Titanic Banks Hit LIBOR Iceberg: Will Lawsuits Sink the Ship?

At one time, calling the large multinational banks a “cartel” branded you as a conspiracy theorist.   Today the banking giants are being called that and worse, not just in the major media but in court documents intended to prove the allegations as facts.  Charges include racketeering (organized crime under the U.S. Racketeer Influenced and Corrupt Organizations Act or RICO), antitrust violations, wire fraud, bid-rigging, and price-fixing.  Damning charges have already been proven, and major damages and penalties assessed.  Conspiracy theory has become established fact.

In an article in the July 3rd Guardian titled “Private Banks Have Failed – We Need a Public Solution”, Seumas Milne writes of the LIBOR rate-rigging scandal admitted to by Barclays Bank:

It’s already clear that the rate rigging, which depends on collusion, goes far beyond Barclays, and indeed the City of London. This is one of multiple scams that have become endemic in a disastrously deregulated system with inbuilt incentives for cartels to manipulate the core price of finance.

. . . It could of course have happened only in a private-dominated financial sector, and makes a nonsense of the bankrupt free-market ideology that still holds sway in public life.

. . . A crucial part of the explanation is the unmuzzled political and economic power of the City. . . . Finance has usurped democracy.

Bid-rigging and Rate-rigging

Bid-rigging was the subject of U.S. v. Carollo, Goldberg and Grimm, a ten-year suit in which the U.S. Department of Justice obtained a judgment on May 11 against three GE Capital employees.  Billions of dollars were skimmed from cities all across America by colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion.  Other banks involved in the bidding scheme included Bank of America, JPMorgan Chase, Wells Fargo and UBS.  These banks have already paid a total of $673 million in restitution after agreeing to cooperate in the government’s case.

Hot on the heels of the Carollo decision came the LIBOR scandal, involving collusion to rig the inter-bank interest rate that affects $500 trillion worth of contracts, financial instruments, mortgages and loans.  Barclays Bank admitted to regulators in June that it tried to manipulate LIBOR before and during the financial crisis in 2008.  It said that other banks were doing the same.  Barclays paid $450 million to settle the charges.

The U. S. Commodities Futures Trading Commission said in a press release that Barclays Bank “pervasively” reported fictitious rates rather than actual rates; that it asked other big banks to assist, and helped them to assist; and that Barclays did so “to benefit the Bank’s derivatives trading positions” and “to protect Barclays’ reputation from negative market and media perceptions concerning Barclays’ financial condition.”

After resigning, top executives at Barclays promptly implicated both the Bank of England and the Federal Reserve.  The upshot is that the biggest banks and their protector central banks engaged in conspiracies to manipulate the most important market interest rates globally, along with the exchange rates propping up the U.S. dollar.

CFTC did not charge Barclays with a crime or require restitution to victims.  But Barclays’ activities with the other banks appear to be criminal racketeering under federal RICO statutes, which authorize victims to recover treble damages; and class action RICO suits by victims are expected.

The blow to the banking defendants could be crippling.  RICO laws, which carry treble damages, have taken down the Gambino crime family, the Genovese crime family, Hell’s Angels, and the Latin Kings.

The Payoff: Not in Interest But on Interest Rate Swaps

Bank defenders say no one was hurt.  Banks make their money from interest on loans, and the rigged rates were actually LOWER than the real rates, REDUCING bank profits.

That may be true for smaller local banks, which do make most of their money from local lending; but these local banks were not among the 16 mega-banks setting LIBOR rates.  Only three of the rate-setting banks were U.S.banks—JPMorgan, Citibank and Bank of America—and they slashed their local lending after the 2008 crisis.  In the following three years, the four largest U.S. banks—BOA, Citi, JPM and Wells Fargo—cut back on small business lending by a full 53 percent. The two largest—BOA and Citi—cut back on local lending by 94 percent and 64 percent, respectively.

Their profits now come largely from derivatives.  Today, 96% of derivatives are held by just four banks—JPM, Citi, BOA and Goldman Sachs—and the LIBOR scam significantly boosted their profits on these bets.  Interest-rate swaps compose fully 82 percent of the derivatives trade.  The Bank for International Settlements reports a notional amount outstanding as of June 2009 of $342 trillion.  JPM—the king of the derivatives game—revealed in February 2012 that it had cleared $1.4 billion in revenue trading interest-rate swaps in 2011, making them one of the bank’s biggest sources of profit.

The losers have been local governments, hospitals, universities and other nonprofits.  For more than a decade, banks and insurance companies convinced them that interest-rate swaps would lower interest rates on bonds sold for public projects such as roads, bridges and schools.

The swaps are complicated and come in various forms; but in the most common form, counterparty A (a city, hospital, etc.) pays a fixed interest rate to counterparty B (the bank), while receiving a floating rate indexed to LIBOR or another reference rate.  The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels.

Defenders say “a deal is a deal;” the victims are just suffering from buyer’s remorse.  But while that might be a good defense if interest rates had risen or fallen naturally in response to demand, this was a deliberate, manipulated move by the Fed acting to save the banks from their own folly; and the rate-setting banks colluded in that move.  The victims bet against the house, and the house rigged the game.

Lawsuits Brewing

State and local officials across the country are now meeting to determine their damages from interest rate swaps, which are held by about three-fourths of America’s major cities.  Damages from LIBOR rate-rigging are being investigated by Massachusetts Attorney General Martha Coakley, New York Attorney General Eric Schneiderman, officers at CalPERS (California’s public pension fund, the nation’s largest), and hundreds of hospitals.

One victim that is fighting back is the city of Oakland, California.  On July 3, the Oakland City Council unanimously passed a motion to negotiate a termination without fees or penalties of its interest rate swap with Goldman Sachs.  If Goldman refuses, Oakland will boycott doing future business with the investment bank.  Jane Brunner, who introduced the motion, says ending the agreement could save Oakland $4 million a year, up to a total of $15.57 million—money that could be used for additional city services and school programs.  Thousands of cities and other public agencies hold similar toxic interest rate swaps, so following Oakland’s lead could save taxpayers billions of dollars.

What about suing Goldman directly for damages?  One problem is that Goldman was not one of the 16 banks setting LIBOR rates.  But victims could have a claim for unjust enrichment and restitution, even without proving specific intent:

Unjust enrichment is a legal term denoting a particular type of causative event in which one party is unjustly enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing. . . . [It is a] general equitable principle that a person should not profit at another’s expense and therefore should make restitution for the reasonable value of any property, services, or other benefits that have been unfairly received and retained.

Goldman was clearly unjustly enriched by the collusion of its banking colleagues and the Fed, and restitution is equitable and proper.

RICO Claims on Behalf of Local Banks

Not just local governments but local banks are seeking to recover damages for the LIBOR scam.  In May 2012, the Community Bank & Trust of Sheboygan, Wisconsin, filed a RICO lawsuit involving mega-bank manipulation of interest rates, naming Bank of America, JPMorgan Chase, Citigroup, and others.  The suit was filed as a class action to encourage other local, independent banks to join in.  On July 12, the suit was consolidated with three other LIBOR class action suits charging violation of the anti-trust laws.

The Sheboygan bank claims that the LIBOR rigging cost the bank $64,000 in interest income on $8 million in floating-rate loans in 2008.  Multiplied by 7,000 U.S. community banks over 4 years, the damages could be nearly $2 billion just for the community banks.  Trebling that under RICO would be $6 billion.

RICO Suits Against Banking Partners of MERS

Then there are the MERS lawsuits.  In the State of Louisiana, 30 judges representing 30 parishes are suing 17 colluding banks under RICO, stating that the Mortgage Electronic Registration System (MERS) is a scheme set up to illegally defraud the government of transfer fees, and that mortgages transferred through MERS are illegal.  A number of courts have held that separating the promissory note from the mortgage—which the MERS scheme does—breaks the chain of title and voids the transfer.

Several states have already sued MERS and their bank partners, claiming millions of dollars in unpaid recording fees and other damages.  These claims have been supported by numerous studies, including one asserting that MERS has irreparably damaged title records nationwide and is at the core of the housing crisis.  What distinguishes Louisiana’s lawsuit is that it is being brought under RICO, alleging wire and mail fraud and a scheme to defraud the parishes of their recording fees.

Readying the Lifeboats: The Public Bank Solution

Trebling the damages in all these suits could sink the banking Titanic.  As Seumas Milne notes in The Guardian:

Tougher regulation or even a full separation of retail from investment banking will not be enough to shift the City into productive investment, or even prevent the kind of corrupt collusion that has now been exposed between Barclays and other banks. . . .

Only if the largest banks are broken up, the part-nationalised outfits turned into genuine public investment banks, and new socially owned and regional banks encouraged can finance be made to work for society, rather than the other way round. Private sector banking has spectacularly failed – and we need a democratic public solution.

If the last quarter century of U.S. banking history proves anything, it is that our private banking system turns malignant and feeds off the public when it is deregulated.  It also shows that a parasitic private banking system will NOT be tamed by regulation, as the banks’ control over the money power always allows them to circumvent the rules.  We the People must transparently own and run the nation’s central and regional banks for the good of the nation, or the system will be abused and run for private power and profit as it so clearly is today, bringing our nation to crisis again and again while enriching the few.

______________

Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org.  In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com and http://EllenBrown.com.

 

25 Responses

  1. The most interesting part of the LIBOR scandal is that it totally demolishes the claims that there is, or ever was, a “euro crisis”. The ease with which the LIBOR was manipulated, and the routine, even off-hand, way in which it was done, illustrates the techniques used to manipulate the euro and the borrowing rates of EU Member States. Those who were so quick to sneer and jeer when they thought the manipulators were going to destroy the euro now have a great deal of egg on their faces!

    • I have to agree Michael, and the Banks who have so heavily endebted whole nations in Europe, the US and elsewhere, then rub salt into the wounds by increasing interest rates because these nations have become “high risk”, despite their imprudent lending policies.
      There used to be a saying, “If the Bank lends me $100,000, I have a problem, if the Bank lends me $100,000,000, the Bank has a problem”
      Now with “predatory banking” all the Bank does is raise the interest rate and increase YOUR burden. When Thatcher and Reagan gave us the wonderfull gift of “Globalisation” and the “Big Bang” took place in London(in the ’80’s) I was too young to comprehend what was happening(like lot’s of people), but I was instinctively uneasy about it. And what we see happening today confirms my “gut feeling” at the time. I’m not religeous, but, it’s time for “Jesus” to kick the moneylenders out of the Temple. Iceland did it (under enormous pressure from London and other banking centres), and their economy is now returning to normal.

      • Well,If you were to young back in the 80’s,you have the opportunity to be informed now?Here a more accurate description on Ronald Reagans policy on the economics:

        http://www.paulcraigroberts.org/2012/07/22/the-cost-left-wings-ongoing-vendetta-against-reagan/

        He was there,have done that.

        • Thanks for the link Ole. My criticism of Reagan(and Thatcher) is that they handed the keys (and the power) of their nations Treasuries, to the Corporations (and particularly, Banks) via “The Big Bang”. They sold off most of both governments assets, at bargain basement prices. These assets were owned by, and paid for by the people over many years, and the proceeds used to pay down debts(which have since increased because the Banking Cartel knows it will weaken govts to the point that they will eventually become irrellevent). Of course, Clinton was responsible for the repeal of Glass Steagal which resulted in the meltdown of 2008.

          • Thanks for an interesting reply.
            I see I have to read some more about this “affairs”.
            Any recommendations?

            • ethonation, I’m not sure what you are asking. Can you clarify?

              • I mean book(s)from that period by some independent writer(s).
                I Googled “The Big Bang”,but couldn’t find anything.

                • ethonian, If you Google “Globalisation+BigBang+London” you will find information that will help. I am relying on my memory and subsequent action by governments worldwide, who sold off Government utilities/businesses to private enterprise in the name of efficiency. In Australia they sold power stations, water suppliers, Commonwealth Serum Laboratories, The Commonwealth Bank of Australia, Telstra, etc etc. This was supposed to cause a “trickle down effect” making everyone better off. In reality, govts took a one off financial gain, but lost annual income forever. In London the Banks were “Deregulated” and in hindsite this appears to mean that Banks can do whatever they want to. The same rules seem to apply on Wall St, where Bankers are now routinely referred to as “Banksters”, who have pulled off the greatest theft in history, by handing their bad debts over to the taxpayers of the USA, a lot of whom are now unemployed, and not one of these SOB’s have gone to jail.
                  Beware in future, when smooth talking Politicians(Thatcher/Reagan) want to sell you some ‘golden idea’ full of promise, “Caveat Emptor” (let the buyer beware)

          • “they handed the keys (and the power) of their nations Treasuries, to the Corporations (and particularly, Banks) via “The Big Bang”. They sold off most of both governments assets, at bargain basement prices.” Yes, Brian. This theme interests me a lot. The privatization and LBOs began en force under Reagan it seems. Under the banner of capitalist efficiency the nation was stripped down, something like the take-down of the USSR, just a slower process, the culmination soon to be upon us it seems. I’d like to gain more clarity about this if you have any good sources.

  2. Ellen, excellent as usual. The following are excerpts from my platform.

    The next gravest threat to our national security [after Obama] are the owners and executives of the nation-destroying private Federal Reserve Bank, who, along with their government accomplices, steal vast amounts of our national productivity, technology, and wealth through bogus debt and interest for their dictatorial power and greed. This bleeds our infrastructure and destroys our military. [Proof][Proof] They cause massive poverty, death and destruction. They cripple most nations. They hold the grassroots in total contempt. Time to permanently drive the money changers from the temple and into prison where they belong. Never, ever forget: This is a law enforcement issue, not an economics issue.

    In 1871, the Supreme Court ruled in Knox v. Lee that Congress could Constitutionally print debt-free money and regulate its value to fund government operations. Consequently, it’s an ongoing RICO crime for federal government employees to borrow from the Federal Reserve. The crime is compounded because what is “borrowed” is valueless paper that’s repaid with the wealth of our labors. This monstrous parasitic fraud results in a crushing illusory debt that is used to justify taxing and regulating us out of our economic and political freedoms for the sole purpose of unlawfully enriching and empowering criminals. [Proof] The fraud reaches astronomical levels from their additional off-book printing of $trillions for their own personal use. These massive monetary crimes are committed in most countries. They’re coordinated by the Bank for International Settlements in Basel, Switzerland. [Proof] The oligarchs and their crimes against humanity have been around for centuries, and they must be run to ground.

    As a Congressman for all Americans, I will introduce or support legislation to create nonprofit, publicly owned, self-sustaining State banks that will make interest-free loans to individuals, businesses, county and local governments, and school districts. I will also work to require the Federal government to fund its operations and create our money supply with our own debt-free and tax-free currency instead of absurdly borrowing it — a damnable practice used to harvest you as crops. These two programs will provide full employment, massive tax reduction, and vast prosperity.

    Ernest Huber

    • Sounds good Ernest, so I gave your comments 1 vote, but the US Congress has been ‘asleep at the wheel’ since 1913, and is a major part of the problem. Congressmen in the USA like to see themselves as men of integrity, while Banksters have so much money, they can afford to buy it.

  3. For those of us studying history at length and depth covering the past few thousand years . This monetarist manipulation and control of society is nothing new. What is historically new is the kind of full on reporting and exposing by Ellen Brown and her associates, hopefully resulting in a successful carthartical removal of those who perpetrate this evil on society

  4. [...] clearly is today, bringing our nation to crisis again and again while enriching the few.Ellen Brown Web of DebtPosted: Friday, 20 July 2012 jQuery( document ).ready( function( $){$("a[rel='cbox_69731']" [...]

  5. [...] Brown is the US leading voice for credit and banking reform; in articles from March and July, 2012 she explains how the lies of private banks’ reports of the London Interbank Offered Rate (LIBOR) [...]

  6. [...] (Click here) This entry was posted in Financial News by xanadu. Bookmark the permalink. [...]

  7. Thank You Ellen for you courage to speak up when all around us the mainstreammedia is trying to silence these issuesby not reporting on it. This makes them complicit. Where will this all end?

  8. Don’t hold your collective breaths for any help from the courts. The WHOLE system is in the pocket of the zionist banks.

    • RIGHT ON!

  9. [...] http://webofdebt.wordpress.com/2012/07/20/titanic-banks-hit-libor-iceberg-will-lawsuits-sink-the-shi… Did you like this? Share it: Disclaimer: The contents of this article are of sole responsibility of the author(s). The American OverKill will not be responsible for any inaccurate or incorrect statement in this article. The source and the author's copyright must be displayed if you post it to another Website or use it any way. http://www.americanoverkill.com contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to our readers under the provisions of "fair use" in an effort to advance a better understanding of political, economic and social issues. The material on this site is distributed without profit to those who have expressed a prior interest in receiving it for research and educational purposes. If you wish to use copyrighted material for purposes other than "fair use" you must request permission from the copyright owner. Category: Economy / Tags: deregulation, greed, LIBOR, private banks, Public banking [...]

  10. “Will lawsuits sink the ship”? We can only hope so. Since we’ll never see any CRIMINAL PROSECUTIONS, as the Judges are all bought-and-paid-for.

  11. Ellen’s criticism of the banking system is spot on, but her naive assumption that the government reflects “we the people” is bordering on the bizarre. The Fed is a creature of government – of Congress. The government has had – and has – the potential power to kill of the Fed and nationalize the banks and has never used it. Why Ellen thinks the source of the corruption and problems is also the source of the solution amazes me. If we have public banks, I guarantee (GUARANTEE) insane White Elephant “investments” by politicians and their cronies worse than the current system. Who would stop them? Democractic government? Don’t make me laugh. That’s what we have now and the system is corrupt to its core.

    The only long term solution is to kill the Fed, get back to gold as money and remove government from money.

    If you think government is the solution, you also think more debt is the solution to a depression. In other words, you think the source of the problem is the source of the solution.

    • It’s true that bad, captured government does not work, but that is no reason to give up on government completely. It’s a vicious circle: the banks have the money power and control Congress, which grants them the money power. Politics needs to be cleaned up as well as banking, but taking the money creation power out of the hands of the banks is key. The gold standard, which also relied mainly on fiat, did not work: economies suffered repeated depressions. Read Web of Debt.

  12. Giving money back to the same government that perpetuated this mess is hardly a solution. I am against fines, but all for retribution paid directly to the very people being victimized!!!!!!!!!!!!!!!!!!!! And don’t tell me that this can’t be done. We manage to get tax refunds mailed out. It is time to return to some sanity in our national behavior.

    • The idea that government is the root perpetrator of the mess is ridiculous. What motive would government have? A small clique of hyper-wealthy private parasites — the usual perps — control government. The only way to defeat them is to get the power to create money out of the private bankers’ hands and into the hands of society as a whole. You are a slave to them and seem not to know it.

  13. Here is how the bankers’ game works:

    http://aquinums-razor.blogspot.com/2011/11/here-is-how-bankers-game-works.html

    mansoor h. khan

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