The recent revelation about many international banks “fixing” the LIBOR (London Interbank Offered Rate) is much more important to the United States than most people realize. First, the LIBOR affects hundreds of trillions in debt. Banks artificially adjusted the rate, and, we presume, their profits were inflated. Second, the collusion involved at least 16 large banks and probably many more. Third, it appears the Central Bank of England and possibly other central banks were involved and/or complicit. More unsavory revelations are likely to be forthcoming.
The loan rates were fixed to force individuals, municipalities, states, sovereign governments, and corporations to pay larger interest costs. The banks wanted more profits and assumed any consequences would be minimal compared to the potential profits. Not surprising!
MF Global declared bankruptcy last fall. If we were to believe the CEO (Jon Corzine), the money just disappeared and he has no idea what happened. What is important is that the missing money was in segregated customer accounts that are “guaranteed” to be safe and protected. Further, the exchanges and federal regulators were supposed to be monitoring and assuring the safety of the funds. Apparently, that did not happen either. In fact, some customer money disappeared, and, so far, there have been no indictments. Clearly, there is more to the story, but greed, theft, collusion, and political protection seem to be at the center of it.
Reports indicate that upwards of 80% of all volume on the New York Stock Exchange comes from HFT (High Frequency Trading), where one computer trades with another, instead of actual human beings buying and selling from/to each other at market prices determined by supply and demand. HFT brought us the “Flash Crash” of 2010 and probably many other strange market actions that don’t truly reflect a real market between individuals.
One example is that trading companies, such as Goldman Sachs, earn outlandish profits from millions of trades that last seconds or less. In fact, during first quarter 2011, it was reported that Goldman Sachs trading had substantial profits every day, with not one losing day, during the quarter. Similarly, during the first quarter of 2012, Goldman Sachs reported trading profits on all but one day. In honest and fair markets, this astounding record of trading profits would be very unlikely; however, it appears normal for Goldman Sachs. Retail investors and institutions were the likely losers. The regulators saw no problem.
Of course, all of this is difficult to prove, but it does indicate that large trading firms, large multi-national banks, and possibly governments are working the markets for their own purposes and profits and usually at the expense of individual and institutional investors.
Let’s assume that most markets are artificially moved some of the time. If large banks have sophisticated computer software that takes advantage of retail customers and “loopholes” in the regulations and if the regulators often “look the other way” (campaign contributions seem to purchase political protection and immunity from prosecution), then we should expect banks, trading firms, and others to utilize any and all methods to increase their profits.
- Markets are sometimes, perhaps often, manipulated or “rigged” against the small investor and in the favor of large banks and trading firms.
- Laws and regulations seem ineffective at limiting the corruption.
- There is increasing media coverage of broad-scale corruption in the banking world.
- As a consequence, investors feel used and defenseless and, in some cases, financially raped by MF Global and others.
- Investors who believe they “can’t win” will eventually leave the market and withdraw their money. Reports indicate that many retail investors have done exactly that.
If the “Wall Street Casino” Worries You, then Consider
- Move your savings, investments, and retirement funds out of “Too Big To Fail” banks and into smaller regional or local banks.
- Reduce credit card debt and keep it near zero.
- Move some of your IRA funds into physical gold and silver held in a private and bonded warehouse. If done correctly, there are no tax consequences.
- Avoid the SLV and GLD ETFs as they are managed by “Too Big To Fail” banks and might (hopefully not) be looted like MF Global in the event of a catastrophic market collapse.
- Assume the commodity exchanges are less safe than what we are told. Remember, MF Global took “safe” money from segregated customer accounts, and the Exchange did little or nothing.
- Hold your gold and silver in private vaults outside the “Too Big To Fail” banks, in a safe deposit box at a local bank, or, if necessary, safely hidden in your home.
- Read the article on How to Preserve Purchasing Power for Your Retirement Savings.
aka Deviant Investor
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