December 12, 2012

Libor manipulators are duly named and shamed, but about "The Basel Affair", the greatest interest rate manipulation ever, not a word.

There used to be a financial market where securities and loans were traded based on the risk and cost of transactions adjusted yields that all of the participants perceived should be applied. In other words, a world where all the risk and cost of transaction adjusted net margins were worth the same. 

Not any longer. As a result of the capital requirements for banks based on perceived risk imposed by the regulators, especially in Basel II, banks now need to use risk and cost of transactions adjusted yields, and also adjusted for the capital required. 

And that means that the risk and cost of transaction adjusted net margin paid by someone officially considered one of “The Infallible”, and that therefore can be leveraged much more on bank equity, is worth much more to a bank than that same margin when paid by one of “The Risky”, and which must be much less leveraged by the banks. 

And this means that “The Infallible” with respect to their bank operation get more access to bank credit and need to pay much less than what they would ordinary have to pay, and “The Risky” get much less credit and have to pay much more for it, than what they would get and pay without these regulations. 

And this what I now call "The Basel Affair", and which amounts to the greatest of all interest rate manipulations ever, has send the world, primarily Europe and America into turmoil; by creating dangerously excessive bank exposures to “The Infallible” backed with little or no equity, while at the same time stopping the world from getting out of its misery, by severely constraining bank credit to “The Risky”, to those not rated or not having a top credit rating. 

And of course the Libor rate manipulators should be arrested, and shamed with their names published on the front pages, like for instance FT’s on December 12, and this even though the consequences of their manipulations are quite unclear and seem to have affected mostly their fellow traders and speculators. 

But we have not yet even seen the names of those guilty in The Basel Affair, on the contrary, from what we see some of them have been promoted and others put in charge of preparing the next set of regulations, Basel III. 

And from what we see of Basel III, the regulatory manipulators have not repented, on the contrary they are set on manipulating even more, since now besides the capital requirements, they are also ordering liquidity requirements based on the same perceived risk, again mostly as perceived by their official risk perceivers, the credit rating agencies. 

And, let me be very clear about it, the greatest ever interest rate manipulation, produced by those of The Basel Affair, has and will produce incredible suffering, as just for a starter it is much responsible from keeping much of our youth from getting their first jobs, or some from getting jobs at all during their lifetime. 

And those who keep silent about The Basel Affair, the  greatest interest rate manipulation ever, are accomplices of it, some unwitting and some quite conscious. 

PS. Example 

Q. “Can you give me a specific example of what you mean with an interest rate manipulation carried out in The Basel Affair

A. Easy. Do you believe sovereigns like US, UK, Germany would be paying the same interest rate they currently pay on its public debt if banks had to hold as much capital against that debt as they need to hold when lending to an unrated citizen? No? Well that is an example of interest rate manipulation!

And the whole Libor Affair, is perhaps just an example of a very clever distraction maneuver carried out by those regulators guilty of The Basel Affair