Derivative trading rears its ugly head...AGAIN

[ar81]

Guess I'll add Barclay's here. It's not really about toxic derivative products per se, but since they're a component of the global financial system and shouldn't be ignored as the WMD they are:

http://www.nytimes.com/2012/07/03/op...s.html?_r=1&hp

It seems the bank reported rates that would make the bank to appear as less risky than it was. The issue is about interbank lending rates that will affect Libor and Euribor rates. It is a known issue that the way Libor and Euribor are calculated is not quite transparent to the public and those rates affect how much interest people must pay in Europe. Now the lack of transparency is becoming more apparent.

In Spain there is a group called #OpEuribor that wants to push for a more transparent system regarding Euribor, something normal people can audit. http://opeuribor.es/en

They say "Many people write to let us know the operations we are requesting can be found at Reuter’s or at EBF’s sites. We must clarify we are aware of those tables’ existence. However, we can only find final numbers there, and although they correspond, in theory, to the offered interest rate, we don’t know where they come from or whether actual interbank deposit transactions have actually occurred. (...) The risk here is that if the interpretation is indeed of interest rates as offered, without real interbank market transactions, what we have is an interest rate -Euribor- based on a survey self-made by EBF banks. A survey is what determines an interest rate and the price of money in a market? (...) If the interbank market is effectively dry and the European Central Bank is dictating the price of money (the 1% banks pay), it is intolerable that individuals, small business or public administration pay outrageously high interest rates to those same banks. The index does not correspond with its real function."

Banks lend to each other as they only have a fraction of the assets they report in books. So when they do not have enough money to pay, they lend money from other banks and that way the banking Ponzi scheme is never revealed.

The key issue of bankers is that the system they have built is made to pass losses to those who have not made decisions. In financial terms there is a concept called "moral risk" which is about the change of behavior of people when they do not face the consequences of their actions. There is lots of moral risk in the derivatives system. So no matter what they do, others will pay for it.