Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds
and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little
different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when
a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks
may be fixing the prices of, well, just about everything....
It should surprise no one that among the players implicated in this scheme to fix the
prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and
the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent
years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of
one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling
Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like
gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix
suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly
competitive veneer of Wall Street culture.
- Rolling Stone -
Everything is rigged the biggest financial scandal yet
As the major stock indices hit new record highs, many are left wondering how such a bull market can develop
while the average worker faces layoffs, lower wages and rising costs. The answer presents itself in the documented,
admitted and openly acknowledged manipulations of the markets by governments, central bankers, and institutional
banks. This is the GRTV Backgrounder on Global Research TV.
HISTORY OF THE NEWYORK STOCK EXCHANGE
HOW THE STOCK MARKET REALLY WORKS
HOW THE STOCK MARKET WORKS
UNDERSTANDING THE FINANCIAL CRISIS
"FOR KIDS AND GROWN-UPS"
HYPERINFLATION NATION 1
HYPERINFLATION NATION 2
HYPERINFLATION NATION 3
Bestselling author and Mises Institute senior fellow Thomas E Woods, Jr., discusses the
current economic crisis and why government intervention will only make things worse. Recorded at the University of
Colorado, Boulder; 3 April 2009.
Coming in Spring 2013, The Bubble asks the experts who predicted the current recession,
"What happened and why?" Diving deep into the true causes of the financial crisis, renowned economists, investors
and business leaders explain what America is facing if we don't learn from our past mistakes. The film poses the
question: "Is the economy really improving or are we just blowing up another Bubble?"
RON PAUL - THE BUBBLE
The Bubble is a feature length documentary that ask those who predicted the greatest recession since the
Great Depression, why did it happen and what are we facing? The documentary is an adaptation of Tom Woods' New York
Times bestseller Meltdown. Filmmaker Jimmy Morrison is releasing each interview in full for free before the film's
Washington is owned by the private global
banking cartel that owns Wall Street. International law does not apply to this criminal cartel. They stole
trillions of dollars from the American people with help from corrupt politicians over a stretch of many decades,
culminating in the government bailout in 2008, and they have not been held accountable.
These bandits and looters could care less if America crashes and burns. In fact,
they want America to die because they want to institute a private world government upon its ruins. And they’re
doing a fantastic job at it because they’ve had decades of practice in nations in Latin America, Africa, and
Asia where they bought off greedy politicians, and robbed their people through the IMF/World Bank/WTO.
The entire business model of the private global banking tricksters is based on stealing the wealth
of nations, and destroying national independence in order to allow lawless multinational corporations to completely
take over. Read this article about how they do it.
Once nations are put into needless debt by these private global bankers, they put the squeeze on
them by forcing them to pay back usurious loans that make them go bankrupt. After the inevitable mayhem that
follows national collapse, they impose a military dictatorship so that the people can’t resist. Damon Vrabel calls
it the “death of nations.” He writes:
The fact is that most countries are not sovereign (the few that are are being attacked by
CIA/MI6/Mossad or the military). Instead they are administrative districts or customers of the global banking
establishment whose power has grown steadily over time based on the math of the bond market, currently ruled by the
US dollar, and the expansionary nature of fractional lending. Their cult of economists from places like Harvard,
Chicago, and the London School have steadily eroded national sovereignty by forcing debt-based, floating currencies
Civilized nations stand up for themselves,
they don’t bow down to private bankers. America can prove to the world that it is civilized, honest, and free by
showing the global banking overlords the door.
The way to fight back against the global robbers at the privately owned Federal Reserve
Bank/IMF/World Bank and the big banks is entirely peaceful. It is a matter of exposing their deviance and deception
to the public, and then hitting the streets. An enemy can’t be defeated unless it remains in the shadows, striking
at will. Directing public light at the private global banking cartel’s evil influence over nations that are thought
to be free and independent by the people is the only way to bring an end to their crimes, and treachery against
A new civilization based on the divine values of freedom, justice, truth, and mutual respect among
nations, and private institutions, can’t be born unless we all come together as global citizens and fight back
against the unlawful rule of the private global banking cartel. Our countries are suffering because of their greed
and ruthless control.
The austerity measures that are being called for by the banks and the elite is bringing chaos onto
the streets of Europe on a scale never before seen, and it won’t be long before America enters the stage. We are
nearing the moment when the globalist conspirators behind the plans for a new world order will openly declare the
end of America. When they do, we shall declare the end of them, and fight for the rebirth of America, and all of
Only an order based on the rule of law and freedom should be accepted. The conspiratorial elite
intend to achieve a new world order through this period of engineered chaos not by law, but by brutal force because
it is the only way to impose a criminal, bank-owned government on a global scale. Despite their rhetoric, these
devilish traitors are not visionary thinkers because corrupt designs for a world state isn’t new in history. Their
arrogance is a cover. They will fail hard. And America will be set free from bondage, along with other nations.
“This is global government, a private corporate global government, taking over every major society
with the same formula. It is fraudulent, and it must be resisted, or we have no future. We cannot allow this new
dark age to begin,” says radio host Alex Jones in a YouTube video message entitled “It’s the Bankers or Us.” Watch
his message, and spread it.
There is a peaceful global revolution against the private global banking cartel, and it can’t be
stopped. Join it and help everyone live free, or die a slave under the empire of debt.
DERIVATIVES : The Debt
The derivatives market is the Las Vegas of the world's financial
super elite, worth anywhere between 2 to 8 quadrillion dollars compared to about 70 trillion dollars of world
GDP. We look at the so-called financial innovations of Wall Street from Collateralized Debt Obligations to
Mortgage Backed Securities.
We also look at US government's complicity; White House and Congress both vested
interests not only as recipients of Wall Street largess in the form of campaign donations but as major players with
criminal asymmetrical information and influence advantages.
Everything Is Rigged: The Biggest Price-Fixing Scandal
The Illuminati were amateurs. The second huge financial
scandal of the year reveals the real international conspiracy: There's no price the big banks can't
GBy Matt Taibbi | April 25, 2013
Conspiracy theorists of the world, believers
in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were
right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We
found this out in recent months, when a series of related corruption stories spilled out of the financial sector,
suggesting the world's largest banks may be fixing the prices of, well, just about everything.
You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of
the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around
with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that
sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT
professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets."
That was bad enough, but now Libor may have a twin brother. Word has leaked out that the
London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American
authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or
not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate
ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.
Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to
manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market,
meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal
It should surprise no one that among the players implicated in this scheme to fix the prices of
interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal
Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of
these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or
another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last
year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the
layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single,
giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall
The Scam Wall Street Learned From the Mafia
Why? Because Libor already affects the prices of interest-rate swaps, making this a
manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers
have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a
crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and
peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and
interest-rate swaps are being manipulated at the same time, often by the same banks.
"It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading
and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland.
"It's the height of criminality."
The bad news didn't stop with swaps and interest rates. In March, it also came out that two
regulators – the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions –
were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver
prices. "Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks – many other
benchmarks – are legit areas of inquiry," CFTC Commissioner Bart Chilton said.
But the biggest shock came out of a federal courtroom at the end of March – though if you follow
these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against
the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants'
incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was
their own fault for ever thinking the banks were competing in the first place.
"A farce," was one antitrust lawyer's response to the eyebrow-raising dismissal.
"Incredible," says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in
All of these stories collectively pointed to the same thing: These banks, which already possess
enormous power just by virtue of their financial holdings – in the United States, the top six banks, many of them
the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation's GDP –
are beginning to realize the awesome possibilities for increased profit and political might that would come with
colluding instead of competing. Moreover, it's increasingly clear that both the criminal justice system and the
civil courts may be impotent to stop them, even when they do get caught working together to game the system.
If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the
prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be
and may already have been dictated from above. And those who are doing it can get away with it. Forget the
Illuminati – this is the real thing, and it's no secret. You can stare right at it, anytime you want.
The banks found a loophole, a basic flaw in the machine. Across the financial system, there are
places where prices or official indices are set based upon unverified data sent in by private banks and financial
companies. In other words, we gave the players with incentives to game the system institutional roles in the
Libor, which measures the prices banks charge one another to borrow money, is a perfect example,
not only of this basic flaw in the price-setting system but of the weakness in the regulatory framework supposedly
policing it. Couple a voluntary reporting scheme with too-big-to-fail status and a revolving-door legal system, and
what you get is unstoppable corruption.
Every morning, 18 of the world's biggest banks submit data to an office in London about how much
they believe they would have to pay to borrow from other banks. The 18 banks together are called the "Libor panel,"
and when all of these data from all 18 panelist banks are collected, the numbers are averaged out. What emerges,
every morning at 11:30 London time, are the daily Libor figures.
Banks submit numbers about borrowing in 10 different currencies across 15 different time periods,
e.g., loans as short as one day and as long as one year. This mountain of bank-submitted data is used every day to
create benchmark rates that affect the prices of everything from credit cards to mortgages to currencies to
commercial loans (both short- and long-term) to swaps.
Gangster Bankers Broke Every Law in the Book
Dating back perhaps as far as the early Nineties, traders and others inside these banks were
sometimes calling up the company geeks responsible for submitting the daily Libor numbers (the "Libor submitters")
and asking them to fudge the numbers. Usually, the gimmick was the trader had made a bet on something – a swap,
currencies, something – and he wanted the Libor submitter to make the numbers look lower (or, occasionally, higher)
to help his bet pay off.
Famously, one Barclays trader monkeyed with Libor submissions in exchange for a bottle of Bollinger
champagne, but in some cases, it was even lamer than that. This is from an exchange between a trader and a Libor
submitter at the Royal Bank of Scotland:
SWISS FRANC TRADER: can u put 6m swiss libor in low pls?...
PRIMARY SUBMITTER: Whats it worth
SWSISS FRANC TRADER: ive got some sushi rolls from yesterday?...
PRIMARY SUBMITTER: ok low 6m, just for u
SWISS FRANC TRADER: wooooooohooooooo.?.?. thatd be awesome
Screwing around with world interest rates that affect billions of people in exchange for day-old
sushi – it's hard to imagine an image that better captures the moral insanity of the modern financial-services
Hundreds of similar exchanges were uncovered when regulators like Britain's Financial Services
Authority and the U.S. Justice Department started burrowing into the befouled entrails of Libor. The documentary
evidence of anti-competitive manipulation they found was so overwhelming that, to read it, one almost becomes
embarrassed for the banks. "It's just amazing how Libor fixing can make you that much money," chirped one yen
trader. "Pure manipulation going on," wrote another.
Yet despite so many instances of at least attempted manipulation, the banks mostly skated. Barclays
got off with a relatively minor fine in the $450 million range, UBS was stuck with $1.5 billion in penalties, and
RBS was forced to give up $615 million. Apart from a few low-level flunkies overseas, no individual involved in
this scam that impacted nearly everyone in the industrialized world was even threatened with criminal
Two of America's top law-enforcement officials, Attorney General Eric Holder and former Justice
Department Criminal Division chief Lanny Breuer, confessed that it's dangerous to prosecute offending banks because
they are simply too big. Making arrests, they say, might lead to "collateral consequences" in the economy.
The relatively small sums of money extracted in these settlements did not go toward reparations for
the cities, towns and other victims who lost money due to Libor manipulation. Instead, it flowed mindlessly into
government coffers. So it was left to towns and cities like Baltimore (which lost money due to fluctuations in
their municipal investments caused by Libor movements), pensions like the New Britain, Connecticut, Firefighters'
and Police Benefit Fund, and other foundations – and even individuals (billionaire real-estate developer Sheldon
Solow, who filed his own suit in February, claims that his company lost $450 million because of Libor manipulation)
– to sue the banks for damages.
One of the biggest Libor suits was proceeding on schedule when, early in March, an army of
superstar lawyers working on behalf of the banks descended upon federal judge Naomi Buchwald in the Southern
District of New York to argue an extraordinary motion to dismiss. The banks' legal dream team drew from heavyweight
Beltway-connected firms like Boies Schiller (you remember David Boies represented Al Gore), Davis Polk (home of top
ex-regulators like former SEC enforcement chief Linda Thomsen) and Covington & Burling, the onetime
private-practice home of both Holder and Breuer.
The presence of Covington & Burling in the suit – representing, of all companies, Citigroup,
the former employer of current Treasury Secretary Jack Lew – was particularly galling. Right as the Libor case was
being dismissed, the firm had hired none other than Lanny Breuer, the same Lanny Breuer who, just a few months
before, was the assistant attorney general who had balked at criminally prosecuting UBS over Libor because, he
said, "Our goal here is not to destroy a major financial institution."
In any case, this all-star squad of white-shoe lawyers came before Buchwald and made the mother of
all audacious arguments. Robert Wise of Davis Polk, representing Bank of America, told Buchwald that the banks
could not possibly be guilty of anti- competitive collusion because nobody ever said that the creation of Libor was
competitive. "It is essential to our argument that this is not a competitive process," he said. "The banks do not
compete with one another in the submission of Libor."
If you squint incredibly hard and look at the issue through a mirror, maybe while standing on your
head, you can sort of see what Wise is saying. In a very theoretical, technical sense, the actual process by which
banks submit Libor data – 18 geeks sending numbers to the British Bankers' Association offices in London once every
morning – is not competitive per se.
But these numbers are supposed to reflect interbank-loan prices derived in a real, competitive
market. Saying the Libor submission process is not competitive is sort of like pointing out that bank robbers
obeyed the speed limit on the way to the heist. It's the silliest kind of legal sophistry.
But Wise eventually outdid even that argument, essentially saying that while the banks may have
lied to or cheated their customers, they weren't guilty of the particular crime of antitrust collusion. This is
like the old joke about the lawyer who gets up in court and claims his client had to be innocent, because his
client was committing a crime in a different state at the time of the offense.
"The plaintiffs, I believe, are confusing a claim of being perhaps deceived," he said, "with a
claim for harm to competition."
Judge Buchwald swallowed this lunatic argument whole and dismissed most of the case. Libor, she
said, was a "cooperative endeavor" that was "never intended to be competitive." Her decision "does not reflect the
reality of this business, where all of these banks were acting as competitors throughout the process," said the
antitrust lawyer Sokol. Buchwald made this ruling despite the fact that both the U.S. and British governments had
already settled with three banks for billions of dollars for improper manipulation, manipulation that these
companies admitted to in their settlements.
Michael Hausfeld of Hausfeld LLP, one of the lead lawyers for the plaintiffs in this Libor suit,
declined to comment specifically on the dismissal. But he did talk about the significance of the Libor case and
other manipulation cases now in the pipeline.
"It's now evident that there is a ubiquitous culture among the banks to collude and cheat their
customers as many times as they can in as many forms as they can conceive," he said. "And that's not just
surmising. This is just based upon what they've been caught at."
Greenberger says the lack of serious consequences for the Libor scandal has only made other kinds
of manipulation more inevitable. "There's no therapy like sending those who are used to wearing Gucci shoes to
jail," he says. "But when the attorney general says, 'I don't want to indict people,' it's the Wild West. There's
The problem is, a number of markets feature the same infrastructural weakness that failed in the
Libor mess. In the case of interest-rate swaps and the ISDAfix benchmark, the system is very similar to Libor,
although the investigation into these markets reportedly focuses on some different types of improprieties.
Though interest-rate swaps are not widely understood outside the finance world, the root concept
actually isn't that hard. If you can imagine taking out a variable-rate mortgage and then paying a bank to make
your loan payments fixed, you've got the basic idea of an interest-rate swap.
In practice, it might be a country like Greece or a regional government like Jefferson County,
Alabama, that borrows money at a variable rate of interest, then later goes to a bank to "swap" that loan to a more
predictable fixed rate. In its simplest form, the customer in a swap deal is usually paying a premium for the
safety and security of fixed interest rates, while the firm selling the swap is usually betting that it knows more
about future movements in interest rates than its customers.
Prices for interest-rate swaps are often based on ISDAfix, which, like Libor, is yet another of
these privately calculated benchmarks. ISDAfix's U.S. dollar rates are published every day, at 11:30 a.m. and 3:30
p.m., after a gang of the same usual-suspect megabanks (Bank of America, RBS, Deutsche, JPMorgan Chase, Barclays,
etc.) submits information about bids and offers for swaps.
And here's what we know so far: The CFTC has sent subpoenas to ICAP and to as many as 15 of those
member banks, and plans to interview about a dozen ICAP employees from the company's office in Jersey City, New
Jersey. Moreover, the International Swaps and Derivatives Association, or ISDA, which works together with ICAP (for
U.S. dollar transactions) and Thomson Reuters to compute the ISDAfix benchmark, has hired the consulting firm
Oliver Wyman to review the process by which ISDAfix is calculated. Oliver Wyman is the same company that the
British Bankers' Association hired to review the Libor submission process after that scandal broke last year. The
upshot of all of this is that it looks very much like ISDAfix could be Libor all over again.
"It's obviously reminiscent of the Libor manipulation issue," Darrell Duffie, a finance professor
at Stanford University, told reporters. "People may have been naive that simply reporting these rates was enough to
And just like in Libor, the potential losers in an interest-rate-swap manipulation scandal would be
the same sad-sack collection of cities, towns, companies and other nonbank entities that have no way of knowing if
they're paying the real price for swaps or a price being manipulated by bank insiders for profit. Moreover, ISDAfix
is not only used to calculate prices for interest-rate swaps, it's also used to set values for about $550 billion
worth of bonds tied to commercial real estate, and also affects the payouts on some state-pension annuities.
So although it's not quite as widespread as Libor, ISDAfix is sufficiently power-jammed into the
world financial infrastructure that any manipulation of the rate would be catastrophic – and a huge class of
victims that could include everyone from state pensioners to big cities to wealthy investors in structured notes
would have no idea they were being robbed.
"How is some municipality in Cleveland or wherever going to know if it's getting ripped off?" asks
Michael Masters of Masters Capital Management, a fund manager who has long been an advocate of greater transparency
in the derivatives world. "The answer is, they won't know."
Worse still, the CFTC investigation apparently isn't limited to possible manipulation of swap
prices by monkeying around with ISDAfix. According to reports, the commission is also looking at whether or not
employees at ICAP may have intentionally delayed publication of swap prices, which in theory could give someone
(bankers, cough, cough) a chance to trade ahead of the information.
Swap prices are published when ICAP employees manually enter the data on a computer screen called
"19901." Some 6,000 customers subscribe to a service that allows them to access the data appearing on the 19901
The key here is that unlike a more transparent, regulated market like the New York Stock Exchange,
where the results of stock trades are computed more or less instantly and everyone in theory can immediately see
the impact of trading on the prices of stocks, in the swap market the whole world is dependent upon a handful of
brokers quickly and honestly entering data about trades by hand into a computer terminal.
Any delay in entering price data would provide the banks involved in the transactions with a rare
opportunity to trade ahead of the information. One way to imagine it would be to picture a racetrack where a giant
curtain is pulled over the track as the horses come down the stretch – and the gallery is only told two minutes
later which horse actually won. Anyone on the right side of the curtain could make a lot of smart bets before the
audience saw the results of the race.
At ICAP, the interest-rate swap desk, and the 19901 screen, were reportedly controlled by a small
group of 20 or so brokers, some of whom were making millions of dollars. These brokers made so much money for
themselves the unit was nicknamed "Treasure Island."
Already, there are some reports that brokers of Treasure Island did create such intentional delays.
Bloomberg interviewed a former broker who claims that he watched ICAP brokers delay the reporting of swap prices.
"That allows dealers to tell the brokers to delay putting trades into the system instead of in real time,"
Bloomberg wrote, noting the former broker had "witnessed such activity firsthand." An ICAP spokesman has no comment
on the story, though the company has released a statement saying that it is "cooperating" with the CFTC's inquiry
and that it "maintains policies that prohibit" the improper behavior alleged in news reports.
The idea that prices in a $379 trillion market could be dependent on a desk of about 20 guys in New
Jersey should tell you a lot about the absurdity of our financial infrastructure. The whole thing, in fact, has a
darkly comic element to it. "It's almost hilarious in the irony," says David Frenk, director of research for Better
Markets, a financial-reform advocacy group, "that they called it ISDAfix."
After scandals involving libor and, perhaps, ISDAfix, the question that should have everyone
freaked out is this: What other markets out there carry the same potential for manipulation? The answer to that
question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest
rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we're forced
"In all the over-the-counter markets, you don't really have pricing except by a bunch of guys
getting together," Masters notes glumly.
That includes the markets for gold (where prices are set by five banks in a Libor-ish
teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose
price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel,
electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the
honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase
(paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for
both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates,
swaps, currencies and commodities.
All of these benchmarks based on voluntary reporting are now being looked at by regulators around
the world, and God knows what they'll find. The European Federation of Financial Services Users wrote in an
official EU survey last summer that all of these systems are ripe targets for manipulation. "In general," it wrote,
"those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on
such benchmarks are especially vulnerable of market abuse and distortion."
Translation: When prices are set by companies that can profit by manipulating them, we're
"You name it," says Frenk. "Any of these benchmarks is a possibility for corruption."
The only reason this problem has not received the attention it deserves is because the scale of it
is so enormous that ordinary people simply cannot see it. It's not just stealing by reaching a hand into your
pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever's in
your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it's
only just coming into view.
This story is from the May 9th, 2013 issue of Rolling Stone.
From The Archives Issue 1182: May 9, 2013
How HSBC hooked up with drug traffickers and terrorists.
And got away with it
By Matt Taibbi | February 14, 2013
The deal was announced quietly, just before
the holidays, almost like the government was hoping people were too busy hanging stockings by the fireplace to
notice. Flooring politicians, lawyers and investigators all over the world, the U.S. Justice Department granted a
total walk to executives of the British-based bank HSBC for the largest drug-and-terrorism money-laundering case
ever. Yes, they issued a fine – $1.9 billion, or about five weeks' profit – but they didn't extract so much as one
dollar or one day in jail from any individual, despite a decade of stupefying abuses.
People may have outrage fatigue about Wall Street, and more stories about billionaire greedheads
getting away with more stealing often cease to amaze. But the HSBC case went miles beyond the usual paper-pushing,
keypad-punching sort-of crime, committed by geeks in ties, normally associated with Wall Street. In this case,
the bank literally got away with murder – well, aiding and abetting it, anyway.
Daily Beast: HSBC Report Should Result in Prosecutions, Not Just Fines, Say Critics
For at least half a decade, the storied British colonial banking power helped to wash hundreds of
millions of dollars for drug mobs, including Mexico's Sinaloa drug cartel, suspected in tens of thousands of
murders just in the past 10 years – people so totally evil, jokes former New York Attorney General Eliot Spitzer,
that "they make the guys on Wall Street look good." The bank also moved money for organizations linked to Al Qaeda
and Hezbollah, and for Russian gangsters; helped countries like Iran, the Sudan and North Korea evade sanctions;
and, in between helping murderers and terrorists and rogue states, aided countless common tax cheats in hiding
"They violated every goddamn law in the book," says Jack Blum, an attorney and former Senate
investigator who headed a major bribery investigation against Lockheed in the 1970s that led to the passage of the
Foreign Corrupt Practices Act. "They took every imaginable form of illegal and illicit business."
That nobody from the bank went to jail or paid a dollar in individual fines is nothing new in this
era of financial crisis. What is different about this settlement is that the Justice Department, for the first
time, admitted why it decided to go soft on this particular kind of criminal. It was worried that anything more
than a wrist slap for HSBC might undermine the world economy. "Had the U.S. authorities decided to press criminal
charges," said Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, "HSBC
would almost certainly have lost its banking license in the U.S., the future of the institution would have been
under threat and the entire banking system would have been destabilized."
It was the dawn of a new era. In the years just after 9/11, even being breathed on by a suspected
terrorist could land you in extralegal detention for the rest of your life. But now, when you're Too Big to Jail,
you can cop to laundering terrorist cash and violating the Trading With the Enemy Act, and not only will you not be
prosecuted for it, but the government will go out of its way to make sure you won't lose your license. Some on the
Hill put it to me this way: OK, fine, no jail time, but they can't even pull their charter? Are you kidding?
But the Justice Department wasn't finished handing out Christmas goodies. A little over a week
later, Breuer was back in front of the press, giving a cushy deal to another huge international firm, the Swiss
bank UBS, which had just admitted to a key role in perhaps the biggest antitrust/price-fixing case in history, the
so-called LIBOR scandal, a massive interest-raterigging conspiracy involving hundreds of trillions ("trillions,"
with a "t") of dollars in financial products. While two minor players did face charges, Breuer and the Justice
Department worried aloud about global stability as they explained why no criminal charges were being filed against
the parent company.
"Our goal here," Breuer said, "is not to destroy a major financial institution."
A reporter at the UBS presser pointed out to Breuer that UBS had already been busted in 2009 in a
major tax-evasion case, and asked a sensible question. "This is a bank that has broken the law before," the
reporter said. "So why not be tougher?"
"I don't know what tougher means," answered the assistant attorney general.
Also known as the Hong Kong and Shanghai Banking Corporation, HSBC has always been associated with
drugs. Founded in 1865, HSBC became the major commercial bank in colonial China after the conclusion of the Second
Opium War. If you're rusty in your history of Britain's various wars of Imperial Rape, the Second Opium War was the
one where Britain and other European powers basically slaughtered lots of Chinese people until they agreed to
legalize the dope trade (much like they had done in the First Opium War, which ended in 1842).
A century and a half later, it appears not much has changed. With its strong on-the-ground presence
in many of the various ex-colonial territories in Asia and Africa, and its rich history of cross-cultural moral
flexibility, HSBC has a very different international footprint than other Too Big to Fail banks like Wells Fargo or
Bank of America. While the American banking behemoths mainly gorged themselves on the toxic residential-mortgage
trade that caused the 2008 financial bubble, HSBC took a slightly different path, turning itself into the
destination bank for domestic and international scoundrels of every possible persuasion.
Three-time losers doing life in California prisons for street felonies might be surprised to learn
that the no-jail settlement Lanny Breuer worked out for HSBC was already the bank's third strike. In fact, as a
mortifying 334-page report issued by the Senate Permanent Subcommittee on Investigations last summer made plain,
HSBC ignored a truly awesome quantity of official warnings.
In April 2003, with 9/11 still fresh in the minds of American regulators, the Federal Reserve sent
HSBC's American subsidiary a cease-and-desist letter, ordering it to clean up its act and make a better effort to
keep criminals and terrorists from opening accounts at its bank. One of the bank's bigger customers, for instance,
was Saudi Arabia's Al Rajhi bank, which had been linked by the CIA and other government agencies to terrorism.
According to a document cited in a Senate report, one of the bank's founders, Sulaiman bin Abdul Aziz Al Rajhi, was
among 20 early financiers of Al Qaeda, a member of what Osama bin Laden himself apparently called the "Golden
Chain." In 2003, the CIA wrote a confidential report about the bank, describing Al Rajhi as a "conduit for
extremist finance." In the report, details of which leaked to the public by 2007, the agency noted that Sulaiman Al
Rajhi consciously worked to help Islamic "charities" hide their true nature, ordering the bank's board to "explore
financial instruments that would allow the bank's charitable contributions to avoid official Saudi scrutiny." (The
bank has denied any role in financing extremists.)
In January 2005, while under the cloud of its first double-secret-probation agreement with the
U.S., HSBC decided to partially sever ties with Al Rajhi. Note the word "partially": The decision would only apply
to Al Rajhi banking and not to its related trading company, a distinction that tickled executives inside the bank.
In March 2005, Alan Ketley, a compliance officer for HSBC's American subsidiary, HBUS, gleefully told Paul Plesser,
head of his bank's Global Foreign Exchange Department, that it was cool to do business with Al Rajhi Trading.
"Looks like you're fine to continue dealing with Al Rajhi," he wrote. "You'd better be making lots of money!"
But this backdoor arrangement with bin Laden's suspected "Golden Chain" banker wasn't direct enough
– many HSBC executives wanted the whole shebang restored. In a remarkable e-mail sent in May 2005, Christopher Lok,
HSBC's head of global bank notes, asked a colleague if they could maybe go back to fully doing business with Al
Rajhi as soon as one of America's primary banking regulators, the Office of the Comptroller of the Currency, lifted
the 2003 cease-and-desist order: "After the OCC closeout and that chapter is hopefully finished, could we revisit
Al Rajhi again? London compliance has taken a more lenient view."
After being slapped with the order in 2003, HSBC began blowing off its requirements both in letter
and in spirit – and on a mass scale, too. Instead of punishing the bank, though, the government's response was to
send it more angry letters. Typically, those came in the form of so-called "MRA" (Matters Requiring Attention)
letters sent by the OCC. Most of these touched upon the same theme, i.e., HSBC failing to do due diligence on the
shady characters who might be depositing money in its accounts or using its branches to wire money. HSBC racked up
these "You're Still Screwing Up and We Know It" orders by the dozen, and in just one brief stretch between 2005 and
2006, it received 30 different formal warnings.
Nonetheless, in February 2006 the OCC under George Bush suddenly decided to release HSBC from the
2003 cease-and-desist order. In other words, HSBC basically violated its parole 30 times in just more than a year
and got off anyway. The bank was, to use the street term, "off paper" – and free to let the Al Rajhis of the world
come rushing back.
After HSBC fully restored its relationship with the apparently terrorist-friendly Al Rajhi Bank in
Saudi Arabia, it supplied the bank with nearly 1 billion U.S. dollars. When asked by HSBC what it needed all its
American cash for, Al Rajhi explained that people in Saudi Arabia need dollars for all sorts of reasons. "During
summer time," the bank wrote, "we have a high demand from tourists traveling for their vacations."
The Treasury Department keeps a list compiled by the Office of Foreign Assets Control, or OFAC, and
American banks are not supposed to do business with anyone on the OFAC list. But the bank knowingly helped banned
individuals elude the sanctions process. One such individual was the powerful Syrian businessman Rami Makhlouf, a
close confidant of the Assad family. When Makhlouf appeared on the OFAC list in 2008, HSBC responded not by
severing ties with him but by trying to figure out what to do about the accounts the Syrian power broker had in its
Geneva and Cayman Islands branches. "We have determined that accounts held in the Caymans are not in the
jurisdiction of, and are not housed on any systems in, the United States," wrote one compliance officer.
"Therefore, we will not be reporting this match to OFAC."
Translation: We know the guy's on a terrorist list, but his accounts are in a place the Americans
can't search, so screw them.
Remember, this was in 2008 – five years after HSBC had first been caught doing this sort of thing.
And even four years after that, when being grilled by Michigan Sen. Carl Levin in July 2012, an HSBC executive
refused to absolutely say that the bank would inform the government if Makhlouf or another OFAC-listed name popped
up in its system – saying only that it would "do everything we can."
The Senate exchange highlighted an extremely frustrating dynamic government investigators have had
to face with Too Big to Jail megabanks: The same thing that makes them so attractive to shady customers – their
ability to instantaneously move money around the world to places like the Cayman Islands and Switzerland – makes it
easy for them to play dumb with regulators by hiding behind secrecy laws.
When it wasn't banking for shady Third World characters, HSBC was training its mental firepower on
the problem of finding creative ways to allow it to do business with countries under U.S. sanction, particularly
Iran. In one memo from HSBC's Middle East subsidiary, HBME, the bank notes that it could make a lot of money with
Iran, provided it dealt with what it termed "difficulties" – you know, those pesky laws.
"It is anticipated that Iran will become a source of increasing income for the group going
forward," the memo says, "and if we are to achieve this goal we must adopt a positive stance when encountering
The "positive stance" included a technique called "stripping," in which foreign subsidiaries like
HSBC Middle East or HSBC Europe would remove references to Iran in wire transactions to and from the United States,
often putting themselves in place of the actual client name to avoid triggering OFAC alerts. (In other words, the
transaction would have HBME listed on one end, instead of an Iranian client.)
For more than half a decade, a whopping $19 billion in transactions involving Iran went through the
American financial system, with the Iranian connection kept hidden in 75 to 90 percent of those transactions. HSBC
has been headquartered in England for more than two decades – it's Europe's largest bank, in fact – but it has
major subsidiary operations in every corner of the world. What's come out in this investigation is that the chiefs
in the parent company often knew about shady transactions when the regional subsidiary did not. In the case of
banned Iranian transactions, for instance, there are multiple e-mails from HSBC's compliance head, David Bagley, in
which he admits that HSBC's American subsidiary probably has no clue that HSBC Europe has been sending it buttloads
of banned Iranian money.
"I am not sure that HBUS are aware of the fact that HBEU are already providing clearing facilities
for four Iranian banks," he wrote in 2003. The following year, he made the same observation. "I suspect that HBUS
are not aware that [Iranian] payments may be passing through them," he wrote.
What's the upside for a bank like HSBC to do business with banned individuals, crooks and so on?
The answer is simple: "If you have clients who are interested in 'specialty services' – that's the euphemism for
the bad stuff – you can charge 'em whatever you want," says former Senate investigator Blum. "The margin on
laundered money for years has been roughly 20 percent."
Those charges might come in many forms, from upfront fees to promises to keep deposits at the bank
for certain lengths of time. However you structure it, the possibilities for profit are enormous, provided you're
willing to accept money from almost anywhere. HSBC, its roots in the raw battlefield capitalism of the old British
colonies and its strong presence in Asia, Africa and the Middle East, had more access to customers needing
"specialty services" than perhaps any other bank.
And it worked hard to satisfy those customers. In perhaps the pinnacle innovation in the history of
sleazy banking practices, HSBC ran a preposterous offshore operation in Mexico that allowed anyone to walk into any
HSBC Mexico branch and open a U.S.-dollar account (HSBC Mexico accounts had to be in pesos) via a so-called "Cayman
Islands branch" of HSBC Mexico. The evidence suggests customers barely had to submit a real name and address, much
less explain the legitimate origins of their deposits.
If you can imagine a drive-thru heart-transplant clinic or an airline that keeps a fully-stocked
minibar in the cockpit of every airplane, you're in the ballpark of grasping the regulatory absurdity of HSBC
Mexico's "Cayman Islands branch." The whole thing was a pure shell company, run by Mexicans in Mexican bank
At one point, this figment of the bank's corporate imagination had 50,000 clients, holding a total
of $2.1 billion in assets. In 2002, an internal audit found that 41 percent of reviewed accounts had incomplete
client information. Six years later, an e-mail from a high-ranking HSBC employee noted that 15 percent of customers
didn't even have a file. "How do you locate clients when you have no file?" complained the executive.
It wasn't until it was discovered that these accounts were being used to pay a U.S. company
allegedly supplying aircraft to Mexican drug dealers that HSBC took action, and even then it closed only some of
the "Cayman Islands branch" accounts. As late as 2012, when HSBC executives were being dragged before the U.S.
Senate, the bank still had 20,000 such accounts worth some $670 million – and under oath would only say that the
bank was "in the process" of closing them.
Meanwhile, throughout all of this time, U.S. regulators kept examining HSBC. In an absurdist
pattern that would continue through the 2000s, OCC examiners would conduct annual reviews, find the same disturbing
shit they'd found for years, and then write about the bank's problems as though they were being discovered for the
first time. From the 2006 annual OCC review: "During the year, we identified a number of areas lacking consistent,
vigilant adherence to BSA/AML policies.?.?.?.?Management responded positively and initiated steps to correct
weaknesses and improve conformance with bank policy. We will validate corrective action in the next examination
Translation: These guys are assholes, but they admit it, so it's cool and we won't do anything.
A year later, on July 24th, 2007, OCC had this to say: "During the past year, examiners identified
a number of common themes, in that businesses lacked consistent, vigilant adherence to BSA/AML policies. Bank
policies are acceptable.?.?.?.?Management continues to respond positively and initiated steps to improve
conformance with bank policy."
Translation: They're still assholes, but we've alerted them to the problem and everything'll be
By then, HSBC's lax money-laundering controls had infected virtually the entire company. Russians
identifying themselves as used-car salesmen were at one point depositing $500,000 a day into HSBC, mainly through a
bent traveler's-checks operation in Japan. The company's special banking program for foreign embassies was so
completely fucked that it had suspicious-activity alerts backed up by the thousands. There is also strong evidence
that the bank was allowing clients in Sudan, Cuba, Burma and North Korea to evade sanctions.
When one of the company's compliance chiefs, Carolyn Wind, raised concerns that she didn't have
enough staff to monitor suspicious activities at a board meeting in 2007, she was fired. The sheer balls it took
for the bank to ignore its compliance executives and continue taking money from so many different shady sources
while ostensibly it had regulators swarming all over its every move is incredible. "You can't make up more
egregious money-laundering that permeated an entire institution," says Spitzer.
By the late 2000s, other law enforcement agencies were beginning to catch HSBC's scent. The
Department of Homeland Security started investigating HSBC for laundering drug money, while the attorney general's
office in West Virginia snooped around HSBC's involvement in a Medicare-fraud case. A federal intra-agency meeting
was convened in Washington in September 2009, at which it was determined that HSBC was out of control and needed to
be investigated more closely.
The bank itself was then notified that its usual OCC review was being "expanded." More OCC staff
was assigned to pore through HSBC's books, and, among other things, they found a backlog of 17,000 alerts of
suspicious activity that had not been processed. They also noted that the bank had a similar pileup of subpoenas in
Finally it seemed the government was on the verge of becoming genuinely pissed off. In March 2010,
after seeing countless ultimatums ignored, they issued one more, giving HSBC three months to clear that goddamned
17,000-alert backlog or else there would be serious consequences. HSBC met that deadline, but months later the OCC
again found the bank's money-laundering controls seriously wanting, forcing the government to take,
well?.?.?.?drastic action, right?
Sort of! In October 2010, the OCC took a deep breath, strapped on its big-boy pants
and?.?.?.?issued a second cease-and-desist order!
In other words, it was "Don't Do It Again" – again. The punishment for all of that dastardly
defiance was to bring the regulatory process right back to the same kind of double-secret-probation order they'd
tried in 2003.
Not to say that HSBC didn't make changes after the second Don't Do It Again order. It did – it
hired some people.
In the summer of 2010, 25-year-old Everett Stern was just out of business school, fighting a mild
case of wanderlust and looking for a job but also for adventure. His dream was to be a CIA agent, battling bad guys
and snatching up Middle Eastern terrorists. He applied to the agency's clandestine service, had an interview even,
but just before graduation, the bespectacled, youthfully exuberant Stern was turned down.
He was crushed, but then he found an online job posting that piqued his interest. HSBC, a major
international bank, was looking for people to help with its anti-money-laundering program. "I thought this was
exactly what I wanted to do," he says. "It sounded so exciting."
Stern went up to HSBC's offices in New Castle, Delaware, for an interview, and that October, just
days after the OCC issued the second Don't Do It Again letter, he started work as part of HSBC's "expanded"
From the outset, Stern knew there was something weird about his job. "I had to go to the library to
take out books on money-laundering," Stern says now, laughing. "That's how bad it was." There were no training
courses or seminars on money-laundering – what it was, how to detect it. His work mainly consisted of looking up
the names of unsavory characters on the Internet and then running them through the bank's internal systems to see
if they popped up on any account names anywhere.
Even weirder, nobody seemed to care if anybody was doing any actual work. The Delaware office was
mostly empty for a long while, just a giant unpainted room with a few hastily arranged cubicles and only a dozen or
so people in it, and nobody really watching any of the workers. Stern and a fellow co-worker would routinely
finish all their work by 10:30 in the morning, then spend a few hours throwing rocks into a quarry located behind
the bank offices. Then they would go back to their cubicles and hang out until 3 p.m. or so, or until it was at
least plausible that they'd put in a real workday. "If we asked for any more work," Stern says, "they got
Stern earned a starting salary of $54,900.
Soon enough, though, out of boredom and also maybe a little bit of patriotism, Stern started to
sift through some of the backlogged alerts and tried to make sense of them. Almost immediately, he found a series
of deeply concerning transactions. There was an exchange company wiring large sums of money to untraceable
destinations in the Middle East. A Saudi fruit company was sending millions, Stern found with a simple Internet
search, to a high-ranking figure in the Yemeni wing of the Muslim Brotherhood. Stern even learned that HSBC was
allowing millions of dollars to be moved from the Karaiba chain of supermarkets in Africa to a firm called Tajco,
run by the Tajideen brothers, who had been singled out by the Treasury Department as major financiers of
Every time Stern brought one of these discoveries to his bosses, they rolled their eyes at him, if
not worse. When he alerted his boss that a shipping company with ties to Iran was doing a lot of business with the
bank, he blew up. "You called me over for this?" the boss snapped.
Soon after, the empty office started to fill up. What HSBC did in the way of hiring new staff was
actually pretty clever. It liquidated its credit-card-collections unit and moved the bulk of the employees over to
the anti-money-laundering department. Again, without really training anyone at all, it put hundreds of loud,
gum-chewing, mostly uneducated, occasionally rowdy call-center workers on a new gig, turning them into
Stern says his co-workers not only sucked at their jobs, they didn't even know what their jobs
were. "You could walk into that building today," he says, "and ask anyone there what moneylaundering is – and I
guarantee you, no one will know."
When something fishy pops up in connection with a bank account, the bank generates an alert. An
alert can be birthed by almost anything, from someone wiring $9,999 (to keep under the $10K reporting level) to
someone wiring large sums in round numbers to someone else opening an account with a phony-sounding name or
When an alert gets generated, the bank is supposed to promptly investigate the matter. If the bank
doesn't clear the alert, it creates a "Suspicious Activity Report," which is handed over to the Treasury Department
to be investigated.
Stern then found himself in the middle of a perverse sort-of anticompliance mechanism. HSBC had
"complied" with the government's Don't Do It Again, Again order by hiring hundreds of bodies whom it turned into an
army for whitewashing suspicious transactions. Remember, the complaint against HSBC was not so much that it had
specifically allowed terrorist or drug money through, but that it had allowed suspicious accounts to pile up
without being checked.
The boss at Stern's Delaware office gave his new team goals: Everyone was to try to clear 72 alerts
a week. For those of you keeping score at home, that's nearly two alerts investigated and cleared every hour.
According to Stern, almost any kind of information was good enough to clear an alert. "Basically, if a company had
a website, you could clear them," he says.
Soon enough, HSBC's compliance executives were circulating cheery e-mails. "Great job by some
Delaware professionals in the early part of the week," wrote Stern's boss on June 30th, 2011. The e-mail was
subject-lined, "The 60-plus crowd," signifying accolades to employees who had cleared more than 60 suspicious
transactions that week.
After trying in vain to convince his bosses to at least let him do his job and look for
money-laundering, Stern decided to turn whistle-blower, telling the FBI and other agencies what was going on at the
bank. He left work at HSBC in 2011, fully expecting that the government would drop the hammer on his former
By that time, numerous agencies, including the Department of Homeland Security, had crawled all the
way up HSBC's backside, among other things examining it as part of a major international narcotics investigation.
In one four-year period between 2006 and 2009, an astonishing $200 trillion in wire transfers (including from
high-risk countries like Mexico) went through without any monitoring at all. The bank also failed to do due
diligence on the purchase of an incredible $9 billion in physical U.S. dollars from Mexico and played a key role in
the so-called Black Market Peso Exchange, which allowed drug cartels in both Mexico and Colombia to convert U.S.
dollars from drug sales into pesos to be used back home. Drug agents discovered that dealers in Mexico were
building special cash boxes to fit the precise dimensions of HSBC teller windows.
Former bailout inspector and federal prosecutor Neil Barofsky, who has helped secure numerous
foreign money-laundering indictments, points out that the people HSBC was doing business with, like Colombia's
Norte del Valle and Mexico's Sinaloa cartels, were "the worst trafficking organizations imaginable" – groups that
don't just commit murder on a mass scale but are known for beheadings, torture videos ("the new thing now," he
says) and other atrocities, none of which happens without money launderers. It's for this reason, Barofsky says,
that drug prosecutors are not shy about dropping heavy prison sentences on launderers. "Frankly, our view of
money-laundering was that it was on par with, and as significant as, the traffickers themselves," he says.
Barofsky was involved in the first extradition of a Colombian national (Pablo Trujillo, a member of
the same cartel that HSBC moved money for) on moneylaundering charges. "That guy got 10 years," says Barofsky.
"HSBC was doing the same thing, only on a much larger scale than my schmuck was doing."
Clearly, HSBC had violated the 2010 Don't Do It Again, Again order. Everett Stern saw it with his
own eyes; so did the OCC and the U.S. Senate, whose Permanent Subcommittee on Investigations decided to target the
company for a yearlong investigation into global money-laundering. The bank itself, in response to the Senate
investigation, acknowledged that it had "sometimes failed to meet the standards that regulators and customers
expect." It would later go on to say that it was even "profoundly sorry."
A few days after Thanksgiving 2012, Stern heard that the Justice Department was about to announce a
settlement. Since he'd left HSBC the year before, he'd had a rough time. Going public with his allegations had
left him emotionally and financially devastated. He'd been unable to find a job, and at one point even applied for
welfare. But now that the feds were finally about to drop the hammer on HSBC, he figured he'd have the satisfaction
of knowing that his sacrifice had been worthwhile.
So he went to New York and sat in a hotel room, waiting for reporters to call for his comments.
When he heard the news that the "punishment" Breuer had announced was a deferred prosecution agreement – a Don't Do
It Again, Again, Again agreement, if you will – he was flabbergasted.
"I thought, 'All that, for nothing?'?" he says. "I couldn't believe it."
The writer Ambrose Bierce once said there's only one thing in the world worse than a clarinet: two
clarinets. In the same vein, there's only one thing worse than a totally corrupt bank: many corrupt banks.
If the HSBC deal showed how much dastardly crap the state could tolerate from one bank, Breuer was
back a week later to show that the government would go just as easy on banks that team up with other banks to
perpetrate even bigger scandals. On December 19th, 2012, he announced that the Justice Department was essentially
letting Swiss banking giant UBS off the hook for its part in what is likely the biggest financial scam of all
The so-called LIBOR scandal, which is at the heart of the UBS settlement, makes Enron look like a
parking violation. Many of the world's biggest banks, including Switzerland's UBS, Britain's Barclays and the Royal
Bank of Scotland, got together and secretly conspired to manipulate the London Interbank Offered Rate, or LIBOR,
which measures the rate at which banks lend to each other. Many, if not most, interest rates are pegged to LIBOR.
The prices of hundreds of trillions of dollars of financial products are tied to LIBOR, everything from commercial
loans to credit cards to mortgages to municipal bonds to swaps and currencies.
If you can imagine executives at Ford, GM, Mitsubishi, BMW and Mercedes getting together every
morning to fix the prices of aluminum and stainless steel, you have a rough idea of what the LIBOR scandal is like,
except that in the car-company analogy, you'd be dealing with absurdly smaller numbers. These are the world's
biggest banks getting together every morning to essentially fix the price of money. Low LIBOR rates are an
indicator that banks are strong and healthy. These banks were faking the results of their daily physicals. In
banking terms, they were juicing.
Two different types of manipulation took place. In 2008, during the heat of the global crash, banks
artificially submitted low rates in order to present an image of financial soundness to the markets. But at other
times over the course of years, individual traders schemed to move rates up or down in order to profit on
There is nobody anywhere growing weed strong enough to help the human mind grasp the enormity of
this crime. It's a conspiracy so massive that the lawyers who are suing the banks are having an extremely difficult
time figuring out how to calculate the damage.
Here's how it works: Every morning, 16 of the world's largest banks submit numbers to a
Londonbased panel indicating what interest rates they're charging other banks to borrow money and what they
themselves are charged. The LIBOR panel then takes those 16 different interest rates, tosses out the four highest
and the four lowest, and averages out the remaining eight to create that day's LIBOR rates – the basis for interest
rates almost everywhere in the world.
The fact that the LIBOR panel tosses out the four highest and lowest numbers every day is an
important detail, because it means that it is difficult to artificially influence the final rate unless multiple
banks are conspiring with each other. One bank lying its ass off and reporting that banks are lending money to each
other basically for free doesn't move the needle much. To really be sure you're creating an artificially low or
high interest rate, you need a bunch of banks on board – and it turns out that they were.
For perhaps as far back as 20 years, banks have been submitting phony numbers, often in concert
with other banks. They did it for a variety of reasons, but the big one, typically, is that a bank trader is
holding some investment tied to LIBOR – bundles of currencies, municipal bonds, mortgages, whatever – that would
earn more money if the interest rate was lower. So what would happen is, some schmuck trader at Bank X would call
the LIBOR submitter and offer him cash, booze, a blow job or just a pat on the back to get him to submit a fake
number that day.
The scandal first blew up last year when the British megabank Barclays admitted to its part in the
fixing of LIBOR rates. British regulators released a cache of disgusting e-mails showing traders from many
different banks cheerfully monkeying around with your credit-card bills, your mortgage rates, your tax bill, your
IRA account, etc., so that they could make out better on some sordid trade they had on that day. In one case, a
trader from an unnamed bank sent an e-mail to a Barclays trader thanking him for helping to fix interest rates and
promising a kickass bottle of bubbly for his efforts:
"Dude. I owe you big time! Come over one day after work, and I'm opening a bottle of
UBS was the next bank to confess, and its settlement – $1.5 billion in fines – was much the same,
only the e-mails released were, if anything, more disgusting and damning. The British Financial Services Authority
– equivalent to our SEC – discovered thousands of requests to fudge rates over a period of years involving dozens
of different individuals and multiple banks. In many cases, the misdeeds were committed more or less openly, in
writing, with traders and brokers baldly offering bribes in texts and e-mails with an obvious unconcern for
punishment that later, sadly, proved justified.
"I will fucking do one humongous deal with you," begged one UBS trader who wanted a broker to fix
the rate. "I'll pay, you know, $50,000, $100,000."
British regulators aren't hiding the size of the scandal. The UBS settlement demonstrated, without
a doubt, that the LIBOR scandal involved more than just one or two banks, and probably involved hundreds of people
at many of the world's largest and most prestigious financial institutions – in other words, a truly epic case of
anti-competitive collusion that called into question whether the world's biggest banks are innovating a new,
not-entirely capitalist form of high finance. "We have said there are five further institutions under
investigation," says Christopher Hamilton of the FSA. "And there is a large number of individuals as well." (At
press time, another bank, the Royal Bank of Scotland, also settled for LIBOR-related offenses.)
This dovetailed with what Bob Diamond, the former head of Barclays, told the British Parliament the
day after he stepped down last year. "There is an industrywide problem coming out now," he said. Michael Hausfeld,
a famed class-action lawyer who is suing the banks over LIBOR on behalf of cities like Baltimore whose investments
lost money when interest rates were lowered, says the public still hasn't grasped the importance of comments like
Diamond's. "Diamond essentially said, 'This is an industrywide problem,'" Hausfeld says. "But nobody has defined
what this is yet."
Hausfeld's point – that Diamond's "industrywide problem" might be more than just a few guys messing
with rates; it could be a systemic effort to pervert capitalism itself – underscores the extreme miscalculation of
both recent no-prosecution deals.
At HSBC, the bank did more than avert its eyes to a few shady transactions. It repeatedly defied
government orders as it made a conscious, years-long effort to completely stop discriminating between illegitimate
and legitimate money. And when it somehow talked the U.S. government into crafting a settlement over these offenses
with the lunatic aim of preserving the bank's license, it succeeded, finally, in making crime mainstream.
UBS, meanwhile, was a similarly elemental case, in which the offenses didn't just violate the
letter of the law – they threatened the integrity of the competitive system. If you're going to let hundreds of
boozed-up bankers spend every morning sending goofball e-mails to each other, giving each other superhero
nicknames while they rigged the cost of money (spelling-challenged UBS traders dubbed themselves, among other
things, "captain caos," the "three muscateers" and "Superman"), you might as well give up on capitalism entirely
and just declare the 16 biggest banks in the world the International Bureau of Prices.
Thus, in the space of just a few weeks, regulators in Britain and America teamed up to declare
near-total surrender to both crime and monopoly. This was more than a couple of cases of letting rich guys walk.
These were major policy decisions that will reverberate for the next generation.
Even worse than the actual settlements was the explanation Breuer offered for them. "In the world
today of large institutions, where much of the financial world is based on confidence," he said, "a right
resolution is to ensure that counter-parties don't flee an institution, that jobs are not lost, that there's not
some world economic event that's disproportionate to the resolution we want."
In other words, Breuer is saying the banks have us by the balls, that the social cost of putting
their executives in jail might end up being larger than the cost of letting them get away with, well, anything.
This is bullshit, and exactly the opposite of the truth, but it's what our current government
believes. From JonBenet to O.J. to Robert Blake, Americans have long understood that the rich get good lawyers and
get off, while the poor suck eggs and do time. But this is something different. This is the government admitting to
being afraid to prosecute the very powerful – something it never did even in the heydays of Al Capone or Pablo
Escobar, something it didn't do even with Richard Nixon. And when you admit that some people are too important to
prosecute, it's just a few short steps to the obvious corollary – that everybody else is unimportant enough to
An arrestable class and an unarrestable class. We always suspected it, now it's admitted. So what
do we do?
The Scam Wall Street Learned From the
How America's biggest banks took part in a nationwide
bid-rigging conspiracy - until they were caught on tape
By Matt Taibbi | June 21, 2012
Someday, it will go down in history as the
first trial of the modern American mafia. Of course, you won't hear the recent financial corruption case, United
States of America v. Carollo, Goldberg and Grimm, called anything like that. If you heard about it at all, you're
probably either in the municipal bond business or married to an antitrust lawyer. Even then, all you probably heard
was that a threesome of bit players on Wall Street got convicted of obscure antitrust violations in one of the most
inscrutable, jargon-packed legal snoozefests since the government's massive case against Microsoft in the Nineties
– not exactly the thrilling courtroom drama offered by the famed trials of old-school mobsters like Al Capone or
Anthony "Tony Ducks" Corallo.
But this just-completed trial in downtown New York against three faceless financial executives
really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first
time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little
Italy and Las Vegas, but out of Wall Street.
The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE
Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall
Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more
– these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim
billions of dollars from the coffers of cities and small towns across America. The banks achieved this gigantic
rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By
conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from
schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United
States," according to one settlement. And they did it so cleverly that the victims never even knew they were being
cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and
lots of it, and its manner of disappearance had a familiar name: organized crime.
In fact, stripped of all the camouflaging financial verbiage, the crimes the defendants and their
co-conspirators committed were virtually indistinguishable from the kind of thuggery practiced for decades by the
Mafia, which has long made manipulation of public bids for things like garbage collection and construction
contracts a cornerstone of its business. What's more, in the manner of old mob trials, Wall Street's secret
machinations were revealed during the Carollo trial through crackling wiretap recordings and the lurid testimony of
cooperating witnesses, who came into court with bowed heads, pointing fingers at their accomplices. The new-age
gangsters even invented an elaborate code to hide their crimes. Like Elizabethan highway robbers who spoke in
thieves' cant, or Italian mobsters who talked about "getting a button man to clip the capo," on tape after tape
these Wall Street crooks coughed up phrases like "pull a nickel out" or "get to the right level" or "you're hanging
out there" – all code words used to manipulate the interest rates on municipal bonds. The only thing that made this
trial different from a typical mob trial was the scale of the crime.
USA v. Carollo involved classic cartel activity: not just one corrupt bank, but many, all acting in
careful concert against the public interest. In the years since the economic crash of 2008, we've seen numerous
hints that such orchestrated corruption exists. The collapses of Bear Stearns and Lehman Brothers, for instance,
both pointed to coordinated attacks by powerful banks and hedge funds determined to speed the demise of those
firms. In the bankruptcy of Jefferson County, Alabama, we learned that Goldman Sachs accepted a $3 million bribe
from J.P. Morgan Chase to permit Chase to serve as the sole provider of toxic swap deals to the rubes running
metropolitan Birmingham – "an open-and-shut case of anti-competitive behavior," as one former regulator described
More recently, a major international investigation has been launched into the manipulation of
Libor, the interbank lending index that is used to calculate global interest rates for products worth more than $3
trillion a year. If and when that case is presented to the public at trial – there are several major civil suits in
the works here in the States – we may yet find out that the world's most powerful banks have, for years, been
fixing the prices of almost every adjustable-rate vehicle on earth, from mortgages and credit cards to
interest-rate swaps and even currencies.
But USA v. Carollo marks the first time we actually got incontrovertible evidence that Wall Street
has moved into this cartel-type brand of criminality. It also offered a disgusting glimpse into the enabling and
grossly cynical role played by politicians, who took Super Bowl tickets and bribe-stuffed envelopes to look the
other way while gangsters raided the public kitty. And though the punishments that were ultimately handed down in
the trial – minor convictions of three bit players – felt deeply unsatisfying, it was still a watershed moment in
the ongoing story of America's gradual awakening to the realities of financial corruption. In a post-crash era
where Wall Street trials almost never make it into court, and even the harshest settlements end with the evidence
buried by the government and the offending banks permitted to escape with no admission of wrongdoing, this case
finally dragged the whole ugly truth of American finance out into the open – and it was a hell of a show.
1. THE SCAM
This was no trial scene from popular lore, no Inherit the Wind or State of California v. Orenthal James Simpson. No
gallery packed with rapt spectators, no ceiling fans set whirring to beat back the tension and the heat, no defense
counsel's resting a sympathetic hand on the defendant's shoulder as opening statements commence. No, the setting
for USA v. Carollo reflected the bizarre alternate universe that exists on Wall Street. Like so many court cases
involving big banks, the proceeding looked more like a roomful of expensive lawyers negotiating a major corporate
merger than a public search for justice.
The trial began on April 16th in a federal court in Lower Manhattan. The courtroom, an aerielike
setting 23 stories up, offered a panoramic view of the city and the East River. Though the gallery was usually full
throughout the three-plus weeks of testimony, the spectators were not average citizens come to witness how they had
been robbed blind by America's biggest banks. Instead, there were row after row of suits – other lawyers eager to
observe a long-awaited case, one that could influence the outcome in a handful of civil suits pending across the
country. In fact, the defendants themselves, whom the trial would reveal as easily replaceable cogs in a much
larger machine of corruption, were barely visible from the gallery, obscured by the great chattering congress of
prosecution and defense attorneys.
Only the presence of the mostly nonwhite and elderly jury, which resembled the front pew of a
Harlem church, served as a reminder that the case had any connection to the real world. Even reporters from most of
the major news outlets didn't bother to attend. The judge in the trial, the right honorable and amusingly
cantankerous Harold Baer, acknowledged that the case was not likely to set the public's pulse racing. "It is
unlikely, I think, that this will generate a lot of media publicity," Baer sighed to the jury in his preliminary
Once opening statements began, it was easy to see why the press might stay away. One of the main
lines of defense for corrupt Wall Street institutions in recent years has been the extreme complexity of the
infrastructure within which these crimes are committed. In order for prosecutors to win convictions, they have to
drag ordinary Americans, people who watch and enjoy reality TV, up the steepest of learning curves, coaching them
into game shape with regard to obscure financial vehicles like swaps and CDOs and, in this case, Guaranteed
So it was no surprise that both the prosecution and the defense began their opening remarks to the
jury by apologizing for the hellishly dull maze of "convoluted" and "boring" and "tedious" financial transactions
they were about to spend weeks hearing about. Only Wendy Waszmer, the feisty federal prosecutor with straight brown
hair and an elfin build who presented the government's case, succeeded in cutting through the mountainous dung heap
of acronyms and obfuscations and explaining what the case was about. "Even though some aspects of municipal bond
finance are complex, the fraud here was simple," she told the jurors. "It was about lying and cheating cities and
towns in a bidding process that was in place to protect them."
The "simple fraud" Waszmer described centered around public borrowing. Say your town wants to build
a new elementary school. So it goes to Wall Street, which issues a bond in your town's name to raise $100 million,
attracting cash from investors all over the globe. Once Wall Street raises all that money, it dumps it in a
tax-exempt account, which your town then uses to pay builders, plumbers, the chalkboard company and whoever else
winds up working on the project.
But here's the catch: Most towns, when they raise all that money, don't spend it all at once. Often
it takes years to complete a construction project, and the last contractor isn't paid until long after the original
bond is issued. While that unspent money is sitting in the town's account, local officials go looking for a
financial company on Wall Street to invest it for them.
To do that, officials hire a middleman firm known as a broker to set up a public auction and invite
banks to compete for the town's business. For the $100 million you borrowed on your elementary school bond, Bank A
might offer you 5 percent interest. Bank B goes further and offers 5.25 percent. But Bank C, the winner of the
auction, offers 5.5 percent.
In most cases, towns and cities, called issuers, are legally required to submit their bonds to a
competitive auction of at least three banks, called providers. The scam Wall Street cooked up to beat this
fair-market system was to devise phony auctions. Instead of submitting competitive bids and letting the highest
rate win, providers like Chase, Bank of America and GE secretly divvied up the business of all the different cities
and towns that came to Wall Street to borrow money. One company would be allowed to "win" the bid on an elementary
school, the second would be handed a hospital, the third a hockey rink, and so on.
How did they rig the auctions? Simple: By bribing the auctioneers, those middlemen brokers hired to
ensure the town got the best possible interest rate the market could offer. Instead of holding honest auctions in
which none of the parties knew the size of one another's bids, the broker would tell the prearranged "winner" what
the other two bids were, allowing the bank to lower its offer and come in with an interest rate just high enough to
"beat" its supposed competitors. This simple but effective cheat – telling the winner what its rivals had bid – was
called giving them a "last look." The winning bank would then reward the broker by providing it with kickbacks
disguised as "fees" for swap deals that the brokers weren't even involved in.
The end result of this (at least) decade-long conspiracy was that towns and cities systematically
lost, while banks and brokers won big. By shaving tiny fractions of a percent off their winning bids, the banks
pocketed fantastic sums over the life of these multimillion-dollar bond deals. Lowering a bid by just one-100th of
a percent, called a basis point, could cheat a town out of tens of thousands of dollars it would otherwise have
earned on its bond deposits.
That doesn't sound like much. But when added to the other fractions of a percent stolen from
basically every other town in America on every other bond issued by Wall Street in the past 10 to 15 years, it
starts to turn into an enormous sum of money. In short, this was like the scam in Office Space, multiplied by a
factor of about 10 gazillion: Banks stole pennies at a time from towns all over America, only they did it a few
hundred bazillion times.
Given the complexities of bond investments, it's impossible to know exactly how much the total take
was. But consider this: Four banks that took part in the scam (UBS, Bank of America, Chase and Wells Fargo) paid
$673 million in restitution after agreeing to cooperate in the government's case. (Bank of America even entered the
Justice Department's leniency program, which is tantamount to admitting that it committed felonies.) Since that
settlement involves only four of the firms implicated in the scam (a list that includes Goldman, Transamerica and
AIG, as well as banks in Scotland, France, Germany and the Netherlands), and since settlements in Wall Street cases
tend to represent only a tiny fraction of the actual damages (Chase paid just $75 million for its role in the
bribe-and-payola scandal that saddled Jefferson County, Alabama, with more than $3 billion in sewer debt), it's
safe to assume that Wall Street skimmed untold billions in the bid-rigging scam. The UBS settlement alone, for
instance, involved 100 different bond deals, worth a total of $16 billion, over four years.
Contracting corruption has been around since the construction of the Appian Way. The difference
here is the almost unimaginable scope of the crime – and the fact that it's mobsters from Wall Street who are
getting in on the action. Until recently, such activity has traditionally been the almostexclusive domain of the
Mafia. "When I think of bid rigging, I think of the convergence of organized crime and the government," says Eliot
Spitzer, who prosecuted two bid-rigging cases in his career as a New York prosecutor, one involving garbage
collection, the other a Garment District case involving the Gambino family. The Mafia moved into bid rigging, he
says, because it observed over time that monopolizing public contracts offers a far more lucrative business model
than legbreaking. "Organized crime learned their lessons from John D. Rockefeller," Spitzer explains. "It's much
more efficient to control a market and boost the price 10 percent than it is to run a loan-sharking business on the
street, where you actually have to use a baseball bat and collect every week."
What Spitzer saw was gangsters moving in the direction of big business. When I ask him if he is
surprised by the current bid-rigging case, which looks more like big business moving in the direction of gangsters,
he laughs. "The urge to become a monopolist," he says, "is as old as capitalism."
2. THE TAPES
The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked together at GE, which was
competing for bond business against banks like Chase, Wells Fargo and Bank of America. Carollo was the boss of
Goldberg and Grimm, who handled the grunt work, submitting bids. Between August 1999 and November 2006, the three
executives participated in countless rigged bids by telephone, conspiring with middleman brokers like Chambers,
Dunhill and Rubin. We know this because prior to the start of the Carollo trial, 12 other individuals, including
several brokers from CDR, had already pleaded guilty in a wide-ranging federal investigation.
How did the government manage to make a case against so many Wall Street scam artists? Hubris. As
was the case in Jefferson County, Alabama, where Chase executives blabbed criminal conspiracies on the telephone
even though they knew they were being recorded by their own company, the trio of defendants in Carollo wantonly
fixed bond auctions despite the fact that their own firm was taping the conversations. Defense counsel even made an
issue of this at trial, implying to the jury that nobody would be dumb enough to commit a crime by phone when
"there was a big sticker on the phones that said all calls are being recorded," as Grimm's counsel, Mark Racanelli,
put it. In fact, Racanelli argued, the conversations on the tapes hardly suggested a secret conspiracy, because "no
one was whispering."
But the reason no one was whispering isn't that their actions weren't illegal – it's because the
bid rigging was so incredibly common the defendants simply forgot to be ashamed of it. "The tapes illustrate the
cavalier attitude which the financial community brought toward this behavior," says Michael Hausfeld, a renowned
class-action attorney whose firm is leading a major civil suit against Bank of America, Wells Fargo, Chase and
others for this same bid-rigging scam. "It became the predominant mode of transacting business."
How and when the government got hold of those tapes is still unclear; the prosecution is not
commenting on the case, which remains an open investigation. But we do know that in November 2006, federal agents
raided the offices of CDR, the broker firm that was working with Carollo, Goldberg and Grimm. Caught redhanded,
many of the firm's top executives agreed to turn state's witness. One after another, these hangdog, pasty-faced men
were led up to the stand by prosecutors and forced to recount how they'd been snatched up in the raid, separated
and blitz-interviewed by FBI agents, and plunged into years of nut-crushing negotiations, which resulted in almost
all of them pleading guilty. Prosecutors would eventually accumulate 570,000 recorded phone conversations, and to
decipher them they worked these cooperating witnesses like sled dogs, driving them in for dozens of meetings and
grilling them about the details of the scam.
The state's first witness, confusingly, was a CDR broker named Doug Goldberg (no relation to the
defendant Steven Goldberg). Almost every executive involved in the trial was absurdly young; many were just out of
college when the bid-rigging scam started in the late Nineties. Doug Goldberg graduated from USC in 1993, and his
fellow CDR executive Evan Zarefsky still looks to be about 15 years old, suggesting a suit-and-tie version of
Napoleon Dynamite. The extreme youth of some of the conspirators was an obvious subtext of the trial, underscoring
the fact that far more senior executives from bigger banks like Chase and Bank of America had been permitted by the
government to evade testifying.
Right off the bat, in fact, Doug Goldberg explained that while at CDR, he had routinely helped the
cream of Wall Street rig bids on municipal bonds by letting them take a peek at other bids:
Q: Who were some of the providers you gave last looks to?
A: There was a whole host of them, but GE Capital, FSA, J.P. Morgan, Bank of America, Société Générale, Lehman
Brothers, Bear. There were others.
Goldberg went on to testify that he repeatedly rigged auctions with the three defendants. Sometimes
he gave them "last looks" so they could shave basis points off their winning bids; other times he asked them to
intentionally submit losing offers – called cover bids – to allow other firms to win. He told the court he knew he
was being recorded by GE. When asked how he knew that, he drew one of the trial's rare laughs by answering, "Either
they told me or some of them, like Société Générale, you can hear the beeping."
Because of the recordings, he went on, he and the defendants used "guarded language."
"I might tell him, if I'm looking for an intentionally losing bid, 'I need a bid,' or something
like that," he said.
Q: With whom specifically did you use this guarded type of language?
A: With Steve Goldberg and others.
Q: In your dealings with Steve Goldberg, what, if any, language or other signal did he use that you understood as a
request for a last look?
A: He might ask me where I "saw the market," or he might ask me for, as I mentioned, an "indication of where the
market is," an "idea of the market."
The broker went on to detail how he had worked with the GE executives to manipulate a number of
auctions. In several cases, he was pushed to make deals with GE by his boss at CDR, Stewart Wolmark, who seemed
smitten with GE's Steve Goldberg; jurors listening to the tapes couldn't miss the pair's nauseatingly tight,
cash-fueled bromance. In December 2000, for instance, Wolmark helped Goldberg win a rigged bid for a bond in
Onondaga County, New York. After the auction, he calls his buddy Steve:
WOLMARK: Hey, congratulations. You got another one.
GOLDBERG: Yeah. Yeah, thank you. Thank you.
WOLMARK: You're hot!
GOLDBERG: I'm hot? Hot with your help, sir.
Later on, Wolmark basically tells Goldberg he owes a service to his fellow gangster. "I deserve the
big lunch now," Wolmark chirps.
"Yeah," says Goldberg. "I owe you something, huh?"
A few months later, in March 2001, Wolmark and Goldberg do another deal, this time for a $219
million construction bond for the Port Authority of Allegheny County, Pennsylvania. Wolmark rings up his payola
paramour and scolds him for not calling him during a recent trip to Vegas, where Goldberg doubtless spent a nice
chunk of the money Wolmark had helped him steal from places like Onondaga County.
"Good time in Vegas, you can't even call me back?" Wolmark laments.
"I don't have time to sleep in Vegas," Goldberg says suggestively.
"There's sleeping," Stewart Wolmark chides, "and there's Stewart."
From there, the clothes just start flying off as the pair jump into a steamy negotiation over the
monster Allegheny deal. "I'm all set with $200 million," Goldberg says. "Everything's ready to go."
Then Wolmark asks if GE is ready to pay CDR its bribe. "You got some swaps coming up?"
Goldberg assures him they do. Wolmark then passes the deal off to his own Goldberg, Doug, who
handles the actual auction.
When prosecutors tried to explain these telephone auctions at trial, projecting the transcripts of
the calls on a huge movie screen set up across the courtroom from the jury, you could see the sheer bewilderment on
the jurors' faces. The men on the tapes seemed to be speaking a language from another planet – an insanely dry and
boring planet, where there's no color and no adverbs, maybe, and babies are made by rubbing two calculators
together. One of the jurors, an older white man, spent the first few days of the trial yawning repeatedly, fighting
a heroic battle to stay awake in the face of all the mind-numbing jargon about Guaranteed Investment Contracts.
"Who needs Lunesta," joked one lawyer who attended the proceedings, "when you can hear a lawyer talk about GICs
right out of the gate?"
The language of the auctions was a kind of intellectual camouflage. If you didn't listen closely,
you'd have thought the two Goldbergs were a couple of airmen exchanging weather balloon data, rather than two Wall
Street executives plotting a crime to rip off the good citizens of Allegheny County. In that deal, Steve Goldberg
of GE originally bid "503, 4" on the $219 million bond, only to be guided downward by Doug Goldberg of CDR. The
broker explained in court:
Q: Can you explain what you understood Mr. Goldberg to say when he was saying 503, 4? What was he
A: That was the rate he was willing to bid on this investment agreement.
Q: How much was it?
A: 5.04 percent.
Q: What did you do as a response to his bid of 5.04 percent?
A: I brought his bid down to 5.00 percent.
In other words, even though GE was willing to pay an interest rate of 5.04 percent, Allegheny
County ended up earning just 5.00 percent on its $219 million bond. How much money that amounted to is difficult to
calculate, given the way the bond account diminished each year as the county used it to pay contractors; even Doug
Goldberg couldn't put a number on the scam. But if the account was full at the start of the deal, GE may have
cheated the county out of as much as $87,600 a year to start.
In any case, GE certainly chiseled the Pennsylvanians out of a sizable sum, because soon after, the
company paid CDR a kickback of $57,400 in the form of "fees" on a swap deal. The whole deal pleased CDR's
higher-ups. "I went to Stewart Wolmark and told him that not only did Steve Goldberg win but that I was able to
reduce his rate down four basis points," said Doug Goldberg. "Stewart was very happy and excited."
Over and over again, jurors heard cooperating witnesses translate the damning audiotapes. In one
lurid sequence, the bat-eared, bespectacled CDR broker Evan Zarefsky explained how he helped the GE defendant Peter
Grimm win a bid for a bond put out by the Utah Housing Authority. The pair had apparently reamed Utah so many times
that it had become a sort of inside joke between the two of them. From a call in August 2001:
GRIMM: Utah, let's see, how we look on that?
ZAREFSKY: Good old Utah!
Grimm complains about how much he'll have to pay to win the deal. "These levels are really shitty,"
Zarefsky comforts him. "Well, I can probably save you a couple of bucks here," he says.
From there, Grimm rattles off numbers, ultimately settling on a bid of 351 – 3.51 percent.
Zarefsky, in almost motherly fashion, guides the manic Grimm downward, telling him, in code, that his bid is 10
basis points too high. "You actually got like a dime in there," Zarefsky says. "You want to come down a dime?"
So Grimm comes back with a bid of 3.41 percent, which turned out to be the winning bid. Utah lost
out on 10 basis points, GE bilked the state out of untold sums, and CDR got another nice kickback.
This, basically, is how a lot of the calls went. The provider would tentatively offer a number, and
the broker would guide him to a new bid. "You have a little bit of room there," he might say, or "That's gonna put
you about a nickel short." Guiding the bidders to the lowest possible bid was called "figuring out the level" or
being "in the market"; obtaining information about other bids was called "giving an indicative" or "seeing the
The brokers and providers used a dizzying array of methods for rigging deals. In some cases, the
broker helped the "winner" by simply excluding other bidders, who may or may not have been in on the scam. In one
hilarious sequence that sounds like something out of a wiretap of a Little Italy social club, CDR executive Dani
Naeh tells GE's Steve Goldberg that he's not sure he can guarantee a win on a bid for a New Jersey hospital bond.
There were too many triple-A-rated companies interested in the bond, Naeh explains, and he couldn't control their
bids the way he could those of the lesser, double-A-rated companies he usually did business with. "It would be
easier for us to contact other providers who were rated double-A and ask them to submit an intentionally losing
bid," Naeh testified. He sounded exactly like a mobster, talking about "our guys" and "our friends."
In some of the calls, jurors could hear the entirety of the dirty deals negotiated, including the
bribe paid back to the broker. In one deal involving a bond for the Port of Oakland, California, Steve Goldberg of
GE starts to ask his pal Stewart Wolmark of CDR what kind of kickback the broker wants for rigging the deal. Such
conversations about payoffs were so commonplace that Wolmark doesn't even have to wait for Goldberg to finish the
GOLDBERG: What are we building in here for the...
In his testimony, Wolmark explained that he was asking for a swap deal in return for rigging the
bid. "He wanted to know what we were going to get paid on the back end," Wolmark explained.
In the call, Wolmark and Goldberg start haggling over the price of CDR's kickback. Wolmark tells
Goldberg he only wants what's fair. "Listen, I'm not a chazzer," Wolmark says.
Fans of the movie Scarface will remember Tony Montana's inspired translation of this Yiddish term:
"Thas a pig that don' fly straight."
Wolmark reassures Goldberg that as pigs go, he's a straight flier. "You see the kind of mensch I
am," he says.
Negotiations ensue. Goldberg tells Wolmark that he can pay him more on the bribe – the swap deal –
if Wolmark can help GE save money on the Port of Oakland deal. "I'd like to see if we can pull a nickel out of that
swap," Wolmark says. Translation: He wants to boost CDR's take on the kickback by five basis points.
"If I could get to the right level," Goldberg answers, referring to the Port of Oakland deal.
Translation: Goldberg will help Wolmark get his "nickel" on the swap deal if Wolmark can help GE "get to the right
level" on the bid.
3. THE POLITICIANS
The Carollo case provides far more than a detailed look at the mechanics and pervasiveness of bid rigging; it
offers a clear and unvarnished blueprint of the architecture of American financial and political corruption. In an
attempt to discredit the CDR witnesses, defense counsel hounded them about other revelations that surfaced in the
government's investigation, particularly those that involved bribery, illegal campaign contributions and
The defense's cross-examinations were surreal. It was certainly true that some of the government's
cooperating witnesses had dubious résumés, so it may have made sense to highlight their generally duplicitous
history of tax evasion or lying to investigators. But in their zeal, defense counsel went far beyond simply
discrediting the witnesses, spending an inordinate amount of time eliciting even more details about the grotesque
corruption scheme their own clients had taken part in. The result was a rare and somewhat confusing spectacle:
high-octane lawyers from Wall Street working to rip the lid off Wall Street corruption in open court.
Defense counsel showed us, for instance, how CDR employees were routinely directed by their boss,
David Rubin, to make political contributions to select candidates, only to be reimbursed by Rubin for those
contributions later on. This kind of corporate skirting of campaign finance limits is something we've always
suspected goes on, but we rarely get to see direct evidence of it.
More interesting, though, were the stories about political payoffs. In 2001, CDR hired a consultant
named Ron White, a Philadelphia bond attorney who happened to be the chief fundraiser for then-mayor John Street.
CDR gave White two tickets to the 2003 Super Bowl in San Diego plus a limo – a gift worth $10,000. As his "guest,"
White took Corey Kemp, the city treasurer for Philadelphia, who, 16 days later, awarded CDR a $150,000 contract to
advise the city on swap deals. But that wasn't the end of the gravy train: CDR doled out those swap deals to
selected banks, who in return kicked back $515,000 to CDR for steering city business their way.
So a mere $10,000 bribe to a politician – a couple of Super Bowl tickets and a limo – scored CDR a
total of $665,000 of the public's money. If you want to know why Wall Street has been enjoying record profits,
here's your answer: Corruption is a business model that brings in $66 for every dollar you invest.
Even more startling was the way that a notorious incident involving former New Mexico governor and
presidential candidate Bill Richardson resurfaced during the trial. Barack Obama, you may recall, had nominated
Richardson to be commerce secretary – only to have the move blow up in his face when tales of Richardson accepting
bribes began to make the rounds. Federal prosecutors never brought a case against Richardson: In 2009, an inside
source told the AP that the investigation had been "killed in Washington." Obama himself, after Richardson bowed
out, praised the former governor as an "outstanding public servant."
Now, in the Carollo trial, defense counsel got Doug Goldberg, the CDR broker, to admit that his
boss, Stewart Wolmark, had handed him an envelope containing a check for $25,000. The check was payable to none
other than Moving America Forward – Bill Richardson's political action committee. Goldberg then went to a
Richardson fundraiser and handed the politician the envelope. Richardson, pleased, told Goldberg, "Tell the big guy
I'm going to hire you guys."
Goldberg admitted on the stand that he understood "the big guy" to mean Wolmark. After that came
this amazing testimony:
Q: Soon after that, New Mexico hired CDR as its swap and GIC adviser on a $400 million deal,
Q: You learned later that that check in that envelope was a check for $25,000, right?
A: Yes. I learned it later.
Q: You also learned later that CDR gave another $75,000 to Gov. Richardson, right?
Q: CDR ended up making about a million dollars on this deal for those two checks?
Q: In fact, New Mexico not only hired CDR, they hired another firm to do the actual work that they needed done?
A: For the fixed-income stuff, yes.
What we get from this is that CDR paid Bill Richardson $100,000 in contributions and got $1.5
million in public money in return. And not just $1.5 million, but $1.5 million for work they didn't even do – the
state still had to hire another firm to do the actual job. Nice non-work, if you can get it.
To grasp the full insanity of these revelations, one must step back and consider all this
information together: the bribes, yes, but also the industrywide, anti-competitive bid-rigging scheme. It turns
into a kind of unbroken Möbius strip of corruption – the banks pay middlemen to rig auctions, the middlemen bribe
politicians to win business, then the politicians choose the middlemen to run the auctions, leading right back to
the banks bribing the middlemen to rig the bids.
When we allow Wall Street to continually raid the public cookie jar, we're not just enriching a
bunch of petty executives (Wolmark's income in 2008, two years after he was busted in the FBI raid, was
$2,464,210.18) – we're effectively creating an alternate government, one in which money lifted from the taxpayer's
pocket through mob-style schemes turns into a kind of permanent shadow tax, used to maintain the corruption and
keep the thieves in place. And that cuts right to the heart of what this case is all about. Wall Street is tired of
making money by competing for business and weathering the vagaries of the market. What it wants instead is
something more like the deal the government has – regularly collecting guaranteed taxes. What's crazy is that in
order to justify that dream of regular, monopolistic tribute, they've begun to see themselves as a type of shadow
government, watching out for the rest of us. Amazingly enough, this even became a defense at trial.
4. THE DEFENSE
There were times, sitting in the courtroom, when I wondered, How did this case even go to trial? What defense
attorney would look at the thousands of recorded phone calls, the parade of cooperating witnesses, the stacks of
falsified documents, and conclude that airing all of this in court was a smart play? Listening to tape after
damning tape played in open court while the defendants cringed in a corner seemed increasingly like a gratuitous
ass-kicking, one that any smart defense lawyer would have made a deal to avoid.
But as the weeks passed, I started to get a feel for the defense strategy, which made a kind of
demented sense. The lawyers for Carollo, Goldberg and Grimm didn't even bother trying to argue the facts of the
case. Instead, in one cross-examination after another, they kept hitting the same theme. Despite the fact that the
rigged bids resulted in lower returns, wasn't it true that the cities and towns still received, technically
speaking, the highest bid? If a town received a 5.00 percent return on a $219 million bond instead of 5.04 percent,
who's to say that wasn't a good price?
John Siffert, the gray-faced and unlikable attorney for Steve Goldberg, put it this way in his
cross-examination of CDR executive Stewart Wolmark. Asking about the Allegheny deal, he boomed: "Isn't it fair to
say that you believed that by lowering... Steve's bid to 5 percent, Steve's bid was still a fair price to pay?"
Wolmark's answer was both quick and sensible: "I don't determine the fair price," he replied. "The
market does." GE was supposed to pay the highest price the market would pay. It wasn't a competitive auction, as
required by law.
But Siffert had made his point, and his rhetoric got right to the heart of the defense, which was
going to center around the definition of the word "fair." The men and women who run these corrupt banks and
brokerages genuinely believe that their relentless lying and cheating, and even their anti-competitive cartelstyle
scheming, are all legitimate market processes that lead to legitimate price discovery. In this lunatic worldview,
the bidrigging scheme was a system that created fair returns for everyone. If a bunch of Pennsylvanians got a 5.00
percent return on their money instead of 5.04 percent, and GE and CDR just happened to split the extra .04 percent,
that was a fair outcome, because that's what the parties negotiated. True, the Pennsylvanians had no idea about the
extra .04 percent, and true, they had hired CDR precisely to make sure they got that extra 0.4 percent. But hey,
it's not like they were complaining: Until someone told them they were being brazenly cheated, they were happy with
their bond service. And besides, it's not like ordinary people understand this stuff anyway. So how is it the place
of some busybody federal prosecutor to waltz in here and say what's a fair price?
Walter Timpone, who represented Carollo, tried to lay this outrageous load of balls on the jury
using a faux-folksy analogy. "When your refrigerator breaks down, if you're not mechanically inclined, you're at
the mercy of that repair person," he told the jury. "And if he repairs the refrigerator, makes it work well,
charges you a fair price, you're likely to call on him again when the stove breaks." What he was essentially
telling jurors was: This shit is complicated, so best just to leave it to the experts. Whether they're fixing a
fridge or fixing a bond rate, they get to set the price, because we're all morons who are dependent on them to make
our world work. Timpone, in his lawyerly way, was actually telling us an essential economic truth: You're at the
mercy of that repair person.
This incredible defense, which the attorneys for all three defendants led with, perfectly expresses
the awesome arrogance of the modern-day aristocrats who run our financial services sector. Corrupt or not, they
built this financial infrastructure, and it's producing the prices they genuinely think are fair for us – and for
them. And fair to them is the customer getting the absolute bare minimum, while they get instant millions for work
they didn't do. Moreover – and this is the most important part – they believe they should get permanent protection
from the ravages of the market, i.e., from one another's competition. Imagine Jack Nicholson on the witness stand,
dressed in a repairman's uniform and tool belt. Who's gonna fix those refrigerators? You? You, Lieutenant Weinberg?
You can't handle the truth!
That, ultimately, is what this case was about. Capitalism is a system for determining objective
value. What these Wall Street criminals have created is an opposite system of value by fiat. Prices are not
objectively determined by collisions of price information from all over the market, but instead are collectively
negotiated in secret, then dictated from above.
"One of the biggest lies in capitalism," says Eliot Spitzer, "is that companies like competition.
They don't. Nobody likes competition."
To the great credit of the jurors in the Carollo case, they didn't buy Wall Street's ludicrous
defense. On May 11th, nearly a month after the trial began, they handed down convictions to all three defendants.
Carollo, Goldberg and Grimm, who will be sentenced in October, face as many as five years in jail.
There are some who think that the government is limited in how many corruption cases it can bring
against Wall Street, because juries can't understand the complexity of the financial schemes involved. But in USA
v. Carollo, that turned out not to be true. "This verdict is proof of that," says Hausfeld, the antitrust attorney.
"Juries can and do understand this material."
In the end, though, the conviction of a few bit players seems like far too puny a punishment, given
that the bid rigging exposed in Carollo involved an entrenched system that affected major bond issues in every
state in the nation. You find yourself thinking, America's biggest banks ripped off the entire country, virtually
every day, for more than a decade! A truly commensurate penalty would be something like televised stonings of the
top 10 executives of every guilty bank, or maybe the forcible resettlement of every banker and broker in Lower
Manhattan to some uninhabited Andean wasteland...?anything to address the systemic nature of the crime.
No such luck. Instead of anything resembling real censure, a few young executives got spanked,
while the offending banks got off with slap-on-the-wrist fines and were allowed to retain their pre-eminent
positions in the municipal bond market. Last year, the two leading recipients of public bond business, clocking in
with more than $35 billion in bond issues apiece, were Chase and Bank of America – who combined had just paid more
than $365 million in fines for their role in the mass bid rigging. Get busted for welfare fraud even once in
America, and good luck getting so much as a food stamp ever again. Get caught rigging interest rates in 50 states,
and the government goes right on handing you billions of dollars in public contracts.
Over the years, many in the public have become numb to news of financial corruption, partly because
too many of these stories involve banker-on-banker crime. The notorious Abacus deal involving Goldman Sachs, for
instance, involved a hedge-fund billionaire ripping off a couple of European banks – who cares? But the bid-rigging
scandal laid bare in USA v. Carollo is a totally different animal. This is the world's biggest banks stealing money
that would otherwise have gone toward textbooks and medicine and housing for ordinary Americans, and turning the
cash into sports cars and bonuses for the already rich. It's the equivalent of robbing a charity or a church fund
to pay for lap dances.
Who ultimately loses in these deals? Well, to take just one example, the New Jersey Health Care
Facilities Finance Authority, the agency that issues bonds for the state's hospitals, had their interest rates
rigged by the Carollo defendants on $17 million in bonds. Since then, more than a dozen New Jersey hospitals have
closed, mostly in poor neighborhoods.
As Carollo showed us, in open court, this is what Wall Street learned from the Mafia: how to reach
into the penny jars of dying hospitals and schools and transform their desperation and civic panic into fat
year-end bonuses and the occasional "big lunch." Unlike the Mafia, though, they were smart enough to do their dirt
without anyone noticing for a very long time, which is what defense counsel in this case were talking about when
they argued that towns and cities "were not harmed" by the rigged bids. No harm, to them, means no visible harm,
i.e., that what taxpayers didn't know couldn't hurt them. This is logical thinking, to the sociopath – like saying
it's not infidelity if your wife never finds out. But we did find out, and the scale of betrayal unveiled in
Carollo was epic. It was like finding out your husband didn't just cheat, but had a frequent-flier account with
every brothel in North America for the past 10 years. At least now we know how bad it was. The trick is to find a
way to make the cheaters pay.
Editor's Note: Due to a mislabeling in the court transcript, we misidentified the attorney who used
the refrigerator analogy in his opening statement. The online version of the story has been corrected.
This story is from the July 5th, 2012 issue of Rolling Stone.
From The Archives Issue 1160: July 5, 2012
As the major stock indices hit new record highs, many are left wondering how such a bull market can develop
while the average worker faces layoffs, lower wages and rising costs. The answer presents itself in the documented,
admitted and openly acknowledged manipulations of the markets by governments, central bankers, and institutional
banks. This is the GRTV Backgrounder on Global Research TV.
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