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Fraudster bankers couldn't give a Forex
Youth Fight for jobs campaigning in Cardiff against the bankers bailouts and bonuses, photo Cardiff YFJ
Just two years after the exposure of a series of fraudulent actions in the banking sector connected to the fixing of the London Interbank Offered Rate (Libor), five banks have been collectively fined £2 billion by UK and US regulators for rogue traders' successful manipulation of the foreign exchange market.
The fines have been levied against HSBC, RBS, Swiss bank UBS and US banks JP Morgan Chase and Citibank, while Barclays which was at the centre of the Libor scandal in 2012 has once again been heavily implicated in this latest scam.
Royal Bank of Scotland (RBS) was one of those banks bailed out by the taxpayer and the government still retains an 80% stake in it. At its peak in the UK alone, taxpayers' direct subsidy to the banks stood at more than £1 trillion.
The Foreign Exchange (Forex) market is massive and much larger than bonds and equity (stocks and shares) markets. In 2013 its combined trades were equivalent to double UK economic output.
Almost all the trades take place electronically and in this virtual marketplace, over $5.3 trillion in currency trades swap hands every day. Only a tiny amount of currency trades are related to facilitating cross-border trade. Most transfers are purely speculative, almost encouraging city boy spivs to engage in a bit of insider dealing for themselves.
Through the investigation conducted by the Financial Conduct Authority, it has been revealed that manipulation of currencies has been occurring since at least 2008, yet it took a whistleblower to alert the FCA that there was compelling evidence of suspicious price movements in the Forex market.
Scandalously the Bank of England, while denying that any of its officials were involved in either improper behaviour or cover-ups, has been forced to admit there was an "error of judgement" by one official who knew bank traders were sharing information.
The scam was relatively easy to engineer. Because currency prices in the Forex market are changing second by second which makes it complicated to establish the going rate at any one time, a daily exchange rate fix is held.
This is done by analysing actual currency deals that take place in a window 30 seconds before and 30 seconds after 16.00 London time. The fix rates are then calculated based on these specific transactions and a daily benchmark exchange rate is arrived at.
All it requires to manipulate the fix rate is for a group of market players to coordinate their orders during these 60 seconds and if large enough, these orders will affect the benchmark calculation.
Using online private chat rooms, dodgy traders created secret cabals which swapped confidential customer information and trading positions, so they could effectively coordinate their bets in order to trouser very large sums of money.
The revealing of this scandal has forced Chancellor George Osborne to demand a clean-up of the Forex market. An unnamed financier refers to the City as a 'cesspit'. Meanwhile, bank chiefs make grovelling apologies, while stressing they had no idea what was happening on their watches. The Daily Mail demands to know why these bankers are not in prison.
In unison they all thunder that it must not be allowed to happen again. The think tank ResPublica offers a novel solution. With unbelievable naivety it believes that bankers should be made to swear an oath declaring they will "confront profligacy and impropriety wherever I encounter it."
Like the Libor scandal before it, where the inter-bank lending rate was rigged for years for the benefit of those traders who believed themselves to be 'masters of the universe', new scandals in finance are brewing daily.
The rotten derivatives market, short-selling, uncontrollable hedge funds and the obscene futures market, where traders force up the price of basic commodities including wheat and grain, all underline that capitalism is criminal.
This scandal shows again that financiers will always run rings around attempts to regulate their speculative deceits. That's why we call for the nationalisation of the big banks and financial sector.
A socialist nationalised banking sector would be an enormous step forward for ordinary people, alongside the taking into public ownership the 150 big corporations, which ever more intimately entwined with the banks, dominate and ruin so many lives.
In The Socialist 19 November 2014:
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