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http://www.economicpolicyjournal.com/2015/04/the-bankster-war-on-cash-jpmorganchase.html Tuesday, April 21, 2015 The Bankster War on Cash; JPMorganChase Begins to Prohibit the Storage of Cash in Its Safety Deposit Boxes Letters are apparently going out to some JPMoragnChase customers announcing that cash will be prohibited from being stored in the bank's safety deposit boxes. At the Collectors Universe message board, a commenter reports: My mother has a SDB at a Chase branch with one of my siblings as co-signers. Last week they got a letter outlining a number of changes to the lease agreement, including this: "Contents of the box: You agree not to store any cash or coins other than those found to have a collectible value." Another change is that signatures will no longer be accepted to access the box. The next time they go in they have to bring two forms of ID and they will be issued a four-digit pin number that will be used to access the box then and in the future. Professor Joseph Salerno of the Mises Institute writes: As of March, Chase began restricting the use of cash in selected markets, including Greater Cleveland. The new policy restricts borrowers from using cash to make payments on credit cards, mortgages, equity lines, and auto loans. Chase even goes as far as to prohibit the storage of cash in its safe deposit boxes . In a letter to its customers dated April 1, 2015 pertaining to its “Updated Safe Deposit Box Lease Agreement,” one of the highlighted items reads: “You agree not to store any cash or coins other than those found to have a collectible value.” Just last week, Citigroup's top economist, Willem Buiter, wrote a report calling for the abolishment of cash as a sound policy. Hide your wallets, the banksters are on the move. MORE: http://www.zerohedge.com/news/2015-04-16/another-shill-statism-central-planning-demands-cash-ban Citigroup's Gold "Expert" Demands A Cash Ban inShare26 Late last year, Grexit "expert" Willem Buiter decided that he was a greater expert on the topic of monetary metals than on geopolitics by stating that "Gold Is A 6,000 Year Old Bubble." Now, he has decided that after gold, it is best to just do away with any physical currency altogether and the time to ban cash has arrived. Submitted by Pater Tenebrarum via Acting-Man blog, Citigroup’s Chief Economist Joins the Cash Ban BandwagonWe have discussed the views of Citigroup’s chief economist Willem Buiter previously in these pages (see “A Dose of Buiternomics” for details), on occasion of his coming out as a supporter of assorted monetary cranks, such as Silvio Gesell, to name one. Not to put too fine a point to it, Buiter is a monetary crank too. Buiter is always shilling for more central bank intervention, and it seems no plan can ever be too silly or too extreme for him. In fact, he seems to have made the propagation of utterly crazy ideas his trademark. Buiter has now joined one of his famous colleagues, Kenneth Rogoff, another intellectual enamored with central planning, in clamoring for a cash ban (for our discussion of Rogoff, see “Meet Kenneth Rogoff, Unreconstructed Statist”). Both Buiter and Rogoff want to make it impossible for citizens to escape the latest depredations of central bankers, such as the imposition of negative interest rates. This is to be done by forcing them to keep their money in accounts at fractionally reserved banks. If Buiter gets his way, there won’t be a WSOP final table with piles of cash anymore. Photo credit: David Becker / Las Vegas Review-Journal As Bloomberg reports: “The world’s central banks have a problem. When economic conditions worsen, they react by reducing interest rates in order to stimulate the economy. But, as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is cash in the economy. In a new piece, Citi’s Willem Buiter looks at this problem, which is known as the effective lower bound (ELB) on nominal interest rates. Fundamentally, the ELB problem comes down to cash. According to Buiter, the ELB only exists at all due to the existence of cash, which is a bearer instrument that pays zero nominal rates. Why have your money on deposit at a negative rate that reduces your wealth when you can have it in cash and suffer no reduction? Cash therefore gives people an easy and effective way of avoiding negative nominal rates. Buiter’s note suggests three ways to address this problem: Abolish currency. Tax currency. Remove the fixed exchange rate between currency and central bank reserves/deposits. Yes, Buiter’s solution to cash’s ability to allow people to avoid negative deposit rates is to abolish cash altogether. (Note that he’s far from being the first to float this idea. Ken Rogoff has given his endorsement to the idea as well, as have others.) Before looking at the practicalities of abolishing currency, we should first look at whether it could ever be necessary. Due to the costs of holding large amounts of cash, Buiter puts the actual nominal rate at which the move to cash makes sense as closer to -100bp. So, in order for a cash abolition to become necessary, central banks would need to be in a position where they wished to set nominal rates much lower than that. Buiter does not have to go far to find an example of where a central bank may have wanted to set interest rates much lower to -100bp. He uses (a fairly aggressive) Taylor Rule to show that Federal Reserve rates should have been as low as -6 percent during the financial crisis.” (emphasis added) As mentioned above, no meddling by a central bank is ever too extreme or too crazy for Mr. Buiter. Here is his ridiculous “Taylor rule” chart (the conclusions of which by the way would be vehemently disputed by none other than Mr. Taylor himself). Buiter’s ridiculous chart asserting that a “negative interest rate of 6% would have been needed” in 2008-2010, via Citigroup, Bloomberg. This nice gentlemen who wants to either “abolish cash” or “tax currency” for the good of us all, is a typical example of the modern-day viciously statist intellectual (h/t, Hans-Hermann Hoppe), who constantly pines for the authorities to implement social engineering on a grand scale. As long as they implement his plan, everything will be great. Not Bothered by ConcernsBloomberg tells us that “Buiter is aware that his idea may a bit controversial”. What a relief. He even lists the disadvantages of abolishing cash, only to dismiss them out of hand. With the exception of one crucial point, he is mainly erecting straw men. “Buiter is aware that his idea may be somewhat controversial, so he goes to the effort of listing the disadvantages of abolishing cash. Abolishing currency will constitute a noticeable change in many people’s lives and change often tends to be resisted. Currency use remains high among the poor and some older people. (Buiter suggests that keeping low-denomination cash in circulation — nothing larger than $5 — might solve this.) Central banks and governments would lose seigniorage revenue. Abolishing currency would inevitably be associated with a loss of privacy and create risks of excessive intrusion by the government. Switching exclusively to electronic payments may create new security and operational risks. Buiter dismisses each of these concerns in turn, finishing with: In summary, we therefore conclude that the arguments against abolishing currency seem rather weak. Whatever the strength of the arguments, the chances of an administration taking the decision to abolish cash seem vanishingly small. We are surprised by the optimism expressed by Bloomberg that “the chances of an administration taking the decision to abolish cash seem vanishingly small”. We believe that governments all over the so-called “free world” are working feverishly to make a ban of cash currency a reality. Naturally, we couldn’t care less about the “seignorage” revenue of the State. In our opinion central banks shouldn’t even exist, and “seignorage” is nothing but a euphemism for outright theft. It’s a nice touch that Buiter also doesn’t want to “throw seniors under the bus” and gives a brief thought to the poor as well. Why would any of them ever need anything more than a $5 note? That someone like Buiter doesn’t find it difficult to dismiss the concern that “abolishing currency would inevitably be associated with a loss of privacy and create risks of excessive intrusion by the government” is no surprise, but it is indeed a legitimate concern. Under the cover of the “war on drugs” and lately the even bigger government-sponsored racket known as the “war on terror”, financial privacy has been all but eradicated already. Willem Buiter, shill for statism and central planning, here seen at the Council for Foreign Relations. Did we mention that we believe he’s an atrocious economist? Photo credit: Bloomberg Needless to say, we dispute the idea that central banks should ever impose negative interest rates. This policy is revolting economic nonsense that greatly harms the economy. As we have previously pointed out, given that the natural rate of interest can never be zero or negative, it is an inescapable conclusion that any imposition of negative market rates will end up destroying scarce capital and leave society poorer. Lastly, Buiter fails to list one counterargument that we believe is extremely important. Since he works for a charter member of the world’s most powerful banking cartel, this is no big surprise either. We will make up for his oversight. The 2008 crisis has not shown that anyone needs “negative interest rates” as Buiter erroneously claims. It has mainly shown how rickety and de facto insolvent the fractionally reserved banking system really is. If not for the introduction of an accounting trick (under immense political pressure, the FASB allowed the banks to dispense with mark-to-market accounting, which suddenly made them “whole” again), a huge taxpayer bailout and money printing by the central bank on an unprecedented scale (in the post WW2 era), several of the biggest banks would have gone the way of Lehman. It was a good reminder that although fiduciary media – deposit money that is not backed by standard money – are part of the money supply in the broader sense, their main characteristic is that they exist only in the form of accounting entries. Hence, fractionally reserved banks are at all times insolvent, since they cannot possibly pay all demand deposits on demand. This obvious violation of what once used to be a bailment contract has been sanctioned by the courts in the 19th century under the influence of banking interests. If one considers how deposit money is multiplied under this system, it should be obvious that the scheme is fundamentally fraudulent. It goes against the grain of legal traditions that have been well-established in Western culture since antiquity. If cash were to be banned, people could no longer opt out from this system. Bank runs would no longer be possible at all. While a bank run these days only gives one government scrip that is itself an irredeemable liability of a central bank, it is at least slightly more “real” than the accounting entry known as deposit money. Most importantly, cash can insure one against a bank going under, or the breakdown of the entire banking system, which is always a potential danger. Banks would obviously love a cash ban – quite possibly they are the only ones who would love it even more than governments. ConclusionWe keep being bombarded by moves to restrict the use of cash and demands to ban it altogether. These demands seem to mainly revolve around two arguments: one is that “only criminals need cash”, which is on a par with the absurd assertion that we should all be fine with Stasi-like ubiquitous government surveillance “if we have nothing to hide”. The other one is that a cash ban would make life easier for the central planners who are actively undermining the economy with their policy of debasement. We would argue that central banking and fiat money have done more than enough harm already and that the eradication of financial privacy has gone way too far. Money and banking should be freed from the clutches of government-directed monopolization and cartelization and should be returned to the free market. Addendum:One of our readers has sent us a few links concerning recent examples of the war on cash waged by governments the world over, which we reproduce below. Indeed, there is little cause for optimism on this score. Given this increase in attempts to restrict the use of cash, the danger that possession of gold will one day be declared illegal again can no longer be so easily dismissed either.
http://www.youtube.com/watch?v=RR5gLDZS9Uo If you don't know about what is happening in the world, the financial system, and the goal of total control of the world's banking system, and the lives of everyone on the planet you need to watch this video. WM13
Someday the Banksters and the Oppressors will pay: In the words of the late Bob Marley: Bob Marley Guiltiness LyricsGuiltiness (talkin' 'bout guiltiness) Pressed on their conscience. Oh yeah. And they live their lives (they live their lives) On false pretence everyday - Each and everyday. Yeah. These are the big fish Who always try to eat down the small fish, Just the small fish. I tell you what: they would do anything To materialize their every wish. Oh yeah-eah-eah-eah. Say: Woe to the downpressors: They'll eat the bread of sorrow! Woe to the downpressors: They'll eat the bread of sad tomorrow! Woe to the downpressors: They'll eat the bread of sorrow! Oh, yeah-eah! Oh, yeah-eah-eah-eah! Guiltiness Pressed on their conscience. Oh yeah. Oh yeah. These are the big fish Who always try to eat down the small fish, Just the small fish. I tell you what: they would do anything To materialize their every wish. Oh, yeah-eah-eah-eah-eah-eah. But: Woe to the downpressors: They'll eat the bread of sorrow! Woe to the downpressors: They'll eat the bread of sad tomorrow! Woe to the downpressors: They'll eat the bread of sad tomorrow! Oh, yeah-eah! Oh yeah-e-e-e-e-e! Guiltiness. Oh yeah. Ah! They'll eat the bread of sorrow everyday. WM13
http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425 Everything Is Rigged: The Biggest Price-Fixing Scandal Ever The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything. You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets." That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps. Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget. It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture. The Scam Wall Street Learned From the Mafia Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks. "It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. "It's the height of criminality." The bad news didn't stop with swaps and interest rates. In March, it also came out that two regulators – the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions – were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver prices. "Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks – many other benchmarks – are legit areas of inquiry," CFTC Commissioner Bart Chilton said. But the biggest shock came out of a federal courtroom at the end of March – though if you follow these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants' incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place. "A farce," was one antitrust lawyer's response to the eyebrow-raising dismissal. "Incredible," says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in antitrust cases. All of these stories collectively pointed to the same thing: These banks, which already possess enormous power just by virtue of their financial holdings – in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation's GDP – are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing. Moreover, it's increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system. If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it. Forget the Illuminati – this is the real thing, and it's no secret. You can stare right at it, anytime you want. The banks found a loophole, a basic flaw in the machine. Across the financial system, there are places where prices or official indices are set based upon unverified data sent in by private banks and financial companies. In other words, we gave the players with incentives to game the system institutional roles in the economic infrastructure. Libor, which measures the prices banks charge one another to borrow money, is a perfect example, not only of this basic flaw in the price-setting system but of the weakness in the regulatory framework supposedly policing it. Couple a voluntary reporting scheme with too-big-to-fail status and a revolving-door legal system, and what you get is unstoppable corruption. Every morning, 18 of the world's biggest banks submit data to an office in London about how much they believe they would have to pay to borrow from other banks. The 18 banks together are called the "Libor panel," and when all of these data from all 18 panelist banks are collected, the numbers are averaged out. What emerges, every morning at 11:30 London time, are the daily Libor figures. Banks submit numbers about borrowing in 10 different currencies across 15 different time periods, e.g., loans as short as one day and as long as one year. This mountain of bank-submitted data is used every day to create benchmark rates that affect the prices of everything from credit cards to mortgages to currencies to commercial loans (both short- and long-term) to swaps. Gangster Bankers Broke Every Law in the Book Dating back perhaps as far as the early Nineties, traders and others inside these banks were sometimes calling up the company geeks responsible for submitting the daily Libor numbers (the "Libor submitters") and asking them to fudge the numbers. Usually, the gimmick was the trader had made a bet on something – a swap, currencies, something – and he wanted the Libor submitter to make the numbers look lower (or, occasionally, higher) to help his bet pay off. Famously, one Barclays trader monkeyed with Libor submissions in exchange for a bottle of Bollinger champagne, but in some cases, it was even lamer than that. This is from an exchange between a trader and a Libor submitter at the Royal Bank of Scotland: SWISS FRANC TRADER: can u put 6m swiss libor in low pls?... PRIMARY SUBMITTER: Whats it worth SWSISS FRANC TRADER: ive got some sushi rolls from yesterday?... PRIMARY SUBMITTER: ok low 6m, just for u SWISS FRANC TRADER: wooooooohooooooo. . . thatd be awesome Screwing around with world interest rates that affect billions of people in exchange for day-old sushi – it's hard to imagine an image that better captures the moral insanity of the modern financial-services sector. Hundreds of similar exchanges were uncovered when regulators like Britain's Financial Services Authority and the U.S. Justice Department started burrowing into the befouled entrails of Libor. The documentary evidence of anti-competitive manipulation they found was so overwhelming that, to read it, one almost becomes embarrassed for the banks. "It's just amazing how Libor fixing can make you that much money," chirped one yen trader. "Pure manipulation going on," wrote another. Yet despite so many instances of at least attempted manipulation, the banks mostly skated. Barclays got off with a relatively minor fine in the $450 million range, UBS was stuck with $1.5 billion in penalties, and RBS was forced to give up $615 million. Apart from a few low-level flunkies overseas, no individual involved in this scam that impacted nearly everyone in the industrialized world was even threatened with criminal prosecution. Two of America's top law-enforcement officials, Attorney General Eric Holder and former Justice Department Criminal Division chief Lanny Breuer, confessed that it's dangerous to prosecute offending banks because they are simply too big. Making arrests, they say, might lead to "collateral consequences" in the economy. The relatively small sums of money extracted in these settlements did not go toward reparations for the cities, towns and other victims who lost money due to Libor manipulation. Instead, it flowed mindlessly into government coffers. So it was left to towns and cities like Baltimore (which lost money due to fluctuations in their municipal investments caused by Libor movements), pensions like the New Britain, Connecticut, Firefighters' and Police Benefit Fund, and other foundations – and even individuals (billionaire real-estate developer Sheldon Solow, who filed his own suit in February, claims that his company lost $450 million because of Libor manipulation) – to sue the banks for damages. One of the biggest Libor suits was proceeding on schedule when, early in March, an army of superstar lawyers working on behalf of the banks descended upon federal judge Naomi Buchwald in the Southern District of New York to argue an extraordinary motion to dismiss. The banks' legal dream team drew from heavyweight Beltway-connected firms like Boies Schiller (you remember David Boies represented Al Gore), Davis Polk (home of top ex-regulators like former SEC enforcement chief Linda Thomsen) and Covington & Burling, the onetime private-practice home of both Holder and Breuer. The presence of Covington & Burling in the suit – representing, of all companies, Citigroup, the former employer of current Treasury Secretary Jack Lew – was particularly galling. Right as the Libor case was being dismissed, the firm had hired none other than Lanny Breuer, the same Lanny Breuer who, just a few months before, was the assistant attorney general who had balked at criminally prosecuting UBS over Libor because, he said, "Our goal here is not to destroy a major financial institution." In any case, this all-star squad of white-shoe lawyers came before Buchwald and made the mother of all audacious arguments. Robert Wise of Davis Polk, representing Bank of America, told Buchwald that the banks could not possibly be guilty of anti- competitive collusion because nobody ever said that the creation of Libor was competitive. "It is essential to our argument that this is not a competitive process," he said. "The banks do not compete with one another in the submission of Libor." If you squint incredibly hard and look at the issue through a mirror, maybe while standing on your head, you can sort of see what Wise is saying. In a very theoretical, technical sense, the actual process by which banks submit Libor data – 18 geeks sending numbers to the British Bankers' Association offices in London once every morning – is not competitive per se. But these numbers are supposed to reflect interbank-loan prices derived in a real, competitive market. Saying the Libor submission process is not competitive is sort of like pointing out that bank robbers obeyed the speed limit on the way to the heist. It's the silliest kind of legal sophistry. But Wise eventually outdid even that argument, essentially saying that while the banks may have lied to or cheated their customers, they weren't guilty of the particular crime of antitrust collusion. This is like the old joke about the lawyer who gets up in court and claims his client had to be innocent, because his client was committing a crime in a different state at the time of the offense. "The plaintiffs, I believe, are confusing a claim of being perhaps deceived," he said, "with a claim for harm to competition." Judge Buchwald swallowed this lunatic argument whole and dismissed most of the case. Libor, she said, was a "cooperative endeavor" that was "never intended to be competitive." Her decision "does not reflect the reality of this business, where all of these banks were acting as competitors throughout the process," said the antitrust lawyer Sokol. Buchwald made this ruling despite the fact that both the U.S. and British governments had already settled with three banks for billions of dollars for improper manipulation, manipulation that these companies admitted to in their settlements. Michael Hausfeld of Hausfeld LLP, one of the lead lawyers for the plaintiffs in this Libor suit, declined to comment specifically on the dismissal. But he did talk about the significance of the Libor case and other manipulation cases now in the pipeline. "It's now evident that there is a ubiquitous culture among the banks to collude and cheat their customers as many times as they can in as many forms as they can conceive," he said. "And that's not just surmising. This is just based upon what they've been caught at." Greenberger says the lack of serious consequences for the Libor scandal has only made other kinds of manipulation more inevitable. "There's no therapy like sending those who are used to wearing Gucci shoes to jail," he says. "But when the attorney general says, 'I don't want to indict people,' it's the Wild West. There's no law." The problem is, a number of markets feature the same infrastructural weakness that failed in the Libor mess. In the case of interest-rate swaps and the ISDAfix benchmark, the system is very similar to Libor, although the investigation into these markets reportedly focuses on some different types of improprieties. Though interest-rate swaps are not widely understood outside the finance world, the root concept actually isn't that hard. If you can imagine taking out a variable-rate mortgage and then paying a bank to make your loan payments fixed, you've got the basic idea of an interest-rate swap. In practice, it might be a country like Greece or a regional government like Jefferson County, Alabama, that borrows money at a variable rate of interest, then later goes to a bank to "swap" that loan to a more predictable fixed rate. In its simplest form, the customer in a swap deal is usually paying a premium for the safety and security of fixed interest rates, while the firm selling the swap is usually betting that it knows more about future movements in interest rates than its customers. Prices for interest-rate swaps are often based on ISDAfix, which, like Libor, is yet another of these privately calculated benchmarks. ISDAfix's U.S. dollar rates are published every day, at 11:30 a.m. and 3:30 p.m., after a gang of the same usual-suspect megabanks (Bank of America, RBS, Deutsche, JPMorgan Chase, Barclays, etc.) submits information about bids and offers for swaps. And here's what we know so far: The CFTC has sent subpoenas to ICAP and to as many as 15 of those member banks, and plans to interview about a dozen ICAP employees from the company's office in Jersey City, New Jersey. Moreover, the International Swaps and Derivatives Association, or ISDA, which works together with ICAP (for U.S. dollar transactions) and Thomson Reuters to compute the ISDAfix benchmark, has hired the consulting firm Oliver Wyman to review the process by which ISDAfix is calculated. Oliver Wyman is the same company that the British Bankers' Association hired to review the Libor submission process after that scandal broke last year. The upshot of all of this is that it looks very much like ISDAfix could be Libor all over again. "It's obviously reminiscent of the Libor manipulation issue," Darrell Duffie, a finance professor at Stanford University, told reporters. "People may have been naive that simply reporting these rates was enough to avoid manipulation." And just like in Libor, the potential losers in an interest-rate-swap manipulation scandal would be the same sad-sack collection of cities, towns, companies and other nonbank entities that have no way of knowing if they're paying the real price for swaps or a price being manipulated by bank insiders for profit. Moreover, ISDAfix is not only used to calculate prices for interest-rate swaps, it's also used to set values for about $550 billion worth of bonds tied to commercial real estate, and also affects the payouts on some state-pension annuities. So although it's not quite as widespread as Libor, ISDAfix is sufficiently power-jammed into the world financial infrastructure that any manipulation of the rate would be catastrophic – and a huge class of victims that could include everyone from state pensioners to big cities to wealthy investors in structured notes would have no idea they were being robbed. "How is some municipality in Cleveland or wherever going to know if it's getting ripped off?" asks Michael Masters of Masters Capital Management, a fund manager who has long been an advocate of greater transparency in the derivatives world. "The answer is, they won't know." Worse still, the CFTC investigation apparently isn't limited to possible manipulation of swap prices by monkeying around with ISDAfix. According to reports, the commission is also looking at whether or not employees at ICAP may have intentionally delayed publication of swap prices, which in theory could give someone (bankers, cough, cough) a chance to trade ahead of the information. Swap prices are published when ICAP employees manually enter the data on a computer screen called "19901." Some 6,000 customers subscribe to a service that allows them to access the data appearing on the 19901 screen. The key here is that unlike a more transparent, regulated market like the New York Stock Exchange, where the results of stock trades are computed more or less instantly and everyone in theory can immediately see the impact of trading on the prices of stocks, in the swap market the whole world is dependent upon a handful of brokers quickly and honestly entering data about trades by hand into a computer terminal. Any delay in entering price data would provide the banks involved in the transactions with a rare opportunity to trade ahead of the information. One way to imagine it would be to picture a racetrack where a giant curtain is pulled over the track as the horses come down the stretch – and the gallery is only told two minutes later which horse actually won. Anyone on the right side of the curtain could make a lot of smart bets before the audience saw the results of the race. At ICAP, the interest-rate swap desk, and the 19901 screen, were reportedly controlled by a small group of 20 or so brokers, some of whom were making millions of dollars. These brokers made so much money for themselves the unit was nicknamed "Treasure Island." Already, there are some reports that brokers of Treasure Island did create such intentional delays. Bloomberg interviewed a former broker who claims that he watched ICAP brokers delay the reporting of swap prices. "That allows dealers to tell the brokers to delay putting trades into the system instead of in real time," Bloomberg wrote, noting the former broker had "witnessed such activity firsthand." An ICAP spokesman has no comment on the story, though the company has released a statement saying that it is "cooperating" with the CFTC's inquiry and that it "maintains policies that prohibit" the improper behavior alleged in news reports. The idea that prices in a $379 trillion market could be dependent on a desk of about 20 guys in New Jersey should tell you a lot about the absurdity of our financial infrastructure. The whole thing, in fact, has a darkly comic element to it. "It's almost hilarious in the irony," says David Frenk, director of research for Better Markets, a financial-reform advocacy group, "that they called it ISDAfix." After scandals involving libor and, perhaps, ISDAfix, the question that should have everyone freaked out is this: What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we're forced to trust. "In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together," Masters notes glumly. That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities. All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world, and God knows what they'll find. The European Federation of Financial Services Users wrote in an official EU survey last summer that all of these systems are ripe targets for manipulation. "In general," it wrote, "those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion." Translation: When prices are set by companies that can profit by manipulating them, we're fucked. "You name it," says Frenk. "Any of these benchmarks is a possibility for corruption." The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it. It's not just stealing by reaching a hand into your pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever's in your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it's only just coming into view.