SECTION THREE, PART FOUR

Sliding doors, How Broad Is It?: The thread behind the "sliding doors" series is the possibility of an alternate reality, where the real obligations behind the social contract are fulfilled, versus the arbitrary dishonesty that currently exists. I have commented before about financial market manipulation across a range of areas, but this week's announcement that there might be some form of investigation into the pricing dis-continuities that seem to occur around the London 4pm pricing "fix" within foreign exchange markets has caught my eye. I will explain how it works shortly, but the announcement of the news item on Bloomberg news a few days ago got the usual commentariat huffing and puffing about putting all the usual suspects behind bars, and I do not mean the ones that serve refreshments. When the idea of market manipulation within benchmark rates for foreign exchange, is combined with market manipulation for interest rates ( the LIBOR rate setting scandal ) , and market manipulation of securities in products ( the Goldmans/Paulson CDO scandal ) , and the general scandal for both commodities pricing ( again, Goldmans and its aluminium warehousing scandal) and electricity pricing ( JPMorgan ), it seems that there are very few areas which are not tainted by robber barons. The foreign exchange markets have now virtually universally used the rates determined at 4pm London time, as the benchmark forex rate for that trading day. In general, benchmark rates are no more than that, a guide...and not necessarily important. But they do have some financial importance. As a settlement rate, monies will change hands based upon this being the rate for determining valuations/ margin adjustments, and so there is a possible real financial gain to be made or lost, if rates were able to be manipulated. AND of course, they are able to be manipulated, by falsely driving the price one way or other, to suit the book. The usual culprits for the manipulation are typically the banks involved in intermediating foreign exchange rates, but not exclusively. Anyone with big enough clout can temporarily drive markets rates, if their orders are either big enough, or catch market makers by surprise. But being caught by surprise might happen six times a year, versus the other two hundred and fifty days where a traditional banking gouge can take place. The foreign exchange markets have always been bread and butter gouges for intermediary banks. Anyone who has physically exchanged one currency for another, knows that you pay some transaction fees for the privilege of exchange, and banks have always been the delivery tools for this cash exchange.....the European banks must have had apoplexy when their bread and butter exchange rate transaction gouge was single handedly devastated by the introduction of the Euro. And so, continuing the piracy tradition, banks must feel they are entitled to whatever gaming profits they can garner from manipulation of the "fix" rates. BUT the right to extraction profits, does not make it any less illegal. Any manipulation is dishonest, and since we expect that others will by nature deal honestly in the majority of dealings, the condoning of continual dishonest practices by banks, renders them as less than useful as bastions of society. That market manipulation occurs, is not surprising. Most markets are opaque, and the general public does not either have the know-how or the tools, or the access to identify and expose the market manipulation. So it goes unnoticed....except by those who profit from it, and they are hardly going to expose their own tawdry practices. BUT, once exposed, the dishonest practices need to be stopped, otherwise general society will believe that if we are going to continue to accept dishonest practices, then there is no point in being honest in the first place. We cannot have two rules, where physical infractions are punished by the legal system, but that white collar infractions are not. Otherwise, we have no benchmark, or "fix" on what constitutes honesty. Truth, and honesty, are fundamental constructs for the social contract....otherwise I may as well steal your property, or bust your head when you are not looking, because our current system refuses to punish transgression. The law of the jungle is not far away, when we are constantly allowing dishonesty/crimes to go unpunished. IT IS NOT CAPITALIST TO ALLOW DISHONESTY, and stealing money is not the preferred way to run a society. If I am left with no way to believe that society will encourage honesty as a fundamental principle, then there is little hope.