Today’s
Republicans seem to think rigging currency markets and robbing
customers and tax payers blind is a perfectly acceptable way for banks
to operate. Image from www.bellybillboard.com.
What do you do when you have more money than God? Cheat so you can make even more money! Bloomberg reports that foreign exchange traders at “some of the world’s biggest banks” got caught rigging currency markets to generate higher profits. Even more disturbing, it turns out they’ve been doing it for an entire decade. Basically, WM/Reuters sets foreign exchange rates and currency values each morning based on trades and quotes from the previous day. But traders can — and apparently often do — place massive buy and sell orders late in the day to weight values in their favor. This practice — the global financier’s version of the proverbial butcher surreptitiously placing a thumb on the scale — is controversial, but not explicitly illegal:
Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years. [...]Furthermore, the foreign exchange market is considered to be “like the Wild West” even by the low standards of these anti-regulation, libertarian finance industry types:
Meanwhile, Peter Schroeder from The Hill reports that Senator Carl Levin (D-MI) issued a statement demanding that the Treasury Department revisit its recent decision to exempt foreign exchange from the stronger regulations mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act:The $4.7 trillion-a-day currency market, the biggest in the financial system, is one of the least regulated. The inherent conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges.
“The Treasury Department should reconsider its ill-advised exemption of foreign exchange derivatives from the full protections of the Dodd-Frank Act. Our financial regulators should protect American businesses and families from price rigging abuses by fully regulating these derivatives trades and by finalizing the long overdue Merkley-Levin provisions on proprietary trading and conflicts of interest.”Considering how recently Barclays and other international banks got in hot water for fixing the London Interbank Offered Rate (LIBOR), you’d think folks in Washington would listen to the senator from Michigan. But … oh wait, I forgot … The House is run by a bunch of crazy Republicans who think unscrupulous traders from big banks should be able to do whatever the heck they want.
Despite the fact that the
AI’s Justin Rosario reported earlier this week that Representative Jeb Hensarling (R-TX) vociferously objected when the Financial Stability Oversight Council identified “at least three” financial institutions as too-big-to-fail, and requiring higher levels of oversight and regulation to “keep them from dragging the entire financial sector under in a replay of the 2007-2008 collapse.” Apparently, Hensarling protested that taxpayers would be placed “greater risk of being forced to fund yet another Wall Street bailout,” and added, “Designating any company as ‘too big to fail’ is bad policy and even worse economics.”
For today’s Republicans, apparently, free markets are not supposed to be transparent, and companies should not be held accountable for their actions and lack of ethical behavior. Go figure.
If you’re curious about how the currency markets and foreign exchanges work, and have a half hour to kill, watch the British Broadcasting Corporation’s documentary, “Billion Dollar Day.” The 1986 film follows three traders in New York, London, and Hong Kong, as they wheel and deal and exchange over a billion dollars in various currencies over the course of 24 hours. These days, an average of $4.7 trillion is traded each day on the foreign exchanges. Here’s the video:
If you’re short on time, here’s the short version — an ancient, humorous commercial from a leading foreign exchange broker, Forex. Just substitute the Euro for the Great Britain Pound (GBP) and the Chinese Yuan for the Japanese Yen. Here’s the video:
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