It amazes and depresses me that it takes bad behavior on a level that is easily explainable (i.e. help terrorist launder money) for people to get upset at how untouchable large international financial institutions have become.
The LIBOR scandal is so much bigger and more important than this HSBC case but it seemingly gets a pass from public outrage since there's no easy TL;DR explanation of it.
The first few pages of the OP, which focus on HSBC, were actually nowhere near as important as the last page, on LIBOR. The LIBOR case is much, much more important than whether or not HSBC had dealings with Iran. When he's talking about this, Taibbi sounds weirdly parochial, like he's more upset about America's interests being ignored than he is about any fundamental wrongdoing (I know he's American and Rolling Stone has a predominantly US audience, but still...)
I think he is just depressed that if the self appointed most powerful government in the world can't do anything to curb the behavior of these banks, then we have no hope in stopping them.
In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything.
You're paying an interest rate on your car, your mortgage and your bank loan right? OK, that interest rate is set by the bank. The way they do that is to use LIBOR, and add a bit on top which is their profit. So your loans follow LIBOR. The banks basically rigged the game, and changed LIBOR as they saw fit, meaning that you paid more in interest than you should. Your neighbour did too. And his neighbour. If you add it all up it's billions.
They fucked everyone to make a quick buck, and it's illegal as hell.
"At the onset of the financial crisis in September 2007 with the collapse of Northern Rock, liquidity concerns drew public scrutiny towards Libor. Barclays manipulated Libor submissions to give a healthier picture of the bank's credit quality and its ability to raise funds. A lower submission would deflect concerns it had problems borrowing cash from the markets."
"From as early as 28 August, the New York Fed said it had received mass-distribution emails that suggested that Libor submissions were being set unrealistically low by the banks."
Ie - you, the borrower - benefited from this manipulation.
You're right, and I know. I have an education in economics :-)
The reason I omitted it was the difficult problem of explaining a complex subject in very few words, and still pointing the finger at banks. If you tell joe six-pack that his mortgage sometimes got cheaper you'll either have to divulge a complex explanation of why this is bad for him (which he won't understand or care about) or have him think that the banks should do some more of that LIBOR rigging so his mortgage can be lower.
If you didn't know the facts it is excusable mistake, but if you knew the facts and still wrote something that is factually wrong - because "joe six-pack can't handle the truth" - then I can't see how you can consider you're doing anything but plain and simple deception. And when "joe six-pack" with discover it - and he will, eventually - you'd be surprised why he doesn't believe any word you say anymore. If you sacrifice the truth in order to further your goals, you're part of the problem.
Benefited, that's one way to look at it. Another way is to consider that between LIBOR rigging, bailouts, mortgage fraud, bond rigging, money laundering, money printing, securities fraud, and other misc fraud, every single US citizen has undoubtedly realized a net loss on the matters in one way or another. But hey, cheap mortgages!
Libor TLDR: "Organizations set their interest rates to a random number that some banks came up with. The banks changed how they came up with the number without telling anyone, and the organizations got mad because it caused them to lose money while the banks made money."
Not "changed how they came up with the number". What you actually mean is "knowingly supplied false numbers" - note that the numbers were the offer rates, and instead, these banks would give numbers that were preferential to their positions, not an accurate reflection.
Fraud is a crime. When it involves enough money (amount depending on jurisdiction) people are supposed to go to jail. It is my understanding that the amounts involved here were significantly above those required for any jurisdiction.
That is a simplistic assumption. Here is another Rolling Stone article about how some banks were convicted of colluding to suppress interest rates in the US municipal bond market. The Libor scandal is the same thing essentially they were defrauding small towns out of millions of dollars of interest by their collusion.
There are two responses to something like LIBOR. One response is Taibbi's, which is to ask for the US government to crack down on bankers. This fails because of the tacit assumption that the US government is any less corrupt.
The second response is to embrace something like Bitcoin, which decentralizes everything. No central banking, no LIBOR scandal. But also no ability to stop "money laundering", defined as a transaction that a government doesn't want you to engage in. That's the tradeoff: the Bitcoin protocol is based on an adversarial environment and gives no special privileges to government or banking nodes.
LIBOR (banks), QE4 (govt), and the bailouts (both) are all enabled by the fact that some nodes in our system are granted special powers to set rates and print money.
Libor is not a central bank mechanism. It's a rate published by the British Bankers' Association, a private trade association. Similar to the S&P 500 for U.S. large caps, it is simply a metric that private parties have chosen to reference when setting. Libor is influenced by central banks' rates, but so would a Bitcoin economy's reference rate be a function of international money rates.
Right, I knew they were separate things. I meant only that widespread adoption of Bitcoin would obsolesce both; should have phrased that more clearly.
it is simply a metric that private parties have chosen to
reference when setting. Libor is influenced by central
banks' rates, but so would a Bitcoin economy's reference
rate be a function of international money rates.
Yes. My point was that not all private parties would "choose to reference" things like LIBOR, nor be forced to participate in the Fed's quantitative easing schemes by virtue of holding US dollars. That is, with a distributed currency like Bitcoin (or perhaps a descendant of Bitcoin with even greater anonymity), we pull back a lot of control from what is currently a hypercentralized, opaque system.
Bitcoin would not prevent (or disincline) private banks from setting loan interest rates based on LIBOR. You can lend out 100 BTC at LIBOR+5% just as easily as you can with USD, and for all the same reasons. All bitcoin does is remove all control over creation of hard currency (not money in general - just M0, hard currency) - for better or for worse.
Banks could still loan bitcoins. They'd go bust if they loaned too much, like they did in the Great Depression under the gold standard. And governments could still bail them out, with bitcoin-denominated treasury bonds. Quantitative easing wouldn't be possible though, because bitcoins don't work that way, so you might get deflation. I guess the added danger of this lack of flexibility might encourage banks (and governments) to be more cautious but it hasn't stopped them in the past.
What jacquesm said. You could certainly try to trade your Bitcoin-substitutes at par with real Bitcoin, but as long as a (small) number of people insist on real Bitcoins, you can't expect to them survive, or at least be nearly as valuable as the real thing.
> You could certainly try to trade your Bitcoin-substitutes at par with real Bitcoin
I wouldn't be able to pull it off, but banks do this all the time with cash-substitutes. A small number of people do insist on real cash, but there's a huge amount of credit and debt built on top of a small amount of actual currency.
The banks loan your money out, and charge interest to the borrowers. In return they keep your money safe, and pay you enough interest to encourage you to not switch banks, or demand "real" money.
And governments can go into debt on gold, or US dollars (even if they don't have them, and can't get them in the near future). You can get a complete collapse if the government finds itself bankrupt. In that case, you'll have a bank run, or the IMF will step in, or lenders will take a haircut. It's nothing revolutionary (well, it can start revolutions, but that's not really new).
The difference is that with USD and other currencies, there's a central bank to print more money to make up for redemptions (real or potential) when people come to convert their electronic dollars for paper ones. There is no such mechanism with Bitcoin.
What matters in giving the derivative currency units par value to "the real thing" is the lender's ability to maintain liquidity by having a (central) lender of last resort, not the (in)ability of secondary borrowers to print them.
There really is a difference between what would happen if people started demanding real paper USD as payment (i.e., just print more for the right banks) vs. what would happen if people started demanding real BTC as payment.
Money consists of central bank money, or currency and deposits at the central bank, and private money. Bitcoin would replace central bank money. It does not, however, replace private money.
If I paint your fence and you give me an IOU, we just created money - real services were rendered and a nominal claim was accepted in return. Similarly, Bitcoins are as (if not more) theoretically fungible as Treasuries. Banks finance themselves in the wholesale markets collateralised by Treasuries. A repurchase agreement using Bitcoins is not beyond practical contemplation.
Note that fractional reserve banking originated on the gold standard.
Let's say the government does the exact same thing to make money that they do now : legislate that more money is printed. Now bitcoiners have 2 choices : use the modified code that specifically allows this transfer/money creation, or go to jail.
What do you think big players will do ?
Bitcoin is actually extra bad for this since it publishes a full financial record. To anyone with a sufficiently large source of identified transactions your accounts are an open book, if they can find just one transaction they're sure was done by you (say, paying your taxes). They don't have to contact 20 banks to find out where your funds went and who was involved, that information is public record. There is no way to pass through a bank in Saudi Arabia or some other bastard country to obscure and/or delay investigations.
Besides, having undeclared money in bitcoin is money laundering. Just having it. Penalty : up to 10 years jail time (Western Europe, and 50 km from here it's up to life in jail, gotta love the dutch). For the moment nobody's been found guilty, but that's mostly because it's only just starting to surface.
And frankly, this is exactly what we want. We may not like governments printing money and abusing it, but anybody who studied the great financial crises of the end of the 19th beginning of the 20th century, it is plainly obvious that the current situation (regularly "big financial scandal, you're probably overpaying your insurance $10") is better than what happened with the gold standard (regularly "surprise ! All your savings are gone. Oh and the same happened to the government so we're raising taxes 50%. Happy starving").
Let's say the government does the exact same thing to make
money that they do now : legislate that more money is
Which government? The US government? Or the Russian and Chinese governments? The USG is in decline and everyone knows it. Its ability to enforce laws around the world is not absolute. And by coming out and showing that it really wants X (e.g. the death of Bitcoin), it becomes obvious to many other governments that an interesting way to stick a finger in the eye of USG is to allow not X (e.g. free use of Bitcoin).
Russia recently made it almost impossible to extradite Russian citizens to the US:
And I don't think the USG is going to be renditioning Chinese citizens from the mainland anytime soon, given how broke the Americans are and how much they owe to China (not to mention that they are a nuclear power).
A lot of people wanted a multipolar world. We're going to get it, and among other things it means the USG will not be able to print money (and thereby dilute your stake, and seize your work product) for much longer.
> Loaning out bitcoins you don't have is going to be pretty hard.
> Bitcoins are closer to cash than it may seem at first glance and just like cash you can't really fake having it.
Really? Banks do the same thing with cash. It's called "fractional reserve banking", and unless you want to outlaw it (and have more lobbying power than all of Wall Street) it's not going away just because you've substituted paper money for a digital equivalent.
If you want to keep cash under your mattress, you are free to do so. Bitcoins offer no massive advantage here. If you want to have the bitcoin equivalent (a digital wallet), go for your life. But normal people will want the 1% interest the banks pay, and the security of not having their life savings stolen if some bot cracks their computer.
There's only 3 differences between bitcoins, and paper money - they are easier to send, much easier to steal (since crackers can do it), and don't lose value to inflation (which isn't really a new thing - it's just a return to the "gold standard").
People aren't going to stop using banks any time soon. I don't even see which way bitcoins will shift the balance - a few cipherpunks will build their own vaults, and a few grannies will no longer bury their savings under their tulips.
now what we need is a bit-tally-stick to handle IOU's in bitcoin the way that split tally sticks were used to handle IOU's in medieval times. In this way I could loan out the same money I have several times, with the assumption that I get it back before I have to pay it out really.
This may sound a bit far-fetched but there were cases in the Middle Ages of artisans doing exactly that. In fact sometimes they'd even issue their own token-based currency and settle the accounts with other artisans after market day.....
Try borrowing me a bitcoin that you don't have so I can spend it as a bitcoin.
Then imagine doing that 'as a bank', either you have a bitcoin or you don't, you can't borrow one you don't have. Bitcoin is very subtle in this way and it seems as though lots of people underestimate the amount of thinking that went into it.