Banks Plead Guilty to Manipulating Global Currency Values

In 2013, The Billfold did a series of posts on the Libor scandal, wondering why more people weren’t outraged at the idea that our banks were secretly manipulating currency values in order to boost profits.

Today, we might start to see some resolution. From the New York Times:

On Wednesday, four large global banks — Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland — pleaded guilty to a series of federal crimes over a scheme to manipulate the value of the world’s currencies.

I’m going to be the first to say that I don’t fully understand what the banks have been up to, and that’s part of the point. This is not the type of finance that is covered in Finance For Dummies. This is the type of finance where bank executives meet in chat rooms called “the cartel” and write:

whats the worst price i can put on this where the customers decision to trade with me or give me future business doesn’t change [sic]

And the customers referenced in that chat message aren’t even people like me. (Probably not people like you, either, but I don’t want to make assumptions.) The customers, in this case, are clients in the foreign currency market. As the NYT explains:

Because so many buyers and sellers flood the foreign exchange market — more than $5 trillion changes hands every day — the money banks can charge for brokering trades tends to be lower than for products like derivatives.

To get an edge, prosecutors say, traders at the five banks colluded to pad their returns from at least 2007 and 2013. To carry out the scheme, one trader would typically build a huge position in a currency, then unload it at a crucial moment, hoping to move prices. Traders at the other banks would play along, coordinating their actions in online chat rooms.

However, this type of manipulation does affect all of us. As MoneyTalksNews explains:

Since Libor is the benchmark for many other rates, an inaccurate Libor means millions of people around the globe might have paid more or less interest than they should have on any number of loans.

What’s going to happen next? The banks will be fined, of course. So far, no individual bank employees have been indicted, in part because (to quote the NYT) “the banks long ago dismissed most of the employees suspected of wrongdoing.”

The Atlantic adds: “And despite being branded felons, all five banks have secured waivers that allow them to continue to do business as usual.” (The fifth bank is UBS, which “received immunity in the antitrust case, but will plead guilty to manipulating the London Interbank Offer Rate, or LIBOR.”)

The whole thing feels like it’s the plot of a superhero vs. supervillain movie — can the Avengers stop Ultron from manipulating the value of money? — complete with an unsatisfactory resolution where everything kind of goes back to the way it was without acknowledging or repaying the enormous collateral damage. (Did you see how much property the Avengers destroyed just in the one scene where they had to fight The Hulk?)

What do you think? Do you think anything will change, now that the banks have pleaded guilty to manipulating currency values? Or will things go back to the way they were, which is to say that they won’t change at all?

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