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U.S. Gave Tens of Billions to Libor-Manipulating Banks … Even AFTER Learning about the Manipulation

Federal Reserve REWARDS Fraud By Throwing Money At Criminal Manipulators

You know that Libor is the largest economic scam in world history and the largest insider trading scandal ever.

You know that the Federal Reserve knew about the manipulation by August 2007. And see this.

But did you realize that the Fed and Treasury threw billions of dollars of taxpayer money at Barclays and the other Libor-manipulating banks after they knew about the manipulation … and did nothing to stop it?

As Richard Eskow notes:

Thanks to the GAO audit of the Fed — an audit which it vigorously resisted — we know that Barclays was the fifth largest recipient of emergency loans. Bailout loans for Barclays came to $868 billion. That means that Barclays probably made billions off the reduced interest rate alone, courtesy of the American people.

Those loans were granted between December 2007 and July 2010. That means the Fed was doling out billions to Barclays after it learned that the bank was lying about its LIBOR rates.

Indeed, all of the probable Libor manipulators – including Citi, JP Morgan Chase, Bank of America, UBS, RBS and Deutsche – were huge recipients of bailout money courtesy of the American taxpayer.

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Bankers’ manipulation of a key interest rates (LIBOR) aggravated cities’ and states’ troubles in the midst of the financial crisis.

As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.

Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate, the London interbank offered rate, or Libor, which serves as a benchmark for global borrowing and stands at the center of the latest banking scandal. Now cities, states and municipal agencies nationwide, including Massachusetts, Nassau County on Long Island, and California’s public pension system, are looking at whether they suffered similar losses and are weighing legal action.

Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase,Deutsche Bank and Barclays. Last month, Barclays admitted to regulators that it tried to manipulate Libor before and during the financial crisis in 2008, and paid $450 million to settle the charges. It said other banks were doing the same, but none of them have been accused of wrongdoing.

Libor, a measure of how much banks must pay to borrow money from one another in the short term, is set through a daily poll of the banks.

The rate influences what consumers, businesses and investors pay on a wide range of financial contracts, as varied as mortgages and interest rate swaps.

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Time for ‘Banksters’ to be prosecuted

By Katrina vanden Heuvel

“Banksters,” the cover of the Economist magazine charges, depicting a gaggle of bankers dressed as extras off the “Goodfellas” lot. The editors were reacting to Libor-gate, the collusion among traders of major banks to fix the London interbank offered lending rate, the most recent, most obscure and the most explosive revelation from what seems a bottomless pit of corruption in global banks.

Once more the big banks are exposed in systematic fraudulent activity. When Barclays agreed to a $450 million fine for trying to rig the Libor, its CEO offered the classic excuse: Everyone does it. Once more the question remains: Will CEOs and CFOs, as well as traders, be prosecuted? Or will they depart with their multimillion dollar rewards intact, leaving shareholders to pay the tab for the hundreds of millions in fines?

The Barclays settlement exposed that traders colluded to try to fix the Libor rate. This is the rate used as the basis for exotic derivatives as well as mortgages, credit card and personal loan rates. Almost everyone is affected. Fixing the rate even a few hundreds of a percentage point could make Barclays millions on any single day — money taken out of the pockets of consumers and investors. Once more the banks were rigging the rules; once more their customers were their mark.

The stakes are staggering. The Libor should be as good as gold. It pegs the value of up to $800 trillion in financial instruments. The collusion was systematic and routine. Investigations are underway not only in the United Kingdom but also in the United States, Canada and the European Union. Those named in the probes are all the usual suspects: JPMorgan Chase, Citibank, UBS, Deutsche Bank, HSBC, UBS and others. This wasn’t rogue trading, as the Economist concludes; it was more like a cartel.

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Politicians don’t want to bite the hand that feeds them. That’s what this all comes down to.

NY Fed May Have Known About Libor Fixing in 2007

The Federal Reserve Bank of New York may have known as early as August 2007 that the setting of global benchmark interest rates was flawed.

Following an inquiry with British banking group Barclays in the spring of 2008, it shared proposals for reform of the system with British authorities.

The role of the Fed is likely to raise questions about whether it and other authorities took enough action to address concerns they had about the way London Interbank Offered Rates, or Libor, were set, or whether their struggle to keep the banking system afloat through the financial crisis meant the issue took a backseat.

A New York Fed spokesperson said in a statement that “in the context of our market monitoring following the onset of the financial crisis in late 2007, involving thousands of calls and emails with market participants over a period of many months, we received occasional anecdotal reports from Barclays of problems with Libor.

“In the Spring of 2008, following the failure of Bear Stearns and shortly before the first media report on the subject, we made further inquiry of Barclays as to how Libor submissions were being conducted. We subsequently shared our analysis and suggestions for reform of Libor with the relevant authorities in the UK.”

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More on the LIBOR fixing scandal.

Rules of American Justice - An American banker is shocked to be held accountable in Britain

by Glenn Greenwald

Gretchen Morgenson, the New York Times business reporter, yesterday wrote about aggressive action taken by British financial authorities against top Barclays executives in connection with illegal manipulation of LIBOR interest rates, including the bank’s Chairman, Marcus Agius, and its CEO, Robert E. Diamond Jr., both of whom were forced out of their jobs. In doing so, Morgenson bluntly summarizes the general, governing rules of American justice for financial elites:

One of the most revealing exchanges in the Barclays documents came when a bank official tried to describe why Barclays’s improper postings were not as problematic as those of other banks. “We’re clean but we’re dirty-clean, rather than clean-clean,” an executive said in a phone conversation. Talk about defining deviancy down.

“Dirty clean” versus “clean clean” pretty much sums up Wall Street’s view of cheating. If everybody does it, nobody should be held accountable if caught. Alas, many United States regulators and prosecutors seem to have bought into this argument… .

MR. DIAMOND seemed shocked to be pushed out. An American by birth, he probably thought he’d be subject to American rules of engagement when confronted with evidence of wrongdoing at his bank. You know how it works on this side of the Atlantic:faced with a scandal, most chief executives jettison low-level employees, maybe give up a bonus or two — and then ride out the storm. Regulators, if they act, just extract fines from the shareholders.

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Barclays Rate Fixing Scandal - Barclays manipulated Libor, the London inter-bank lending rate, considered to be one of the most crucial interest rates in finance.

On 27 June Barclays admitted to misconduct.

The UK’s FSA imposed a £59.5m penalty. The US Department of Justice and the Commodity Futures Trading Commission (CFTC) imposed fines worth £102m and £128m respectively, forcing Barclays to pay a total of around £290m.

One day later, Barclays’ share price plunged 15%.

Chief executive Bob Diamond said he would attend a Commons Treasury Committee and that the bank would cooperate with authorities. In a letterto the committee chairman Andrew Tyrie, he wrote: “Even taking account of the abnormal market conditions at the height of the financial crisis, and that the motivation was to protect the bank, not to influence the ultimate rate, I accept that the decision to lower submissions was wrong.” However, he said he would not resign.

On 29 June Prime Minister David Cameron urged regulators to use “all the powers at their disposal” to pursue Barclays. “This is a scandal. It is extremely serious. They’ve had a very large fine and quite rightly. But frankly the Barclays management team have some big questions to answer,” he said.

The same day, Bank of England Governor Sir Mervyn King called for a “cultural change”, adding: “The future calculation of Libor on ‘my word is my Libor’ is now dead.” He said implementing the Vickers banking reforms was the most important first step, but ruled out a Leveson-style enquiry into the banks.

July

On 2 July:

• Barclays chairman Marcus Agius resigned and also tendered his resignation as chairman of the BBA and Mr Diamond said in a letter to staff that he would “get to the bottom” of what happened

• The Serious Fraud Office (SFO) considered whether to bring criminal charges against bankers who tried to manipulate the inter-bank lending rate.

• Prime Minister Cameron announced a parliamentary review of the banking sector, to be headed by the chairman of the Treasury Committee, Andrew Tyrie. The review should ensure that the UK had the “toughest and most transparent rules of any major financial sector”, Mr Cameron said.

On 3 July Barclays chief executive Bob Diamond resigned, saying that the external pressure on the bank risked “damaging the franchise”.

read more - Timeline: Barclays’ widening Libor-fixing scandal

Why is this a big deal?

Libor (and Euribor, which Barclays also tried to manipulate)is used to set interest rates for loans, mortgages and derivatives. It’s one of the underpinnings of the global financial market.

While these manipulations netted the bank an extra few tens of thousands of dollars, it at the same time drove the cost of borrowing up by billions for consumers and businesses world wide.

Four other large banks are also now being investigated, they are Citigroup, UBS of Switzerland, Royal Bank of Scotland and HSBC of Britain.