With the potential for making high returns in the financial market, it’s not too surprising that some people have been completely taken over by greed and conspired with get-rich-quick schemes. Perhaps they took Gordon Gecko’s “Greed is good” mantra too seriously? Here are some of the biggest finance conspiracies that emerged last year.
LIBOR manipulation
LIBOR refers to the benchmark rate used by banks in lending to one another. It is also used in calculating interest rates for various loans and financial products, so rigging this rate could have a massive effect on asset prices.
A few years back, UBS trader Tom Hayes discovered a way to manipulate LIBOR, thereby influencing $350 trillion of securities all over the world. During his stint as a trader, Hayes got to know the representatives of banks setting this benchmark rate every day and eventually got them to adjust rates in his favour. Prior to the 2008 financial crisis, Hayes had been growing his network of brokers and traders, including those from RBS and JPMorgan and getting more control over LIBOR.
When the markets crashed, market watchers soon started doubting why the benchmark rate wasn’t moving accordingly. “One of the most important barometers of the world’s financial health could be sending false signals. In a development that has implications for borrowers everywhere, from Russian oil producers to homeowners in Detroit, bankers and traders are expressing concerns that the London interbank offered rate, known as Libor, is becoming unreliable,” wrote the Wall Street Journal back then.
But even with some investigations going on, Hayes brushed them off aside and even came up with a clever way to reward the brokers and traders who were part of his network, racking up even more undue advantage in his trades. Goldman Sachs noticed this and even offered Hayes a $3 million signing bonus, but he went on to pursue a spot at a derivatives trading firm in Tokyo.
Throughout all of this, US watchdogs carried on with their investigations but without much fruit, until an audio recording from Barclays exposed employees openly discussing LIBOR manipulation. This led authorities to conclude that this practice has been widespread in the industry, prompting the Justice Department to get involved and subpoena evidence from 16 big banks.
From there, the CFTC was able to uncover a web of collusions and even code words that traders used to fix rates. In May of 2015, seven years after the LIBOR investigations began, Hayes argued in court that he wasn’t aware that what he was doing was dishonest since he was simply participating in an industrywide practice but the court eventually gave him 14 years in imprisonment.
Forex market rigging scandal
A similar type of conspiracy was unveiled in the forex market, involving bankers from top investment houses such as JPMorgan, Citgroup, and Barclays. As it turns out, several traders formed a group they called “The Cartel” to manipulate benchmark exchange rates being set by their institutions.
These traders participate in a chatroom to discuss markups for forex transactions, creating what the FBI called ‘criminality on a massive scale’. As it turns out, this has been going on right under the regulators’ noses from 2007 to 2013, but the banks involved were fined only a total of $5.6 billion in penalties in 2015.
Oil price collapse
In an industry that continues to deal with plummeting prices to this day, one can’t help but wonder if there’s also a group secretly involved with the ongoing crude oil slump. As financial headlines have noted in the past few months, the big oil producers from the OPEC cartel have stubbornly refused to cut production in order to boost prices, seeking to drive out competition from US oil companies from the market.
However, Iranian President Hassan Rouhani recently told CNBC in an interview that this price collapse was more “politically motivated” than it seems. He added that this is a “conspiracy against the interests of religion, the Muslim people, and the Muslim world.”
Even Russian President Vladimir Putin has surmised that it could be a joint effort by the governments of Saudi Arabia and the US to drive down the economies of Venezuela, Russia, and Iran, possibly due to the ongoing conflict in Syria and Ukraine. Some even claim that the President of the United States himself is responsible for engineering this supply glut in an effort to bolster efforts in developing renewable energy projects.
Chinese stock market bubble
Another major financial headline that has been the target of many conspiracy theorists is the Chinese stock market bubble, which appears to have burst in mid-2015. As many experts have noted, the strong surge in the equity market could prove to be unsustainable since it was simply fueled by cheap credit and easy money courtesy of the Chinese government and central bank.
As soon as the market showed the first few signs of panic, traders immediately rushed to liquidate their positions and trigger an even larger decline in the market. The government and central bank scrambled to put a stop to the bleeding, only to instill more panic and selling activity.
Some analysts have ventured to speculate that all this may have been engineered, as the pattern has been reversed and repeated later on. Investors started thinking whether foul play was involved or not, as the moves seemed too sudden and artificial. And as some historians have pointed out, manipulation by political players have actually been a feature of Chinese stock markets since the beginning, with the latest one springing from the factions in the current leadership.
In particular, Professor Wang Jianguo of the Guanghua School of Management in Peking University shared that the Communist Party faction led by Jiang Zemin might have engineered a financial crash to undermine the confidence in President Xi Jinping’s government.
Whether or not these conspiracy theories are true or not, it can’t be denied that the repercussions on the global economy and consumers everywhere were massive, underscoring the need to beef up oversight and regulation of the financial industry to avoid instances where greed could wreak havoc.
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