Barclays fined £290 million

[CountDeMoney]

... the plot thickens.

Nice to see that it's being followed up on with apparent intent.

Yes, it's reassuring to know that the horrifying possibility of negotiated fines are keeping those naughty guys up at night.

[Sheilbh]

In the UK I don't think there'll be a settlement. From what I understand that only tends to happen when the evidence doesn't pass the test to prosecute (is there enough and is it in the public interest) and generally it's more common in cases where the company self-reported.

[CountDeMoney]

Your pussy prosecutors are no different than our pussy prosecutors.  They'll take the admission of guilt in exchange for fining them the equivalent of 6 weeks' profit.
Nobody who deserves it will ever go to jail, and they'll just do it all over again.

[Neil]

The traders involved were those placing bets on interest-rate derivatives. These contracts are large enough—the total market was worth $554 trillion in 2011—that small price changes can mean big profits.

That's like 8-9 times world GDP, where does this money come from!

The contracts supposedly cancel each other out, so the net worth is zero. Unless one side goes bankrupt, in which case the financial system will collapse completely.

I don't understand

They're selling their contracts back and forth.  So Party A holds a bunch of mortgages, and creates derivatives of them, which they sell to Party B.  Then, Party B creates derivatives of the derivatives and sells them back to Party A, which does the same.

[Sheilbh]

Your pussy prosecutors are no different than our pussy prosecutors.  They'll take the admission of guilt in exchange for fining them the equivalent of 6 weeks' profit.
Nobody who deserves it will ever go to jail, and they'll just do it all over again.

I'm not so sure. I think the worries about how the City of London is perceived may end up with the book being thrown at them.

[Admiral Yi]

I think it's misleading to call securitized assets, such as CDO's, "derivatives."

[DGuller]

I think it's misleading to call securitized assets, such as CDO's, "derivatives."

"Toxic shit" is a more apt term.

[Admiral Yi]

I read an Economist article during the depths of Teh Greatest Recession which claimed AAA rated mortgage-backed CDO's were trading at 97% of par.

[Sheilbh]

Would that possibly reflect the fact that about a third of them were downgraded and almost 50% of write downs by big financial firms were of ABS CDOs?

Edit: Also surely those would be significantly more in demand because they're required to back a financial investment, however accurate the rating.

[Admiral Yi]

ABS?

[Sheilbh]

Asset-backed securities, the overwhelming majority of which were backed by housing assets in some form or other.

[Admiral Yi]

That would be consistent withe the AAA tranches holding value and the lower tranches going to shit.

One of the points I'm trying to get at is it was very common in the reporting after the meltdown for retardo journalists to whine about CDOs going bust "even though they had been rated AAA."  I suspect that was misinformed.

[Sheilbh]

It depends what your objection is or what you'd count as a legitimate whine.

A third of downgraded structured finance things were AAA. Of those around two thirds were mortgage backed and the downgrades of those securities was more severe than other securities - like corporate mortgage bonds. In addition, as I say, ABS CDOs account for almost half of the write downs of big finance and around 90% of the assets backing them were mortgage based.

The ratings really did collapse. I think the key is from there to ask the right questions which is what caused such inaccurate ratings and what can be done to prevent it? I suspect the problem was in the rating agencies calculations and models which they'll no doubt be trying to change.

Edit: Searching around it seems a big theory is that enough thought wasn't taken if there was an economic event that would affect an entire class of assets. So a significant housing downturn causes huge amounts of assets problems or corporate bonds in Asia and the markets weren't really considering that.

[DGuller]

I read an Economist article during the depths of Teh Greatest Recession which claimed AAA rated mortgage-backed CDO's were trading at 97% of par.

It's not clear whether it's a lot or a little.  If you lever a bunch of derivative derivatives on top of that asset, a 3% loss of value when 0% was expected and priced in could be disastrous.  The story of the financial meltdown was not so much the primary losses, but rather the secondary shocks.

[Sheilbh]

Twenty-two more face investigation over potential Libor rigging
Three former traders in court as judge rules that others under scrutiny by SFO must not be named before they are charged
Jill Treanor
The Guardian, Monday 21 October 2013 20.42 BST

The Serious Fraud Office has written to 22 individuals to tell them they are facing investigation for potential Libor rigging, a London court heard on Monday.

None of them have been charged and some have yet to be interviewed. Southwark crown court was told about the SFO contact at a hearing attended by Tom Hayes, a former trader at investment banks Citigroup and UBS. Hayes is the first person to be charged with manipulation of the benchmark rate.

Hayes's appearance was the latest stage in the process relating to the eight charges he faces for allegedly rigging Libor.

Wearing a pale blue v-neck sweater, 34-year-old Hayes sat in the dock in a packed courtroom alongside two former traders at money brokers RP Martin, Terry Farr and James Gilmour.

None of the three entered a plea and they were given a further 28 days to plead guilty or not guilty. The Hayes trial is not likely to begin until 2015. The three defendants were granted legal aid.

The court heard that a draft of the indictments against the three had named 22 other individuals as potentially being investigated for Libor rigging. The judge said their naming does not necessarily mean they are guilty of wrongdoing.

But the identities of these individuals were not revealed in court after the judge heard representations they had not been formally charged or investigated. Their names were removed from the indictments.

The judge lifted an injunction that had been placed on the Wall Street Journal over the naming of eight of the individuals.

Hayes, the first person to be charged over Libor-related offences, spoke only to confirm his identity. He is charged with variously conspiring with Royal Bank of Scotland, JP Morgan Chase, Deutsche Bank, Rabobank, RP Martin, HSBC and Tullett Prebon.

The charges relate to periods between August 2006 and December 2009, when Hayes worked for UBS Securities Japan; and December 2009 and September 2010, when he worked for Citigroup Global Markets Japan.

The charges allege that Hayes conspired to manipulate yen interbank offered rates. A charge relating to "other, unspecified, interbank offered rates" has been removed.

Gilmour has been charged with one count of conspiracy to defraud, between August 2006 and December 2009, and Farr faces two counts covering the same alleged offence.