The EU lets the bankers go on rigging the benchmarks

Press conference by Michel Barnier, Member of the European Commission in charge of Internal Market and Services on the adoption by the EC of a draft regulation on benchmarks, (EC Audiovisual Services, 18/09/2013).

The European Commission adopted yesterday additional “measures to restore confidence in benchmarks following Libor and Euribor scandals”. The new draft legislation complements the political agreement on Market Abuse Regulation proposed by the Commission last July and endorsed by the Parliament and the Council.

Benchmark setting is not confined only to interest rates like Libor and Euribor but covers also the commodities and services markets like the Baltic Indices for sea freight prices used globally for sea transport and ship charterers’ contracts. Underlying markets worth trillions and touch almost every financial transaction from home mortgages and loans to investment and derivatives contracts all over the world. Almost invariably benchmark setting, especially in the financial universe, is in the hands of the banking industry.

It’s always the banks

The European Sting presented this new Commission’s proposal on 9 September. On that occasion our writer Maria Milouv observed that “whatever market the major western banks touched during the last ten years, they turned it into a tool of book profit-making, using all the methods and the technology they could come up with. Most of the times their means were illegal and despite the fact that these fraudulent actions were uncovered, as in the cases of false information supplied to American investors and the falsified data used to rig financial benchmarks like Euribor, Libor and the Baltic Indices, no banker has yet been put behind bars”.

This time the European Commission tries to introduce specific rules to be applied on top of existing national arrangements. According to the Press release issued by the Commission “The activity of the provision of benchmarks will be subject to prior authorisation and on-going supervision at national and European level. The proposal requires that administrators avoid conflicts of interest where possible, and manage them adequately where they cannot be avoided…It requires that sufficient and accurate data be used in the determination of benchmarks… The data should come from reliable sources…This also means that transaction data are to be used when possible with verified estimates allowed when it is not”.

The above quote tells the whole story. Let’s read it carefully, but first remind everybody that benchmark setting is conducted by professional bodies usually under the complete control of banks. For example the Libor and Euribor rigging was conducted by a London based organisation created and run by the big lenders. Benchmarks were set on data supplied by banks and as it turned out those data were almost invariably falsified so as to help the banks inflate their profits, usually without respect to reality and sometimes quite contrary to market tendencies. In short the banks were creating the market reality according to their interests. You had to be completely blind not to see the flagrant conflict of interest and the concomitant extortion of unlawful gains from the entire real world economy. Yet governments and European Commission alike waited until this piratical arrangement sent the globe to its worst financial crisis after the WWII. Now they pretend that they react effectively to this unholy and destructive arrangement.

The question that arises is whether it is possible to set benchmarks without the banks. Unfortunately the answer the Commission gives to this query is negative and states that “The proposal requires that administrators avoid conflicts of interest where possible…”. The Commission also accepts that “…transaction data are to be used when possible with verified estimates allowed when it is not.” Those two quotes tell the truth. “Verify where possible allowed when it is not” means in plain English that the banks will still be able to play their games whenever they choose to.

Why tolerate piracy?

Then why the Commission is doing this? The answer is not at all difficult to understand. As a matter of fact no effective penal action is introduced nor punishments imposed to bankers who brought the world to its knees during the last five years, after the collapse of Lehman Brothers. All of them got away fabulously rich. Now the Commission follows the national authorities in adopting measures that are not targeted at purging the base of the fraudulent practices and tries to sell it to voters as severe legislation against the banks. It seems that our political elite believes that it is impossible to run the world without the lenders extorting an oversized share of the global wealth that doesn’t belong to them.