Are banksters using us as their piggy banks?

November 2012 saw The Guardian report Libor like manipulation in the UK gas markets. The story came, inevitably after a whistleblower who claimed that Britain’s £300 billion pound wholesale gas market has been “regularly” manipulated and equating it to the Libor scandal. The Financial Services Authority is investigating.

This though is only a partial picture, a dot, which needs joining to other dots to complete a disquieting old masterpiece.

On the other side of the Atlantic, earlier in November, it was revealed that Barclays Bank had been accused of four of its traders conspiring to fix electricity prices at several major power trading hubs in the western U.S. to boost their own profits. The traders were 'caught' and Barclays had a $470 million fine imposed by the Federal Energy Regulatory Commission (FERC), the biggest penalty ever levied exceeding the fine Barclays paid over Libor rigging. The bank has 30 days to show why it should not be penalised. This part of the picture may yet become obscured. The FERC also said four of the company's power traders have 30 days to show why they should not be assessed a total of $18 million in civil penalties. Barclays have denied the claim. JP Morgan is facing some very similar charges from the FERC.

The trading in both of these cases, the UK and US, were in manipulating the energy prices down. The bank then gains in related positions in the swaps market by enabling simultaneous bets on falling energy prices to reap huge profits, leading to losses of an estimated $140million for other investors and pensions funds in the case of the US. A strategy known as a “loss-leader”. Another dot.

Adding a third dot; the comparison has been made to Libor rigging, and a familiar pattern is starting to take shape. Libor has been described as a cartel setting the “price” of money. Barclays Plc, in a settlement with the U.S. and British authorities, paid $450 million and admitted that employees attempted to manipulate Libor. Barclays Chief Executive Officer Robert Diamond, stepped down after the fine, stating 14 traders were involved in wrongdoing at the bank. Currently the UK Police, directed by Serious Fraud Office prosecutors, will act in the next month. RBS has fired four traders following an internal probe. More than 25 people have left UBS after an internal review of interest-rate manipulation.

It wasn't just Libor that Barclays have been accused of fixing. The wrongful conduct, as the US Commodity Futures Trading Commission (CTFC) described it, spanned from at least 2005 through to at least 2009, and at times occurred on an almost daily basis. “Over a period of several years, commencing in at least 2005, Barclays PLC, Barclays Banle and Barclays Capital, by and through their agents, officers and employees located in at least New York, London and Tokyo, repeatedly attempted to manipulate and made false, misleading or knowingly inaccurate submissions concerning two global benchmark interest rates, the British Banleers' Association's ("BBA") London Interbanle Offered Rate ("LIB OR") and the European Banldng Federation's ("EBF") Euro Interbanle Offered Rate ("Euribor").”

The CFTC blamed Barclays' “lack of specific internal controls and procedures concerning its submission processes for Libor and Euribor and overall inadequate supervision of trading desks allowed this conduct to occur.” They didn't just blame the traders.

It is apparent though that the picture has a longer history than 2005. Reuters have reported that in late 1996, Marcy Engel, then a lawyer for Wall Street heavyweight Salomon Brothers Inc wrote a letter to the CTFC saying tethering the futures contract to Libor "might provide an opportunity for manipulation" of the interest rate. A "bank might be tempted to adjust its bids and offers ... to benefit its own positions." The article goes on to say that by the mid-2000s, manipulating Libor to profit on Eurodollar futures and other derivatives had become standard operating procedure among banks in a position to do so, according to people familiar with the market.

The similarities don't end there. In the case of the energy price fixing in the UK The Telegraph reported an E.ON spokesman who said it had "stringent training and compliance regimes" and was "confident that all of our colleagues always act in the correct manner and as a company we fully abide by all appropriate regulations". Just like in Libor the regulations in the wholesale energy market are near to non-existent, making it easy to abide to appropriate regulations.

There is also the role of the banks in the energy wholesale market. The roles are not as transparent as they would seem. Britain has led the way in developing a gas "market" where buyers and sellers can come to trade. The Financial Services Authority estimates this to be worth around £300bn a year. The size of this market provides the benchmark for gas traded around Europe.

In November five of the six major energy suppliers in the UK have announced increases in their costs to consumers, at an average of 8.5%. This is a continuing trend. Between 2004 and 2009, energy prices in the UK increases: domestic electricity prices rose by over 75% per cent, and gas prices increased by over 122%.

There are more dots. A whistleblowing oil trader has reported to the house of commons how oil prices are regularly fixed. The International Organisation of Securities Commissions (IOSCO) has pledged an investigation into the oil “market” concerned that prices 'were' susceptible to manipulation.

Are there sufficient dots now to detect that there may be an underlying pattern? The overall picture may be beginning to emerge, yet it has to be placed into context, to see the whole picture. If we can see the whole picture then perhaps we can better estimate where the next dots may occur; is it just a matter of rogue traders, or is it far more serious than that? It is a vital question as it appears that those that work for and govern banks are regularly implicated in fixing prices on electricity, gas, oil, and credit to extract a rent from the World's population.

If we can take one bank from this story, say Barclays, and see it from above, can we ascertain any more dots? In October 2011 The New Scientist published an article 'Revealed – the capitalist network that runs the world' which examined questions arising from a report by Vitali, Glattfelder, and Battiston, 'The network of global corporate control'. The report states: 'The structure of the control network of transnational corporations affects global market competition and financial stability.' The most prominent organisation, sitting in prime position in the network, was revealed to be Barclays.

It is not surprising that Barclays has relationships which include Energy suppliers: E.on (Germany), ESKOM (Who control 95% of SA Electricity), GDF Suez and International Power (France: Nuclear, coal and hydro), National Thermal Power Corporation (India) NHPC (Hydropower India), RWE (Germany Europes 2^nd largest energy supplier coal and nuclear), Vattenfall (Sweden Europes 5^th largest energy producer coal nuclear).

In August 2012 Barclays Plc agreed to buy and hold $700 million worth of stockpiles at Essar Energy Plc which has a 196,000 barrel-a-day oil refining plant in northwest England. Bloomberg reported that John Eleoterio, global head of commodities told them, “We anticipate a few more transactions within the next six months”. It seems there are many more dots than first imagined once the picture is viewed from a global perspective.

Nicholas Ripley