove without heart: they call to Egypt, they go to Assyria.”
Another prophecy in Hosea 8 says Britain will be compelled to trust in Germany, and that Germany will exploit its weakness. “For they are gone up to Assyria, a wild ass alone by himself: Ephraim has hired lovers. Yea, though they have hired among the nations … they shall sorrow a little for the burden of the king of princes” (verses 9-10). The term “burden” means tribute. The Amplified Bible says that Ephraim begins to “diminish because of the tribute imposed by the king of Assyria.”
This is moving when you dwell on it. These prophecies, written about 2,700 years ago, describe Britain today perfectly. A nation wallowing in corruption, deceit and lawlessness. A nation on the cusp of social, political and economic collapse. And a nation finding itself increasingly vulnerable—especially now, in the wake of the libor scandal—to being pushed and bullied, and eventually crushed, by the German-led European behemoth next door.
With all the corruption in the Anglo-Saxon financial system, many people—libertarians, tea partiers, those on the far left—will probably gloat when the big banks come crashing down. But they won’t be gloating for long. The destruction of London and New York will have ramifications that will quickly work their way from the rich of the rich to the very poor.
When financial systems collapse, few escape unscathed.
If confidence in America and Britain is broken badly enough, the economy will collapse. Foreign investors will flee; capital flight will ensue; governments will be unable to borrow money, so they will print it; inflation will soar, currencies will devalue; economies will devolve—and our First World nations will become Third World.
This horrid future is what America and Britain may shortly be facing. And Brussels and Frankfurt will more than willingly pick up the scraps. ▪