Bosons and Bankers: What’s Up, God?
By Bob Gaydos
Sometimes, having to have an opinion on any topic that comes down the pike actually requires a bit of work. Usually, it’s when you don’t have the foggiest idea what people are talking about, but they all appear to be smart and they all say that what they are talking about is very important, or significant, or shocking, or historic.
And so this week, I give you two of potentially the most important stories of the year, which I feel safe in saying most of you — being American, like me — also don’t know much about and have heard very little about from what passes as our news media these days:
- Higgs boson, or, as it has been dubbed, the “God” particle.
- LIBOR, or as I see it, the God complex.
In fairness, some of the media did try to explain Higgs boson and its potential significance — explaining the origin of the universe and the nature of the matter, stuff like that — but most, in my experience, bogged down in an energy field of scientific mumbo jumbo whose mass could only be contained by the Internet, but certainly not my brain.
Still, the fact that scientists in Geneva, using a $10 billion atom-smashing super-collider, say they have found a subatomic particle that would not only validate “The Big Bang Theory” on television, but in real life, is literally mind-boggling. As I understand it, the boson particle (named after Scottish physicist Peter Higgs) is kind of like a universal sticky particle to which other sub-atomic particles, such as quarks, “stick” as they whiz around wherever. The more such particles that stick, the more bosons involved, the more mass the particles eventually have and, with gravity added, the more weight. They become something.
No boson, no sticking, no universe. Nothing. With bosons, we have planets and primordial ooze and dinosaurs and humans and science and evolution and rock and roll and super-colliders and big banks, all neatly aligned as if some higher power had cleverly laid out the whole plan to explain the Big Bang.
If you guessed the big banks reference was a hint on LIBOR, good for you. You are promoted to honors economics. LIBOR stands for London Interbank Offered Rate. It is the average cost of borrowing at which Britain’s banks lend each other money. It is calculated daily, based on information supplied by those banks and is used worldwide to set prices on trillions of euros and billions of dollars worth of derivatives and other financial products.
And yes, there’s that word derivatives again. What’s happened is that a bunch of too-big-to-fail big banks, playing God with other people’s money, got together between 2005 and 2009 and rigged the rate to keep it low. They lied about their financial health and conspired to make each other look better than was true, thereby luring unsuspecting customers to invest even more in worthless mortgages, loans and, ugh, derivatives. The big difference in this story is that, while the big banks in America pretty much got away with their deceit and theft, the Brits are getting tough on them.
The chairman of Barclay’s has resigned and the bank, apparently claiming it thought it had received the OK to lie from the Bank of England, Britain’s central bank, has agreed to pay a $450 million settlement. It also agreed to cooperate with police authorities and Parliament, which are looking to hold major banks and their executives legally responsible for this massive scandal.
That’s a lot different from the cloying welcome Jamie Dimon, CEO of JP Morgan Chase, got in the U.S. Senate recently in explaining his institution’s loss of $2 billion in customers’ money through synthetic derivatives and other risky bets. Chase, along with Citigroup, HSBC, RBS, and a half dozen other banks are involved in the LIBOR conspiracy.
The U.S Justice department has all the evidence uncovered in the LIBOR investigation (which is reportedly extensive) and appears to be letting Britain take the lead in prosecution for now, which is just as well, given how many American bankers have been prosecuted to date for throwing the world economy into crisis.
If you’re going to have an opinion, look for the links. The links between the Higgs boson and LIBOR stories, beyond their complexities and lack of attention in the United States, are obvious. Both have gravitas, in these cases, a combination of mass, gravity and universal significance. Both involve amounts of money most of us cannot comprehend. Both involve an incredible amount of teamwork among people within the same profession. One group effort, as noble an investment of money, time and brain power as is imaginable, seeks to explain why we are all here, at least in a physical sense. The other, money, time and brain power notwithstanding, only makes me wonder if we’ll ever figure it out morally.
bob@zestoforange.com
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Tags: banks, Barclay's, Bob Gaydos, Chase, collider, Dimon, England, God particle, Higgs boson, LIBOR, subatomic
July 6th, 2012 at 1:10 am
The legitimacy of the Libor has been under scrutiny for several years. It has reached mainstream attention in large part to the growing European economic crisis. It is not, however, an isolated European concern. Estimated in the $trillions, approximately half is in credit swaps alone. In the U.S., local government municipal bonds, credit cards, student loans, small business loans, mortgages, etc. have been affected by the manipulation.
As for the Bank of England taking the lead in an investigation, Barclay’s, as a defense, claims they were taking instructions from the English Central Bank, specifically Paul Tucker the deputy governor of the bank. At the height of the credit crunch in 2008 Barclay’s needed to give the appearance that the bank was in good shape. This was enabled by submitting a “reduced” Libor rate, as a perceived lower credit risk generally correlates to a lower rate.
Interestingly, within the same time frame Bank of America and JP Morgan were also submitting rates lower than the average. This is counter intuitive when one considers that these banks are private and yet those banks that are government dependent were submitting higher rates.
These same banks, along with insurance companies, convinced local governments, hospitals, universities and other non-profits to enter into interest rate swaps to preempt higher interest costs. The costs of these swaps are tied to a value index, i.e. Federal Reserve Rate and/or the Libor. In an interest-rate swap, two parties exchange payments on an agreed-upon amount of principal. In ex., a municipal borrower initially issues long-term securities with interest rates that changed every week or month. The same borrower would then exchange payments, leaving them paying a fixed-rate to a bank or insurance company and receiving a variable rate in return. As the credit crisis hit, however, bond insurers’ ratings toward municipalities were downgraded resulting in them having to pay a higher fixed interest rate. Simultaneously, the big banks were also in trouble, so the Federal Reserve stepped in to “save” them and began to lower the Federal Reserve Rate. The net result is banks collect fixed rates of from 4 percent to 6 percent, while they pay state and local governments as little as a tenth of one percent on the outstanding bonds. In order to exit out of these deals, those that entered must pay the banks tens or hundreds of millions of dollars in fees to withdraw. The same scenario was and is playing out in Europe, they are tied.
Be it “particles” or “complex”…
The essence is so real, therein is belief. Lao Tzu
July 6th, 2012 at 9:17 am
Bob, only you could make this connection! I think you should leave ur brain to science – when the time comes. I mean, I’m just sayin’.
July 9th, 2012 at 4:48 pm
Maybe we could just think of this connection as “The Big Bank Theory” Thanks for explaining both.
Diane
July 9th, 2012 at 9:39 pm
Oh, Diane, where were you when I was writing a headline for this? Thanks. I’m stealing it.
July 17th, 2012 at 6:07 pm
Reposted from Facebook
Pat Quinn says: Here is another anomaly for the mix about the CAFR hidden resources stashed of taxpayer money, not being used during the “crisis”. It’s by the producer of THRIVE, the movie http://www.youtube.com/watch?v=-Pvr-eN7Eu8
I appreciated your article immensely.
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