To Run a Bank Is To Steal

All banking executives should be put in jail.

The latest reason-- the LIBOR scandal:

LIBOR stands for the London InterBank Offered Rate. So what does that mean? It's basically the rate that banks around the world are lending money to each other. And the way it's calculated is each day - the banks submit what rate they can afford to borrow money at - and the average of what all the banks submit becomes the LIBOR rate. But what's really important to remember here is - LIBOR doesn't just apply to the rate banks lend money to each other. It also applies to the rate that we consumers pay on several different types of loans - including mortgages, car loans, and credit card rates. So if those rates are manipulated by banks - and artificially driven higher - then it affects a lot of people - and leads to working people paying more on their loans. Which is exactly what happened.

Earlier this week - the CEO and COO of Barclays bank resigned after it was revealed their bank was routinely manipulating LIBOR rates between 2005 and 2009. Barclays has since been hit with a $450 million fine for this criminal activity. But the question is - was Barclays alone in this? Or were other banks involved as well - and not only that - were governments and regulators involved in the scam too? Disgraced Barclays CEO Bob Diamond is alleging just that. As the Washington Post reported on Wednesday: "Fallen banking titan Bob Diamond on Wednesday described regulators on both sides of the Atlantic as partly complicit in a scandal involving the manipulation of a key interbank lending rate, telling a British parliamentary committee that government watchdogs had failed to act after his bank, Barclays, informed them of industry-wide irregularities during the U.S. financial crisis." So just how deep does this scandal go - and how much money did the banksters make this time screwing us?

Basically, the LIBOR rates were rigged, to screw over smaller fish-- in other words, all of us, via City and Local governments:

We know that the big banks conspired to manipulate Libor rates, with the approval of government authorities.

We know that the Libor manipulation effected the world’s largest market – interest rate derivatives.

But who are the biggest victims?

Sometimes the big banks manipulated the Libor rates up, and sometimes down. Different groups of people got hurt depending which way the rates were gamed.

Bloomberg’s Darrell Preston explained last year how cities and other local governments got scalped when rates were manipulated downward:

In the U.S., municipal borrowers used swaps to guard against the risk of higher interest costs on variable-rate debt by exchanging payments with another entity and tying how much they pay to an underlying value such as an index. The agreements can backfire if rates move in unexpected directions, resulting in issuers making larger payments.The derivatives were often designed to offset the risks of increases in the short-term rates tied to auction-rate securities, fixing borrowers’ costs by trading their debt- service payments with another party. Instead, rates dropped.

The yield on two-year Treasury notes fell from about 5.1 percent in June 2007 to a record 0.14 percent on Sept. 20. On Oct. 6, the U.S. Treasury sold $10 billion of five-day cash- management bills at 0 percent.

Ellen Brown adds:

For more than a decade, banks and insurance companies convinced local governments, hospitals, universities and other non-profits that interest rate swaps would lower interest rates on bonds sold for public projects such as roads, bridges and schools. The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels. This was not a flood, earthquake, or other insurable risk due to environmental unknowns or “acts of God.” It was a deliberate, manipulated move by the Fed, acting to save the banks from their own folly in precipitating the credit crisis of 2008. The banks got in trouble, and the Federal Reserve and federal government rushed in to bail them out, rewarding them for their misdeeds at the expense of the taxpayers. [The same thing happened in England.]

In other words, the banks convinced borrowers to insure against interest rates going UP, by engaging in swaps. However, the Fed LOWERED interest rates, which the banks knew about, meanwhile encouraging taxpayers to buy these insurance swaps and screwing over ordinary people.

How the swaps were supposed to work was explained by Michael McDonald in a November 2010 Bloomberg article titled “Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire”: In an interest-rate swap, two parties exchange payments on an agreed-upon amount of principal. Most of the swaps Wall Street sold in the municipal market required borrowers to issue long-term securities with interest rates that changed every week or month. The borrowers would then exchange payments, leaving them paying a fixed-rate to a bank or insurance company and receiving a variable rate in return. Sometimes borrowers got lump sums for entering agreements.Banks and borrowers were supposed to be paying equal rates: the fat years would balance out the lean. But the Fed artificially manipulated the rates to the save the banks. After the credit crisis broke out, borrowers had to continue selling adjustable-rate securities at auction under the deals. Auction interest rates soared when bond insurers’ ratings were downgraded because of subprime mortgage losses; but the periodic payments that banks made to borrowers as part of the swaps plunged, because they were linked to benchmarks such as Federal Reserve lending rates, which were slashed to almost zero.

The whole thing is fairly complicated, and the last link has a lot more, but hopefully you will get the basic idea.

UPDATE: Robert Scheer calls this the "Crime of the Century"