The "LIBOR-gate" scandal is exploding in the U.S., as cities, states, and municipalities across the U.S. examine how much money they have been bilked out of by the banks' fixing of the LIBOR rate. The LIBOR is used to determine lending rates for trillions of dollars of credit, from loans between financial institutions, to credit cards, adjustable-rate mortgages, and the interest-rate "swaps" which have sunk cities across the U.S. as interest rates have gone down. The U.S. Commodities Futures Trading Corporation estimated that the LIBOR is tied to more than $900 trillion worth of loans, swaps and futures contracts. For comparison, a recent estimate of total world GDP puts it at $70 trillion.
Baltimore, Md. is suing more than a dozen major banks for conspiring to to manipulate the LIBOR. The Baltimore Sun called LIBOR-gate "the largest financial scandal in the world today." Barclays is one of 14 banks being sued by Baltimore. In June, Barclays admitted to regulators that it tried to manipulate the rate by reporting false rates before and during the 2007-2008 financial crisis, and agreed to pay more than $450 million to settle the lawsuit brought by American and British regulators for LIBOR fixing. Baltimore's lawsuit involves the city's purchase of hundreds of millions of dollars of LIBOR-based interest-rate swaps, which government agencies buy as insurance policies against interest rate increases. When the LIBOR was manipulated lower, the muncipalities lost their end of the swap.
Swaps agrements have bankrupted many cities which borrowed money for public works, schools, etc. Baltimore sued the banks last year in Federal court in New York, and its lawsuit was consolidated with others, including some brought by pension funds. The banks named in the suit include Barclays, Bank of America, JPM Chase, HSBC, Deutsche Bank, and Credit Suisse, and seven others.
Massachusetts prosecutors will meet with state finance officials next week to look at their losses from the LIBOR-fixing. Many Massachusetts agencies owned interest-rate swaps during the period when the LIBOR was admittedly manipulated, 2007-2008. This includes the Metropolitan Boston Transit Agency, which had entered into a dozen interest-rate swap agreements worth a total of $1.6 billion over five years. The Mass. Department of Transportation bought swap contracts to cover $800 million in borrowing in 2010 alone; the Mass. Water Reseources Authority is examining its $350 million interest-rate swap. The investment firm Charles Schwab Corp. has sued major banks over similar allegations of LIBOR-fixing; firms like Schwab invest in interest-rate swaps for money-market funds. Partners Healthcare, the parent of Massachusetts General Hospital, which used more than $500 million in swaps in the last decade, is considering suits.
The entire explosive LIBOR-gate package has "Barack Obama and Tim Geithner" written all over it, and could well explode right under Obama's political nose before the Sept. 3 Democratic Convention. As reported in a June briefing, Robert Wolf, President of UBS Investment Bank, is one of Obama's largest financial backers, bundling $500,000 in 2008 and in 2012, as well as being a regular golfing buddy. UBS is under investigation by the U.S. Securities and Exchange Commission, Department of Justice, and Commodities Futures Trading Commission for rigging the LIBOR market rate as a reference point for borrowing costs throughout the financial world. In 2009, Obama appointed Wolf to his Economic Recovery Advisory Board. Shortly afterward, UBS admitted to conspiring to defraud the IRS and agreed to pay $780 million to halt an investigation into UBS's activities. In February 2012, UBS was granted immunity from the U.S. Department of Justice for its cooperation with the DOJ in its probe into Yen LIBOR and Euroyen Tibor rate-fixing, according to Competition Policy International.