15A035  Fiddling the Forex by Jim Davies, 5/27/2015    


An announcement last week that got curiously little press coverage is that a set of large bankers have been fined $5.2 billion for manipulating the currency markets. A friend of mine put it well: "The banks will pay the fines with money given them by the government, which stole the money from the serfs."

It was reported on PBS News Hour, but not much elsewhere. The unattractive face of AG Loretta Lynch came on screen solemnly to say that the bankers had operated a cartel (NO! It cannot be!) and colluded to drive the price of currencies in an unnatural manner.

I have my doubts whether General Lynch had much idea about the meaning of the script she was reading, but Judy Woodruff did a fair job of explaining it, with help from Keri Geiger of Bloomberg. Apparently some employees of each of the banks got together on a private wire and simultaneously sold [bought] substantial blocks of currencies (such as the Pound-Dollar pair) with bank money. That would cause its price to fall [rise] immediately, prompting all other market participants to follow suit, and by placing some of their personal money to sell short [go long] alongside their employers', they would each get a free ride and a bunch of money, on a virtually-certain trade.

Then, a minute or so later the price would stabilize so they would buy back [sell] again using their personal accounts as well as their employers' and make another substantial gain, for they would be very confident that the price would recover during the next hour, since they alone knew what had triggered the drop [hike]. In effect, they were making money for themselves both ways, at the expense of all other market players - some by a little, some by a lot. The employing banks were happy with their performance, perhaps giving them raises, so had no cause to probe very deeply into how it had been achieved.

The employees were dishonest. That would be a krime in the coming zero government society if the foreign exchange market (Forex) were to exist; but it won't, since government fiat currencies will not exist, money having taken an honest form. But some other comparable markets may exist, trading perhaps in the relative values of gold and silver.

So let's see what went down here. Some skilled employees were trusted to invest their employers' money on the Forex, but fiddled with some of it so as to line their own pockets. In a free and just society they would be obliged to repay the stolen funds, as far as was feasible, to the other players in the market who were swindled, but they would have great difficulty proving it because of the nature of the market. A few of them would actually gain; noting the surprising price drop [rise] they would risk some money on a reversion to previous levels, and win; they would obviously have no complaint.

But here in Gov-Land, a third party heavily punishes the innocent! As Geiger noted, there may be actions to come against the individuals, but at present the banks have been forced to transfer five thousand million dollars to the FedGov, which suffered nothing at all! Some "justice."

A feeble rationale might be that the banks did employ the swindlers and should have supervised them more closely. Well and good in theory; but with hundreds of trading judgments being made weekly on the fly, of which many lost and some (more, all being well) won money, the swindle would be very hard indeed to detect. As long as the traders were bringing their employers good returns, there would have been no reason to micromanage their work. The successful trader is not one who makes no mistakes; he's one whose trades win just a little more often than they lose.

So, the victims have been ignored, the perps have so far been left alone, and a third party has stolen a truckload of loot. Par for the government course; but that's not all. The party that did the fining is also the party that rides the bankers like a horse - and which uses them to commit massive theft for its own benefit.

As is well known, since 2008 banks have been bailed out with huge transfers of taxpayer money; $700 billion in that year, plus regular infusions since then which one source suggests total around $12 trillion. At any rate, around a thousand times greater than the $5.2 billion fine just levied. The government giveth a truck full, the government taketh back a bucket; blessed be the name of the government. Why the bailout? - because they are "too big to fail."

"Too big" for what, exactly? - too big a cash machine for government. The way it's set up is that the Feds write an IOU, and the banking system coughs up whatever cash is needed, without the vote-losing tedium of increasing visible taxes. So every time they overspend by a trillion, and "monetize" that debt, they are ripping off future taxpayers to that extent. None of that grand larceny is a crime, of course, because Congress has enacted it all as a non-criminal activity; but it is most certainly a krime.

By comparison, the theft General Lynch so pompously deplored was entirely trivial. There was a carpenter, once, who had a neat phrase for this: "Thou hypocrite, cast out first the beam out of thine own eye, and then shalt thou see clearly to pull out the mote that is in thy brother's eye."

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