from Gold Core:
The abuse of power is staggering.
Time and time again over the last number of years the largest global banks have been found complicit in the manipulation of key rates, indices and markets. Now, a large and important pension fund has taken the largest of banks to task and filed a class action lawsuit alleging conspiracy to thwart competition and extract large fees and margins from the vast and critical interest rate swap market. The banks “have been able to extract billions of dollars in monopoly rents, year after year, from the class members in this case,” the suit states.
Interest rates swaps are used by companies and investors alike to manage interest rate risk. It is critical in smoothing returns and removing interest rate sensitivity. Providing an efficient trading market is lucrative, but when managers of that market collude to keep margins elevated at the cost of market participants, then we all suffer.
The lawsuit goes on to state that banks had “jointly threatened, boycotted, coerced, and otherwise eliminated any entity or practice that had the potential to bring exchange trading to buyside investors.” This policy had one purpose, “to preserve an extraordinary profit centre,” the lawsuit said. It is alleged that the banks disguised their collusion by using code names for projects such as “Lily”, “Fusion,” and our favourite, “Valkyrie,” according to the suit.
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