You are viewing the NationofChange archives. For the latest news and actions, visit the new www.NationofChange.org.
Sunday, November 23, 2014 / PROGRESSIVE JOURNALISM FOR POSITIVE ACTION
Get Email Updates | Log In | Register

Article image
Ellen Brown
NationofChange / Op-Ed
Published: Sunday 22 July 2012
“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.”

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

Article image

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, counter party A (a city, hospital, etc.) pays a fixed interest rate to counter party 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 enrichmentis 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.  



Author pic
ABOUT Ellen Brown

Ellen is an attorney, author, and president of the Public Banking Institute. In Web of Debt, her latest of eleven books, she shows how the power to create money has been usurped from the people, and how we can get it back. Her websites are http://webofdebt.com and http://ellenbrown.com.

This article seems to mention

This article seems to mention only public-body suits against the Libor rigging banks. There is also at least one private class-action suit in process, directed at the lowballing of the Libor rates and the resulting impact on millions of individual persons.

ETNIKS's picture

Ellen mentions private local

Ellen mentions private local banks in Wisconsin doing a class action suit

" 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."

"We the People must

"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..."

While this sounds like a feel-good solution, reality is much more tricky. I do not believe there is any historical precedent showing how a public banking sector would operate efficiently and without abuse. Perhaps we should consider a public Post-bank model, as in the German-speaking world, to compete with large banks, but that only covers retail banking. There is no really good alternative to private capital ownership for most banking activities. Also, we want profitable banks, but with profits that derive from banking deals that boost commercial activity.

I think the culprit is not so much the banks, but vast swaths of the financial industry that are simply set up for wagering against this or that benchmark. We need less wagering and more real investment to solve humanity's problems. It seems that we need to get a grip on the derivatives market, at the very least, with a transaction tax that gives us transparency and better risk monitoring. Once we reduce the overall volume of speculative trading, it seems the banking sector would down-size itself automatically.

ETNIKS's picture

Your views are not supported

Your views are not supported by the facts. The Fractional Reserve Banking System is sinking from its own weight and contradictions based on greed for personal enrichment.

While the LIBOR debacle may be the last nail in the current fraudulent banking system's coffin, it is actually diverting the attention to a much more egregious scam: Debt-Based-Money.

As explained clearly by Damon Vrabel ( http://www.youtube.com/watch?v=5iBSBVew-3Y ) the current banking system allowing private banks to produce the money supply as debt for profit, distorts and ultimately destroys markets, since it is in essence a PONZI scheme requiring constantly the influx of new borrowers to sustain the required money supply for the economy to grow.

Today's "crisis" in the world is FAKE. It is based on national government's debts.

I am going to ask you, why should a government borrow from a bank at interest money the bank creates out of thin air, when governments can do exactly the same without paying any interest?

But this fraudulent system is even more insidious because it makes it impossible for society to conduct an economy without debts, therefore all this talk about AUSTERITY and forcing countries like Greece, Spain, Ireland etc to stop borrowing and pay existing debts ONLY MAKES THINGS WORSE because with Fractional Reserve Banking what they are doing is taking out currency from circulation, bringing in even more deflation and bankruptcies.

It is the same as in the middle ages when quack doctors were bleeding sick people, thinking they had "bad blood", but in fact they made them weaker to regain health, killing them in the process.

Assumptions are wrong. In people's minds it is assumed today's money functions like a fixed gold coins monetary system that allows for everyone to conduct business 100% debt-free. NOT SO.

The LIBOR scandal will probably achieve the end of Fractional Reserve from the back door, just like Al Capone was taken down by a tax violation, not the stacks of corpses and racketeering he was guilty of, but the results to have him out of circulation was achieved all the same.

WHAT ARE THESE PEOPLE WARNING US ABOUT?

"Until the control of the issue of currency and credit is restored to government and recognized as it's most conspicuous and sacred responsibility, all talk of sovereignty of Parliament and of democracy is idle and futile...Once a nation parts with the control of it's credit it matters not who makes the laws...Usury once in control will wreck any nation."
MacKenzie King,
Canadian Prime Minister

"I have never yet had any one who could through the use of logic and reason, justify the Federal Government borrowing the use of its own money"
"There is not a single person within range of my voice, who does not know the Federal Reserve is an illegal organization that puts people in debt unnecessarily"
Wright Patman
US Congressman

"There are two ways to conquer and enslave a nation,
One is by the sword. The other is by Debt"
John Adams

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
Henry Ford

Where is the article?

Where is the article?

Excellent Ellen ! Many people

Excellent Ellen !

Many people forget that we just recently paid off the bill for the Savings and Loan fiasco of the 1980s. Just in time to start bailing out this generation of corrupt corporate psychopaths. But all they can talk about is austerity because they don't want to bail out the people who always bail them out. The ones who always get stuck with the bill, the American Public !

What do you mean we have just

What do you mean we have just paid of the S&L fiasco. In 1980 we had a $1 trillion debt. In 1992 we owed $3.5 trillion. In 2000 it was up to $5 trillion. We have not paid a nickel in principal on the debt that Reagan piled on us, nor any borrowed since then. We have NOT paid off any of the S&L fiasco, just buried it under more piles of debt so it is hard to see.

Ellen rocks! I hope all

Ellen rocks! I hope all the community banks join in and that we have ACTION from Congress (yeah, I know...but if enough of us insist, something will happen).

I would love to see the Occupy folks identify these guys and put their names up on Parodies of Wanted Posters. (Bank robbers from behind the glass instead of in front)

ditto ditto ditto and

ditto ditto ditto and ditto

Wasn't that the names of those in this syndicate?

Selling money (usury) should

Selling money (usury) should still be illegal. Charging Interest before the fact of real economic activity is not Investment, (which is assessed after said activity occurs); Interest IS inflation!

Corporations are simply conspiracies to commit criminal negligence, (by asking for advance 'legal' protection to take risks which will only ever affect others, for gains which will only ever accrue to themselves); only human partnerships and their authorized signing agents should ever be allowed, as those would be still liable as human beings under our laws, because only real individual humans should have rights, and all mere groups (of individuals) should at most be assigned some temporary, revokable privileges. After all, you can't put a 'corporation' in jail, no matter what 'it's' crimes, you can only fine 'it' money in exchange for the human lives 'it' takes and degrades ... which practice is after all only enabling the buying and selling of real human lives, i.e: - slavery. It means the real human people in those criminal gangs called corporations are only ever liable under the civil, but never the criminal, law.

We MUST push for the repeal

We MUST push for the repeal of CITIZENS UNITED laws

The maliciously greedy

The maliciously greedy activities of these money-masters has given a whole new meaning to the term BANK ROBBERS!

As always, great work by

As always, great work by Ellen Brown. Thanks for keeping us informed.

The United States of America

The United States of America Savings and Loan. That would definitely be a bank of the people, by the people and for the people. Like the founding folk said, "Power to the Peoples"

No more investigations

No more investigations followed by pathetically lame civil fines --

we want to see the big bankers thrown in prisons and left to die there.

Great article. This is the

Great article. This is the key cause the 99% should be focused on as it is at the very heart of the problem.

The incredible audacity of

The incredible audacity of these crimes is very hard to overstate. Unfortunately, the complexity of these systems has made it so difficult for the general public to understand.

It seems we need a clear story and a perp-walk.

I agree with the need for a strong response to hold the "Banksters" accountable and a strong Public Bank to provide a stable alternative to these profiteers. Unfortunately, without communicating the crime well it leaves them open to misleading Radical Right attacks.

Keep up the good work.

Comment with your Facebook account



Comment with your Disqus account

Top Stories

comments powered by Disqus

NationofChange works to educate, inform, and fight power with people, corruption with community.

If you would like to stay up to date with the best in independent, filter-free journalism, updates on upcoming events to attend, and more, enter your email below:

7 Compelling Reasons Why You Should Support NationofChange

Our readers often tell us why they’ve decided to step up and become supporters. Here are some of the top reasons people are giving.

1. You’re keeping independent journalism alive
The corporate owned media has proven that it can’t be trusted. In a media landscape wrought with spin and corruption, NationofChange stands in very scarce company.

2. You’re sticking it to the rich, powerful, and corrupt
When you have money in this country you can get away with damn near anything, and they do. NationofChange isn’t afraid to expose these criminals no matter how powerful they are.

3. Your donation is 100% tax-deductible
NationofChange is a 501(c)3 charity. People tend to assume that many other organizations are (most nonprofits are NOT) but it’s that 501(c)3 status is a bit more rare than you think.

Read the rest...