“In fact – it can’t be even 4 banks or even 5 banks. End the end it’s probably going to come out that it’s going to be all of them that were involved in this. And that’s what’s critical for people to understand that this is a cartel style of corruption … it’s not just one in Barclay’s.”
You might have heard a little something about the LIBOR scandal that is out and about in the world. But – I don’t believe the scandal has been highlighted to the full extent of the seriousness of the crime. LIBOR is an interest rate that banks charge each other on the open market in order to maintain fluidity. They trade digits among each other and charge each other a rate to borrow from each other. LIBOR affects EVERYTHING from the cost of home mortgages to student loans to home mortgages to lines of credit for business or personal accounts. When multiple banks engaged to manipulate the LIBOR rate – that means that everyone in the world is paying more for pretty much everything else with a tax that is unseen and unheard.
The LIBOR rate is tied to $350 TRILLION in financial derivatives contracts.
Most financial firms base their contracts off the LIBOR rate which is supposed to be the rate for which a bank’s “cost to borrow” are. So – a contract might have rates priced at X% above LIBOR; when these large banks colluded to manipulate the price – they were essentially padding their profits in these financial derivatives contracts which affect everything … literally everything. This is a complete violation of the anti-trust act. It’s banks colluding to manipulate free market prices. It’s punishable by more than just a fine paid by the shareholders.
What I’d like is “off with their heads” … I’ll settle for putting their asses in jail. But I only want one or the other. Either bring out the guillotines (I’m not kidding) or put these bankers in “pound me in the ass” federal prison for 40 years.
And of course – there are those who continue to push this theory that banks should be left to their own devices. If only we would allow for the laissez-faire banking we had before the Bush economic crisis … everything would be just fine. If we would just unleash the full power of these banks in a self-regulating banking environment like we used to have … then the economy would be at negative 4% unemployment. Right? Sure.
Reuters details how many of these private companies with contracts based on LIBOR are about to go after the guilty banks HERE:
Already, Charles Schwab Corp (SCHW.N) has filed its own lawsuit against the banks stemming from the Libor allegations rather than join one of the proposed class actions, which allow plaintiffs to pool resources, sue collectively and then divide jury awards or settlements among the group. All of the pending cases have been consolidated before a federal judge in New York.
More than a dozen banks, including Citigroup (C.N), HSBC (HSBA.L) and UBS (UBSN.VX), have been caught up in the probe and have been sued in proposed class-actions by plaintiffs including the city of Baltimore and Frankfurt-based Metzler Investment GmbH, which manages 47 billion euros in assets. The plaintiffs brought antitrust claims against the banks, saying they were bilked of potentially billions of dollars.
The lawsuits have been organized into classes of investors, which would include those harmed by the alleged collusion even if they did not sue. The classes, which would need to be approved by U.S. District Judge Naomi Buchwald, cover plaintiffs who purchased Libor-linked securities from the banks, those who traded through exchanges securities tied to Libor and those who invested in securities that paid interest based on Libor.
Nobel economics laureate Joseph Stiglitz said the only way to protect civilization is to send the bankers to jail HERE:
We have a legal system that may not force full accountability. That says clearly these guys have gotten away with it. That ought to change. That means legislation. We should recognise that we’ve seen so many events were the banks and others have engaged in rent seeking, creating inequality, ripping off other people, and none of them have gone to jail. None of them have been prosecuted individually. Banks are people. The irony is that most of these cases, if you look at what happened, the bank pays a fine. Who pays the fine? It’s the shareholders. But the shareholders have usually been ripped off as well by the managers. So the managers sit there exploiting not only borrowers but also the shareholders.
Matt Taibbi says you should be freaking out over the LIBOR scandal HERE:
But to me what’s missing from all of this is the “Holy Fucking Shit!” factor. This story is so outrageous that it shocks even the most cynical Wall Street observers. I have a friend who works on Wall Street who for years has been trolling through the stream of financial corruption stories with bemusement, darkly enjoying the spectacle as though the whole post-crisis news arc has been like one long, beautifully-acted, intensely believable sequel to Goodfellas. But even he is just stunned to the point of near-speechlessness by the LIBOR thing. “It’s like finding out that the whole world is on quicksand,” he says.
The Washington Post says HERE:
A study from Mark Schweitzer and Guhan Venkatu at the Cleveland Fed looked at survey data in Ohio and found that by 2008, almost 60 percent of prime adjustable rate mortgages, and nearly 100 percent of subprime ones, were indexed to LIBOR.
Further, at least some LIBOR manipulation was an attempt to manipulate government policy by changing the very data that regulators use to make decisions. If the LIBOR games prevented governments from pursuing policies that could have made the financial system more stable, the main victims, again, are ordinary consumers.
The Seattle Times explains how LIBOR affects pretty much everything in the world HERE:
Q:How big is its influence?
A:Rates on about $10 trillion in corporate loans, mortgages and student loans worldwide are pegged to Libor, usually with a markup of several percentage points, according to University of Edinburgh professor Donald MacKenzie. The total amount of financial contracts tied to Libor, particularly interest-rate swaps, exceeds $300 trillion, or $45,000 for every person in the world.
The calculation of Libor is so important to the world’s financial system that its coordinators have set up dedicated backup phone lines so the number can still be figured out if there’s a terrorist attack, MacKenzie wrote in a recent paper in the London Review of Books.
Q: So how does it affect my life?
A: More than half of U.S. adjustable rate home loans are tied to Libor, so a recent increase in this benchmark rate mean monthly mortgage payments will rise for affected homeowners if the rise is sustained. A typical adjustable rate home loan will adjust based on the six-month Libor, plus 2 to 3 percentage points. Plus, many home equity lines of credit, small business loans and student loans also use Libor as an index. Student loans, for example, can be set based on the three-month Libor rate plus, say, 4 percentage points or the one-month Libor rate, plus 9 percentage points.
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