“Hot With Your Help,” “Done…For You Big Boy…” Let’s Whisper Sweet Nothings and Talk About Bid-Rigging

Nothing like some emails between financial ne’er-do-wells to get a journalist hot-and-bothered, and indeed, the correspondence contained in Barclays Libor-related settlement today delivered the goods: It didn’t take but a couple of hours for Alphaville, Daily Intel, Dealbook, Business Insider to chime in with their own respective versions of Shit Traders Say.

We can play that game too, and will, but let’s stop for a moment to notice the week that was in bid-rigging scandals:

First, Rolling Stone published Matt Taibbi’s thrilling reportage on bid-rigging in the municipal bond business. A little breathless, sure“America’s biggest banks ripped off the entire country, virtually every day, for more than a decade!”but basically must-read, and containing not emails but, be still thy loins, wiretapped conversations between the men fixings the bids.

How Mr. Taibbi describes the racket:

Instead of holding honest auctions in which none of the parties knew the size of one another’s bids, the broker would tell the pre­arranged “winner” what the other two bids were, allowing the bank to lower its offer and come in with an interest rate just high enough to “beat” its supposed competitors. This simple but effective cheat—telling the winner what its rivals had bid—was called giving them a “last look.” The winning bank would then reward the broker by providing it with kickbacks disguised as “fees” for swap deals that the brokers weren’t even involved in.

How did that play out in practice? Here’s a wiretapped conversation between Stewart Wolmark of middleman Chambers, Dunhill and Rubin and Steven Goldberg of GE Capital, which finances municipal bonds:

In December 2000, for instance, Wolmark helped Goldberg win a rigged bid for a bond in Onondaga County, New York. After the auction, he calls his buddy Steve:

WOLMARK: Hey, congratulations. You got another one.
Yeah. Yeah, thank you. Thank you.
You’re hot!
I’m hot? Hot with your help, sir.

Anyway, that story was just the start. On Monday, Reuters reported that Chesapeake Energy CEO Aubrey McClendon ordered a deputy “to smoke a peace pipe” with executives from a rival driller, lest the two companies bid up prices in a Michigan public land sale.

And then of course today’s news that Barclays would pay about $450 million to settle charges that the bank manipulated Libor.

So: Libor is the London InterBank Offered Rate, essentially the interest rate at which banks lend to each other. You can read a formal definition here, but the thing to know for present purposes is that the British Bankers’ Association sets Libor by asking 15 or so banks to estimate its borrowing costs in the short-term inter-bank market. And that Barclays didn’t always answer that question in the most forthright manner.

According to the CFTC, the Barclays employees who submitted the bank’s Libor estimates were often influenced by Barclays traders, who hoped to manipulate the Libor and Euribor rates for the furtherance of their positions in interest rate swaps. What’s more, the CFTC says that during the financial crisis, senior Barclays managers instructed the bank’s Libor submitters to lower estimates of the bank’s borrowing costs, because higher estimates could send the message that the Barclays was seen as weak by other lenders.

Well, Barclays CEO Robert Diamond and three top executives will forgo bonuses this year. Other banks, meanwhile, are still being investigated for their participation in Libor-rigging schemes, and after a chuckle at the awkward language in which the dirty deeds were done, we’re a little more inclined to see the world through the eyes of Mr. Taibbi, who posited that if Libor-rigging charges were ever tried in court, “we may yet find out that the world’s most powerful banks have, for years, been fixing the prices of almost every adjustable-rate vehicle on earth, from mortgages and credit cards to interest-rate swaps and even currencies.”

Which heavy thought shouldn’t prevent us from chuckling at the Barclay’s emails:


“Hot With Your Help,” “Done…For You Big Boy…” Let’s Whisper Sweet Nothings and Talk About Bid-Rigging