MANGUN ON MARKETS
A ROUND 2006, a couple of global pharmaceutical companies devised a plan to occasionally manipulate the drug market and release a virus into the air and water supply. The illness that the virus caused was not serious or life-threatening. People just had to buy an extra cold medicine or two and profits went up.
Soon, other pharmaceutical companies noticed that something was happening and the rest of the companies slowly became involved and participated. The more participants, the more the potential effectiveness of the scheme. Even suppliers of the raw materials for the drugs became involved. The whole planet was affected. Governments, corporations, and literally billions of ordinary people were forced to pay for drugs that they would not have needed if the global pharmaceutical companies had not conspired and participated in this great plan.
The highest government agencies that monitor and regulate the activities of the drug companies knew something potentially disgraceful was going on but they turned a blind eye to the situation. In some cases, they, too, may have helped the plot along.
In 2008, against the backdrop of the growing financial crisis, some people noticed the usual profits of the pharmaceutical companies, but even global regulators dismissed the notion of any illicit activities after conducting their own investigations. Those who continued to speak about this global conspiracy were treated as ignorant and only looking for publicity with their wild theories.
In February 2012 the US Department of Justice opened an investigation with others, Japan, Canada, and the UK following with their own inquiries. By early July 2012, the full scope of the operation was revealed. The pharmaceutical companies may have profited by as much as $29 trillion over a few years period.”
If this were a true story, you would think that it would be headline news in every paper and on every TV channel that you see.
Except that it is a true story; you only have to substitute “banks” for “pharmaceutical” and “virus” for “interest rates.”
An interest rate is the “price” of borrowing money. If you go to the market and want chicken, you pay the price for chicken. If you want to borrow money you go to the bank and the price to borrow is called the interest rate.
Interest rates, like the price of chicken, should be determined by markets forces of supply and demand. A very important benchmark for interest rates is the Libor or London Interbank Offered Rate. Libor interest rates are calculated every day for 10 major currencies over various borrowing periods from one day to one year. Between eight and 20 global banks put in their interest rate offers and from that a global standard interest rate is established each day.
Over $300 trillion of financial instruments use the Libor rate as a benchmark. For example, large Filipino companies may borrow hundreds of millions of dollars at an interest rate that is tagged to the yearly Libor rate. Your personal credit-card rate and car loan may ultimately be tied to Libor rates.
It is difficult to describe the significance of this conspiracy. It is obvious at this point that the central banks, the US Federal Reserve and the Bank of England knew about the price-fixing and may have even encouraged it to make the banking system look more financially sound.
Without any doubt, this is the largest financial scandal in world history not only by the amounts involved but by the global scope.
The Bangko Sentral ng Pilipinas has assured us that there is no interest rate price-fixing by local banks. If that statement is true, it only means that local bankers have more integrity than those in the West. I wonder. I hope so.
I guarantee that you personally contributed a few bucks to the banks’ extra $29 trillion in profits. And there is nothing you can do about it.
What the “LIEbor” scandal proves is both the power of global banks and their unholy alliance with the central banks and governments.
E-mail to firstname.lastname@example.org, web site is www.mangunonmarkets.com, and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by COL Financial Group Inc.