This story (via Manan Shukla) describes the way that bankers rigged the bids on interests rates that they pay to government entities on the money that they receive from issuing bonds. The bids are managed by brokers who manage the auctions. They set the auctions up so that the winning bank knows what the other banks have bid for the interest rate. The auctions require at least three bidders, but they understand that they must submit losing bids for some auctions in order to win other bids that are rigged in their favor. The brokers get a cut of the action and the bidders save a small percent on the interest that they pay to the bond issuer. A small savings on the interest rates paid for multimillion dollar deals adds up to substantial returns. This has been common practice for at least 10 years in the bond market. It has cost government entities billions of dollars in lost interest payments. The defense lawyers argued that the interest rates were only shaved a little bit by the rigged auctions. Therefore, they were fair.
The former Attorney General of New York made a telling comment after the details about the scam were revealed when it came to trial. He said that the unspoken secret about capitalism is that capitalists hate competition. It is bad for profits. Rigging bids is just one of the ways that is used to avoid competition.
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