Joe Barbieri
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Joe Barbieri in Joe the Investor,

Has it Become Acceptable To Fix Markets?

The LIBOR scandal has been in the news for some time now, and banks have paid settlement fines to alleviate the damage done by the lawsuits. (13)(14)(15)(16)(17)(18)(19)(20) There are indications that other markets may be fixed. The EURIBOR market has also been manipulated in the same time period as the LIBOR market. (1)(2) There is also currency manipulation being investigated (6)(7)(8)(9)(10)(11), as well as price fixing in the commodities markets. (3)(4) The same thinking can be extended to the credit markets via the Federal Reserve tapering program, which effectively manipulates interest rates by keeping them down.

It is true that the groups of people fixing these markets are settling the dispute out of court, but does this matter? Is anyone admitting guilt? Who is losing a career over these allegations? The companies doing the fixing are allowed to keep functioning – perhaps at a bigger profit than before. Doesn’t this say that these settlements are just a cost of doing business and that they are expected by the violators?

Since market fixing is becoming common, it is acceptable? Are we being lead to believe that markets should be fixed to allow a group of people to control an aspect of the economy for profit? Is this a contradiction to the idea of a free market? Is there such a thing as a free market? If a corporation is manipulating the market, a group of corporations, the government, or someone hired by the government, does it matter?

Should these trends continue, it appears that every market will be revealed to be manipulated by someone. The irony is that the profit motive itself may be killing the concept of free markets by fabricating the profits through manipulation. The driving force behind most decisions today is the profit motive. Isn’t voting with your money the most powerful vote that you have? If the market you are dealing in is being fixed, what power does it have really? Fixing markets is not about a few people breaking the rules – it is about the game itself being changed permanently.

Sources:

1)      http://www.ft.com/intl/cms/s/0/d08b458a-e013-11e3-b709-00144feabdc0.html

2)      http://www.businessweek.com/news/2014-05-20/jpmorgan-to-hsbc-accused-by-eu-of-forming-rate-rigging-cartel

3)      http://www.economist.com/news/finance-and-economics/21595943-european-union-wants-change-how-commodity-benchmarks-are-set-fixing-fix

4)      http://business.financialpost.com/2013/11/06/oil-traders-have-proof-bp-shell-fix-crude-prices-they-say-in-lawsuit/

5)      http://www.thinkadvisor.com/2011/10/19/eu-raids-banks-over-suspected-euribor-fixing

6)      http://dealbook.nytimes.com/2014/02/05/two-senior-foreign-exchange-executives-to-step-down/

7)      http://dealbook.nytimes.com/2014/02/05/deutsche-bank-fires-3-traders-amid-currency-manipulation-inquiries/

8)      http://www.ibtimes.co.uk/citis-head-fx-anil-prasad-exits-amid-fx-fixing-scandal-1435238

9)      http://www.ibtimes.co.uk/fx-fixing-scandal-us-regulator-benjamin-lawsky-demands-bank-currency-documents-1435295

10)  http://www.bloomberg.com/news/2013-01-28/libor-lies-revealed-in-rigging-of-300-trillion-benchmark.html

11)  http://www.investopedia.com/terms/l/libor.asp

12)  https://en.wikipedia.org/wiki/Foreign_exchange_market

13)  http://www.independent.co.uk/news/uk/home-news/bob-diamond-could-receive-30-million-payout-despite-being-forced-to-resign-as-barclays-chief-executive-7905494.html

14)  http://www.theglobeandmail.com/globe-investor/investment-ideas/breaking-views/where-does-barclays-buck-stop/article4385638/

15)  http://www.bloomberg.com/news/2012-07-02/fsa-says-barclays-not-alone-as-fraud-office-weighs-libor-probe.html

16)  http://ca.reuters.com/article/topNews/idCABRE86208S20120704?sp=true

17)  http://www.bloomberg.com/news/2012-07-03/jpmorgan-probed-over-potential-power-market-manipulation-1-.html

18)  http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9377183/Bank-of-England-in-the-spotlight-over-nod-and-wink-to-Libor-rigging.html

19)  http://www.cnbc.com/id/48068669

20)  http://www.ft.com/intl/cms/s/0/2a4479f8-c030-11e1-9867-00144feabdc0.html?goback=.gde_38535_member_128901063#axzz1zkCJ4kKc