Libor scandal goes global : e già!
By Robert Stevens
3 August 2012
The UK Conservative/Liberal Democrat government this week announced the terms of a review into the deepening London Interbank Offered Rate (Libor) crisis.
The review was commissioned by Chancellor George Osborne, and will be led by Martin Wheatley, managing director of the Financial Services Authority (FSA) and chief executive-designate of the Financial Conduct Authority.
Libor is a daily rate covering 10 currencies and is supposed to measure the average cost of short-term loans between major banks. It is set in London by 16 banks and is run by the British Bankers’ Association. The interest rates for tens of trillions of dollars in home mortgages, student loans and credit cards are pegged to Libor, as are derivatives valued at $350 trillion and eurodollar futures worth $564 trillion.
Last month, Barclays Bank was fined a total of £290 million ($455 million) for illegally manipulating its daily Libor submissions between 2005 and 2009.
The Wheatley Review is a damage limitation exercise, proposing only to “undertake a review of the framework for the setting of LIBOR.”
While it is to examine “The potential for alternative rate-setting processes”, the interests of the banks will be prioritized, as its remit will also consider “The financial stability consequences of a move to a new regime and how a transition could be appropriately managed.”
Wheatley has acknowledged that the rigging of Libor was “extremely serious”, but instead of calling for any criminal action to taken against those found guilty he declared it showed that “urgent reform of the Libor compilation process is required”.
The Wheatley Review avoids dealing with any of the illegal practises of Barclays that gave rise to it in the first place. The terms of the review state that it “will not consider any issues relating to the actions or alleged actions of specific financial institutions in attempting to manipulate LIBOR or other benchmark rates. These issues will continue to be investigated by the FSA and other regulators around the world.”
The review is to conclude in just four weeks in order for any recommended legislation to be included in the Financial Services Bill, currently going through Parliament.
Last Friday it emerged that the offices of Barclays in Milan, Italy had been raided in relation to the Libor crisis. Italian police officers seized documents, emails and other electronic communications during the raid. According to the Financial Times, the raid was “part of an investigation that seeks to see if Italian consumers were hurt by the British bank’s manipulation of Libor, the London Interbank Offered Rate, and its euro equivalent Euribor.”
Two consumer watchdogs have estimated that 2.5 million Italian families with mortgages linked to Euribor were financially damaged—to the tune of €3 billion by the rigging of Euribor.
Each day sees a global spread of the crisis.
This week German-based Deutsche Bank acknowledged the involvement of some of its employees in rigging Libor rates. It claimed that only a “limited number” were involved and said an internal inquiry had cleared its senior management of any wrongdoing. Deutsche Bank is currently being sued over claims it manipulated the yen Libor rate and the price of derivatives tied to the Euroyen benchmark by US litigants.
Over the weekend speculation mounted that the Swiss-based global financial services operation UBS was also involved in manipulating Libor. On Saturday, Reuters reported that traders employed by Barclays, RBS and UBS “played a central role” in rigging rates. Based on a review of court documents and other sources, Reuters said, “Between them, the three banks employed more than a dozen traders who sought to influence rates in either dollar, euro or yen rates. Some of the traders who are being probed have worked for several banks under scrutiny, raising the possibility that the rate fixing became more ingrained as traders changed jobs.”
One former Barclays employee under scrutiny is Jay V. Merchant, who oversaw the US dollar swaps trading desk at Barclays in New York from March 2006 to October 2009. He now holds a similar position at UBS in Stamford, Connecticut, Reuters states.
UBS’s role in relation to Libor rigging is being investigated by attorneys general in several US states as well as by the federal Department of Justice.
On Tuesday Deutsche Bank and UBS increased their estimates for unprovisioned litigation risk by a combined €580 million. By the end of June, Deutsche Bank had increased its estimate from €2.1 billion to €2.5 billion. UBS added a further SFr 210 million to its litigation and regulatory provisions estimates.
The exposure of the main banks involved to potential payouts resulting from legal action, including numerous class actions, according to several plaintiff firms, could reach $1 trillion.
On Monday it emerged that New York-based Berkshire Bank is suing 21 banks including Bank of America, Barclays and Citigroup for damages over alleged Libor manipulation. Berkshire’s claim alleges that the rigging of Libor had a detrimental impact on its interest payments. Its legal complaint states, “Tens, if not hundreds, of billions of dollars of loans are originated or sold within this state each year with rates tied to [U.S. dollar] Libor.”
New York banks “were unable to collect the full measure of interest income to which they were entitled”.
Harvard Law School professor John Coates said that litigation resulting from the Libor crisis “has the potential to be the biggest single set of cases coming out of the financial crisis, because Libor is built into so many transactions and Libor is so central to so many contracts. It’s like saying reports about the inflation rate were wrong.”
The banks could only have engaged in such illegal practises because they were given carte blanche to do so by the political establishment and the so-called banking regulators internationally. As the June report indicting Barclays demonstrated, the UK’s Financial Services Authority was nothing more than a facilitator for whatever practises the bank deemed necessary to make a quick buck. On Monday Osborne told Parliament that the FSA’s criminal powers did not actually extend to Libor, or the trading in derivatives by financial institutions.
With public anger toward the banks growing, the UK’s Serious Fraud Office (SFO) was forced to acknowledge Monday that it had the powers to act against the banks involved in the rigging of Libor. The SFO said it was “satisfied that existing criminal offences are capable of covering conduct in relation to the alleged manipulation of LIBOR and related interest rates.”
As investigations over Libor continue into many banks, by at least 10 financial regulatory authorities across three continents, it is expected that a number of them will face accusations of criminal activity.
On Sunday RBS’s chief executive Stephen Hester told the Guardian that he expected the bank to soon face allegations relating to Libor and to be hit with a fine. An investigation of the bank by the FSA was underway, he said, adding, “RBS is one of the banks tied up in Libor. We’ll have our day in that particular spotlight as well.”
RBS is deeply implicated in the speculative and criminal activities of the banks that resulted in the 2008 global financial meltdown. In November 2009 the British government completed the world’s largest bank bailout, with the total cost of its takeover of RBS reaching £53.5 billion.
US Postal Service defaults on $5.5 billion payment to retiree fund
By Kate Randall
3 August 2012
The United States Postal Service (USPS) defaulted Wednesday on a $5.5 billion payment to the US Treasury for future retirees’ health care. The USPS also said it would not be able to make a $5.6 billion payment due next month.
The default comes as the Postal Service continues to lose $25 million a day, due in large part to the decline of first-class mail. The USPS is seeking drastic cost-cutting measures, including shuttering mail-sorting facilities, ending Saturday delivery, and attacking the jobs and benefits of hundreds of thousands of postal workers.
In a statement in the run-up to the default, the USPS said, “This action will have no material effect on the operations of the Postal Service. We will fully fund our operations, including our obligation to provide universal postal services to the American people,” it insisted. “We will continue to deliver the mail, pay our employees and suppliers and meet our other financial obligations.”
It is clear, however, that the default will be seized on by the Postal Service, as well as politicians in both the Democratic and Republican parties, to escalate the assault on both the provision of mail services to the American public, as well as the jobs, wages and benefits of current and future postal workers and retirees.
The USPS, the second biggest US employer after Wal-Mart, operates as an independent agency of the federal government. It currently employs about 574,000 career employees. The agency receives no tax dollars and is run as a business, not a public service. It is expected to fund its operations through the sale of postage and other services. The agency posted a $10 billion loss for the fiscal year ending September 30, 2011.
Since 2007, the Postal Service has been battered by the recession’s effect on mail volume as well as the impact of email, online bill payment, and electronic advertising. Mail volume fell to 167 billion pieces last year and is projected to fall to 125 billion by 2020. Despite this decline, however, the USPS is a massive entity and still delivers between 40 and 50 percent of the total world volume of mail.
Last September, Postmaster General Patrick Donahoe appeared before Congress seeking legislation to give him the power to close thousands of local post offices, reduce six-day delivery to five days, wipe out 220,000 jobs and tear up union contracts. The postmaster made clear that he was not asking for a government bailout, but legislative action allowing the Postal Service to conduct its operations like a private corporation, i.e., the right to force postal workers to pay for the agency’s crisis through cuts to their jobs and benefits.
The USPS eventually abandoned this plan after opposition in Congress (mainly due to politicians’ fears of a backlash from home constituencies over post office closures) and said it would instead cut operating hours at as many as 13,000 locations to save $500 million annually. However, the Obama administration and politicians of both big-business parties are in agreement that drastic action is still required, and are intent on pushing through severe cuts.
In April, the US Senate passed a bill that would allow the agency to reduce its workforce from 550,000 to 450,000, ending a no-layoff provision that has been in postal union contracts for three decades. The bill, however, placed some restrictions on the agency’s ability to close money-losing post offices and eliminate Saturday mail delivery.
In the US House, Representative Darrell Issa, Republican from California, has co-authored legislation overhauling the Postal Service that would mandate deep cost-cutting through closing post offices and possibly ending Saturday mail delivery. Issa chided postal officials for failure to make sufficiently deep cutbacks, commenting, “The Postal Service continues to fail to do all it can under current law to cut costs.”
However, the Republican-controlled House is expected to adjourn for the summer recess today without taking action on the bill. While Postal Service officials are critical of elements in both the Senate and House proposals, they are anxious to see the House bill pass so that a compromise can be reached in conference committee and the attacks on postal jobs and services can begin in earnest.
The USPS has already moved forward with a plan to consolidate 46 facilities over the next month. The move will affect 5,000 workers who may be offered other jobs, some requiring relocation to other cities or states. The agency has also offered retirement incentive packages, which are projected to eliminate the positions of about 4,000 local postmasters and 3,000 mail handlers.
For its part, the Obama administration has outlined a plan to destroy tens of thousands of postal jobs. In the course of Obama’s first term the USPS has already cut costs by more than $12 billion and reduced the postal career workforce by 110,000, despite the no-layoff clause.
Wednesday’s $5.5 billion default by the Postal Service stemmed from 2006 legislation in Congress that required the agency to begin prefunding its benefits for retiree health care and pensions. Up to that point, the USPS handled its retiree benefits on a “pay as you go” basis. Under the Postal Accountability Act, the Postal Service is supposed to allocate about $8 billion a year toward retiree health care costs, reaching full funding in about 10 years.
The unions representing postal workers have focused their efforts on opposing the elimination of Saturday delivery and the loss of dues-paying members. The contract signed in March 2011 with the largest postal union, the American Postal Workers Union (APWU), surrendered the no-layoff clause and instituted a new category of Non-Career Assistants with lower pay and benefits.
In a statement, Fredric Rolando, president of the National Association of Letter Carriers, described USPS’ failure to pay the $5.5 billion into the fund for future retirees’ health care as a bogus default, and called on Congress to eliminate the requirement for the USPS to pre-pay into the fund.
In a comment reeking with complacency, Rolando said, “If we thought our retired members were in danger of losing their health care, we’d be screaming bloody murder about it.” The reality is that thousands of postal workers and retirees face the very real danger of losing not only their health care benefits, but their jobs, pensions and other hard-won benefits.
The Postal Service has been lobbying for the “flexibility” to operate more like a private corporation. In addition to attacking retiree health benefits, they want to shift new workers from a standard pension to a 401(k) defined contribution and eliminate the mandatory annual payments into the retiree benefit funds.
The USPS, the Obama administration and Congress are in agreement that the attacks on postal workers and the accompanying cuts to services are dictated by economic necessity—this under conditions of burgeoning corporate profits and record CEO pay.
Ultimately, the US political establishment has its sights on the wholesale privatization of the Postal Service, opening it up as a profit-making enterprise, abrogating workers’ contracts, and reducing or eliminating those services that are not big moneymakers. Those most dependent on mail services—including the elderly, residents of rural areas, and small businesses—would be the hardest hit.
Advocates of attacks on postal workers’ jobs and benefits, draconian cuts to mail service, and postal privatization say the development of technology necessitates these drastic measures. In fact, the advent of the Internet and email should facilitate an advance in the working and living conditions of the population. But under conditions of growing social inequality, workers and society as a whole are asked to pay the price.
The American ruling class is taking aim at an institution that was established at the Second Continental Congress of 1775 under the leadership of Benjamin Franklin and enshrined in the US Constitution to provide a vital social service—not to turn a profit. The present crisis of the United States Postal Service poses the necessity of a socialist solution. Rather than gutting it and selling it off, the USPS—along with all telecommunications services and utilities—should be nationalized and provided as public services under the direction of a workers government.
Israeli cabinet reveals draconian austerity budget
By Jean Shaoul
3 August 2012
Israel’s cabinet has approved austerity measures aimed at increasing taxes by NIS13 billion ($3.25 billion) and slashing state expenditure by NIS12 billion ($3 billion).
Its targets for lower budget deficits after 2013 guarantee even harsher measures in the next few years. The budget, to be discussed in parliament in October, is expected to be opposed by some of Prime Minister Benyamin Netanyahu’s coalition partners, particularly the religious parties, whose supporters are desperately poor and depend on Israel’s already inadequate social safety net.
The budget will hit both middle- and low-income families, while exempting the super-rich.
VAT (a sales tax) will rise from 16 to 17 percent. Finance Minister Yuval Steinitz ordered an immediate tax hike on cigarettes and beer. As it is, revenues from indirect taxes, which affect the poorest the most, are higher than direct taxes on income and higher than in most other Organisation for Economic Co-operation and Development (OECD) countries.
Income tax rates for those earning more than the average wage (NIS8,881, or $2,220 a month) will rise by 1 percent, and by 2 percent on higher earners (NIS67,000 or $17,000 a month). Such is the enormous inequality that just one quarter of wage earners are paid more than the average. To put this in perspective, the tax cuts for the rich introduced in 2003 have led to a cumulative loss of more than NIS40 billion ($10 billion). The top rate of tax will remain unchanged at 48 percent.
All government departments except defence, education and housing, face cuts of at least 5 percent.
Following the social protests last summer, the Trajtenberg Commission recommended free education for all from the age of three, to be funded out of a NIS2.5 billion ($625 million) cut in defence. But the government has increased defence spending, not cut it. Now the funding for education will come from cuts to the rest of social services.
Israel’s militarism—its illegal occupation of Palestinian and Syrian territory captured in the 1967 war, constant wars against its neighbours, and preparations for further military adventures—exacts a heavy toll on the economy. Defence spending takes a massive 16.7 percent of the budget, compared to an OECD average of 3.8 percent, and is now set to rise. Over the last decade, the per capita spend on defence grew more than the per capita spend on social services. Over the last two decades, the military expenditure on the occupation alone is more than the annual budgets of both health and education.
As a sop to public opinion, the government has promised to pursue corporate tax evaders, but there is little chance that anything significant will be collected.
The budget deficit will increase to NIS40 billion ($10 billion), or 3 percent of GDP, leading Israel’s Central Bank chief Stanley Fischer to warn that interest rates might have to rise. The budget sets a target of 3 percent in 2013, declining thereafter to 1.5 percent in 2019. Today, of all the major countries, only Germany has a lower budget deficit.
Israel’s central bank reported that the economy, which has thus far largely escaped the worst of the global recession, is beginning to feel the downturn in its two largest trading partners, the United States and Europe. The report is forecasting slower economic growth for 2012, at 3.1 percent, compared with 4.8 percent in 2011. This will reduce tax revenues, pushing the deficit closer to NIS58 billion ($14.5 billion), or 4 percent.
The cabinet has set in place the mechanisms to decimate public spending on everything but defence and security, and impose a crippling burden of taxation on the broad mass of the population.
Netanyahu’s budget comes after last year’s mass demonstrations, involving nearly 500,000 people in a country of less than 8 million, protesting against the lack of affordable housing, the high cost of living, Israel’s oligarchs, and social inequality.
Last June, protesters once again started to flow into the streets of Tel Aviv on Saturday nights, trying to revive last year’s social movement. But they were brutally put down by the authorities. Last month, Moshe Silman set himself on fire at a rally marking the first anniversary of last year’s protests, becoming a symbol of the government’s inhumane social policies and prompting further demonstrations.
However, the leadership of the protest movement, despite winning widespread support from workers and youth, articulated the political and social interests of a narrow layer of the better off. Like the Occupy Wall Street and the “Angry Ones” in Spain and Greece, the leaders insisted on “no politics” so as to ensure that there was no fundamental challenge to the capitalist order within which they sought their own social advancement.
The real argument of these forces with Israel’s oligarchs was that they were not sharing the spoils with the upper-middle class layers as they had in the past. All these movements have suffered a major decline, largely because many of the leading figures found the niche they sought —leaving the more genuine elements increasingly isolated.
To cite one example, Itzik Shmuli, the Student Union chairman, who is close to the Histadrut federation of trade unions, has received $200,000 from one of Israel’s foremost tycoons for a project. Along with a number of other leaders, he has openly embraced patriotism and militarism. Their rallying call has become not only equal rights, but “equal responsibility” in the form of compulsory national service for all men, including religious Jews, who until now have been exempt if they pursue religious studies, and Palestinian Israelis.
These forces played a major role in a rally organised by secular reservists and attended by about 20,000 people, calling for an end to exemptions from military service for Orthodox Jews under the banner, “We are no longer suckers”. They insisted that everyone should share “equally in the burden of defending the state.”
By taking up the demand for compulsory conscription, Shmuli and other leaders of the social movement are fostering divisions between religious and secular Jews and creating conditions for the persecution of Palestinian Israelis who refuse to serve for obvious political reasons. They divert the as yet unfocused social and political discontent into an alliance movement based upon secularism—and ultimately social patriotism and militarism. In this way, they are subordinating the working class to bourgeois forces, while both the secular and religious parties defend the interests of their wealthy patrons.
It was no accident that the rally came just days after some in the protest movement sought to appeal to the Palestinians, and called for an end to the occupation in a demonstration that attracted 2,000 people. It was held under the banner “No Social Justice Without Ending the Occupation.”
Nir Nader, one of the leaders of the anti-occupation protesters, said, “You can’t have social justice for just 7 million people who are Israeli citizens. You have to take everyone under Israeli rule into consideration.”
It is impossible to fight against Netanyahu’s pro-business and austerity measures while defending the Israeli state and capitalism. The working class can defend its rights and social gains only when it is organized independently of all wings of the ruling class. Workers must unite with their class brothers and sisters regardless of religion or ethnicity within Israel, the occupied Palestinian territories, and countries in the region. They must fight for a socialist programme for the establishment of workers governments to expropriate the banks and corporations and organize the economy according to social need, rather than the demands of the financial aristocracy.
This requires the building of a political leadership that articulates the independent interests of the working class, a section of the International Committee of the Fourth International in Israel.