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The Big Losers in the Libor Rate Manipulation

George Washington's picture




 

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.]

 

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.

 

In a February 2010 article titled “How Big Banks' Interest-Rate Schemes Bankrupt States,” Mike Elk compared the swaps to payday loans. They were bad deals, but municipal council members had no other way of getting the money. He quoted economist Susan Ozawa of the New School:

The markets were pricing in serious falls in the prime interest rate. . . . So it would have been clear that this was not going to be a good deal over the life of the contracts. So the states and municipalities were entering into these long maturity swaps out of necessity. They were desperate, if not naive, and couldn't look to the Federal Government or Congress and had to turn themselves over to the banks.

Elk wrote:

As almost all reasoned economists had predicted in the wake of a deepening recession, the federal government aggressively drove down interest rates to save the big banks. This created opportunity for banks – whose variable payments on the derivative deals were tied to interest rates set largely by the Federal Reserve and Government – to profit excessively at the expense of state and local governments. While banks are still collecting fixed rates of from 4 percent to 6 percent, they are now regularly paying state and local governments as little as a tenth of one percent on the outstanding bonds – with no end to the low rates in sight.

 

. . . [W]ith the fed lowering interest rates, which was anticipated, now states and local governments are paying about 50 times what the banks are paying. Talk about a windfall profit the banks are making off of the suffering of local economies.

 

To make matters worse, these state and local governments have no way of getting out of these deals. Banks are demanding that state and local governments pay tens or hundreds of millions of dollars in fees to exit these deals. In some cases, banks are forcing termination of the deals against the will of state and local governments, using obscure contract provisions written in the fine print.

By the end of 2010, according to Michael McDonald, borrowers had paid over $4 billion just to get out of the swap deals. Among other disasters, he lists these:

California’s water resources department . . . spent $305 million unwinding interest-rate bets that backfired, handing over the money to banks led by New York-based Morgan Stanley. North Carolina paid $59.8 million in August, enough to cover the annual salaries of about 1,400 full-time state employees. Reading, Pennsylvania, which sought protection in the state’s fiscally distressed communities program, got caught on the wrong end of the deals, costing it $21 million, equal to more than a year’s worth of real-estate taxes.

In a March 15th article on Counterpunch titled “An Inside Glimpse Into the Nefarious Operations of Goldman Sachs: A Toxic System,” Darwin Bond-Graham adds these cases from California:

The most obvious example is the city of Oakland where a chronic budget crisis has led to the shuttering of schools and cuts to elder services, housing, and public safety. Oakland signed an interest rate swap with Goldman in 1997. . . .

 

Across the Bay, Goldman Sachs signed an interest rate swap agreement with the San Francisco International Airport in 2007 to hedge $143 million in debt. Today this agreement has a negative value to the Airport of about $22 million, even though its terms were much better than those Oakland agreed to.

Greg Smith wrote that at Goldman Sachs, the gullible bureaucrats on the other side of these deals were called “muppets.”

 

***

 

Who could have anticipated, when the Fed funds rate was at 5%, that the Fed would push it nearly to zero?

 

***

 

The banks have made outrageous profits by capitalizing on their own misdeeds. They have already been paid several times over: first with taxpayer bailout money; then with nearly free loans from the Fed; then with fees, penalties and exaggerated losses imposed on municipalities and other counterparties under the interest rate swaps themselves.

 

Bond-Graham writes:

The windfall of revenue accruing to JP Morgan, Goldman Sachs, and their peers from interest rate swap derivatives is due to nothing other than political decisions that have been made at the federal level to allow these deals to run their course, even while benchmark interest rates, influenced by the Federal Reserve’s rate setting, and determined by many of these same banks (the London Interbank Offered Rate, LIBOR) linger close to zero. These political decisions have determined that virtually all interest rate swaps between local and state governments and the largest banks have turned into perverse contracts whereby cities, counties, school districts, water agencies, airports, transit authorities, and hospitals pay millions yearly to the few elite banks that run the global financial system, for nothing meaningful in return.

Bloomberg's Darrell Preston writes:

Ask a Nobel Prize-winning economist what’s the difference between the mayor of Baltimore losing taxpayer money with derivatives sold by Wall Street and millions of Americans defaulting on subprime loans and he’ll say there isn’t any: State and local governments are victims of opaque financing they don’t understand, the same way individuals go broke on borrowing at rates too good to be true.

 

***

 

“These financially unsophisticated local officials were being exploited by big banks,” said Columbia University Professor Joseph Stiglitz, who won the Nobel Prize in 2001 with George Akerlof of the University of California, Berkeley and Michael Spence, now at New York University, for their analysis of markets with asymmetric information.

 

“The outrage was not just that there were high transaction costs, but that the risk wasn’t understood by those who used them,” Stiglitz said.

 

***

 

Jefferson County, home to Birmingham, the state’s biggest city, became the biggest municipal bankruptcy on record after costs spiraled out of control on its auction-rate debt and related derivatives used to finance a sewer project. The county defaulted on the securities, issued in 2002 and 2003 to refinance fixed-rate sewer bonds, as short-term yields fell.

 

***

 

Bill Slaughter, the lawyer who advised Jefferson’s County Commission on bond sales at the time of the refinancing, said later that he couldn’t figure out the math on the swaps.

 

***

 

Alabama's Jefferson County wound up in bankruptcy after it defaulted on about $3.1 billion of debt backed by sewer revenue in 2008. The financial crisis had pushed up the cost of its bonds, including the auction-rate debt, and required early repayments that the county couldn’t afford. The swaps tied to the securities also didn’t shield it from rising expenses.

 

Some overseas government borrowers have been banned from using swaps in their finances.

 

***

 

In January 1991, the U.K. House of Lords ruled that local authorities weren’t permitted to use swaps and derivatives. Parliament’s upper chamber said such agreements had “the stigma of being unlawful.” Municipal authorities, including the London borough of Hammersmith & Fulham, had speculated on the direction of borrowing costs in the late 1980s using interest-rate swaps. Auditors challenged the transactions, resulting in a series of court rulings that said such activities were outside of the council’s jurisdiction and thus unenforceable by banks involved.

 

In 1997, the U.K. barred local governments from investing in derivatives.

 

Greece used currency swaps, the biggest of which were with Goldman Sachs Group Inc., to hide 5.3 billion euros ($7.7 billion) of debt from 2001 to 2007, Eurostat, the European Union’s statistics office, said in a May report. When the arrangements were added to the nation’s accounts, it spurred a surge in borrowing costs and triggered Europe’s debt crisis.

 

***

 

“The banks make so much money off of the swaps, they don’t care about the underwriting fee or other fees” collected from municipal issuers, Kalotay said. In testimony at a July 29 SEC hearing held in Birmingham, he estimated that municipal taxpayers have paid $20 billion in fees on swaps valued at $1 trillion in the past five years, noting that banks usually get about 2 percent on such transactions.

And Darwin BondGraham notes:

In 2002 a little-known but powerful state agency in California and Wall Street titans Morgan Stanley, Citigroup, and Ambac consummated one of the biggest deals to date involving ... an “interest rate swap.” A year later the executive director of the Bay Area’s Metropolitan Transportation Commission, Steve Heminger, proudly described these historic deals to a visiting contingent of Atlanta policymakers as a model to be emulated. Swaps were opening up a brave new world in public finance by extending the MTC’s purchasing power by $200 million, making a previously impossible bridge construction schedule achievable in a shorter timeframes. The deal would also protect the MTC from future volatile swings in variable interest rates. To top it off, the banks would make a neat little profit too. Everybody was winning.

 

Then in 2008 it all came crashing down. The financial system’s near collapse, the federal government’s unprecedented bailouts, and global economic stagnation mean that the derivative products once touted as prudent hedges against uncertainty have instead become toxic assets, draining billions from the public sector.

 

The MTC was forced to pay $104 million to cancel its interest rate swap with Ambac when the company went bankrupt in 2010. Whereas once the Commission’s swaps portfolio was saving it money, now it must pay millions yearly to a wolf pack of banks including Wells Fargo, JPMorgan Chase, Morgan Stanley, Citibank, Goldman Sachs, and the Bank of New York. The MTC’s own analysts now estimate that the Commission’s swaps have a net negative value of $235 million. This money all ultimately comes from tolls paid by drivers crossing the San Francisco Bay Area’s bridges, toll money that not too long ago was supposed to purchase bridge upgrades. Now it’s just a free lunch for the banks.

 

The MTC is only one example. Local governments and agencies across the United States have been caught in a perfect storm that has turned their “brilliant” hedging instruments into golden handcuffs. The result is something of a second bailout for the Wall Street banks on the other sides of these deals.

 

Perhaps worst of all has been the double standard set by the federal government. In 2008 when the world’s biggest banks stumbled toward insolvency, the U.S. Treasury stepped in to inject capital through the Troubled Asset Relief Program (TARP). TARP allowed the banks to offload or restructure their most toxic holdings, including many derivatives like interest rate swaps.

 

Four years later no such relief has been mobilized for cities, counties, and public agencies suffering from the toxic interest rate swaps they have been forced to hold. In its size and severity, the rate swap crisis rivals other discrete financial injustices related to the global economic meltdown of 2008. Unlike these other crises that have received enormous attention from the media and reform-minded officials, the foreclosure crisis for example, the rate swap crisis has remained hidden from public scrutiny, left to fester.

 

***

 

So why did local governments in the United States jump on the swap-wagon? The big-picture transformation of global capitalism engendered by derivatives was the last thing on the minds of local leaders as they signed rate swap agreements over the last two decades. They were feeling globalization’s local effects, however.

 

The post-Gold Standard era for local and state governments has ... been characterized by volatile interest rates. Many local governments have been stung by wild swings in variable interest rates on bond debt. Conversely, many public entities found themselves locked into high long-term rates, unable to refinance during periodic dips. In other words, they incorrectly guessed what the price of borrowing money would be over a given time frame, and they were forced to pay the difference. In an age of chronic municipal budget shortfalls produced by tax rebellions and capital flight, a few million burned on rising interest rates, or the inability to refund debt at lower levels, is a big political deal.

 

Seeking to hedge against this risk, and still deliver the goods voters want, local governments eagerly signed contracts for a particular variety of swap, the floating-to-fixed contract in which cities would issue long-term debt pegged to variable rates, and then swap payments with a bank counterparty that offered the surety of a low “synthetic” fixed rate.

 

There was another reason for the rise in popularity of municipal swaps though. As illustrated in the case of California’s Metropolitan Transportation Commission, the promise of extending a government’s purchasing power by reducing its overall debt payments enticed many CFOs to ink swap deals. The means by which swaps could lower the cost of borrowing money for public entities hinges on the way that derivatives, as they have for global corporations, promised to create larger integrated debt markets where before there were barriers.

 

What swaps allowed many governments to do was to replace a floating rate with a synthetic fixed rate that was often significantly lower than would otherwise be possible if the local government itself directly issued a fixed-rate debt. Local governments tend to be able to issue slightly lower initial variable-rate debt than other sorts of borrowers (mostly large business corporations) can in other debt markets. Conversely, many banks and corporations can issue fixed rate debt at significantly lower rates than local governments have been able to. Big banks figured out how to profit from these differences with rate swaps. By issuing debt in the most favorable terms and then swapping interest-rate payments, a local government could transform its relatively low but risky variable-rate debt payment into a higher fixed-rate obligation that is lower than it would have otherwise been had the government gone straight to the market to sell fixed-rate bonds.

 

***

 

In March, 2010, the Service Employees International Union released one of the most comprehensive studies to date calculating how much toxic interest rate swaps have cost communities during the Great Recession. Combing through the financial reports of major cities, states, and public agencies from New York to California, SEIU researchers estimated that $28 billion had already been paid by governments to the banks, and that for 2010 alone, public entities would have to pay at least another $1.25 billion.

 

More recently, researchers in New York and Pennsylvania have dissected specific swap deals that have drained millions from local school systems, transit agencies, and the budgets of cities and counties. New York state and its local governments were forced to pay $236 million last year to fulfill the terms of swap agreements signed with Wall Street, according to a December, 2011 report prepared by United NY, a union-supported advocacy group. These swap payments are ultimately drawn from taxes, fees, and other sources of public revenues, diverted away from crucial services that have been cut back during the Great Recession.

 

***

 

Because of the economic collapse, and the decline of interest rates in 2008 to virtually zero, the MTA has been forced to pay the amazing sum of $658 million in net swap payments so far.

 

***

 

Philadelphia and its schools have lost $331 million in swap payments made to Wells Fargo, Morgan Stanley, Goldman Sachs, and other banks.

 

***

 

Other enormous transfers of public revenues to the banks include a loss of $10 million by the Bethlehem Area School District after the system was forced to cancel one particularly toxic swap. Then there’s a case that is similar to California’s MTC boondoggle. The Delaware River Port Authority, the public entity that operates and maintains toll bridges linking Philadelphia with New Jersey, lost $65 million on swap deals. As of 2010 these swaps have a negative value of $199 million for the Port Authority.

 

Back in California, virtually every other government and public agency has been hit by costly rate swap payments or termination fees.

 

***

 

In Pennsylvania the problem was identified early on by officials like the state’s auditor general Jack Wagner. Since 2009 Wagner has been imploring local and state leaders to ban their agencies from entering into interest rate swaps. Wagner’s office conducted one of the earliest (and maybe the only) official audits of swaps in the United States after the financial crisis, finding that Pennsylvania governments had entered into 626 individual interest rate swap agreements with a mere thirteen banks, linked to $14.9 billion in public debt.

 

Wagner concluded:

the use of swaps amounts to gambling with public money. The fundamental guiding principle in handling public funds is that they should never be exposed to the risk of financial loss. Swaps have no place in public financing and should be banned immediately.

His office has so far succeeded in convincing the Delaware River Port Authority to ban itself from using rate swaps in the future, while also introducing a bill in the state legislature to ban future swap agreements by Pennsylvania governments.

 

Wagner’s efforts have been bolstered by the Pennsylvania Budget and Policy Center’s statewide study of swaps, referenced above. Most recently the Philadelphia City Council has convened hearings to investigate how interest rate swaps affecting the city’s agencies and school system were created. The resolution calls for the city to assess “whether corrective actions, including legal remedies, should be pursued.” Philadelphia is considering litigation to determine if banks, government employees, or advisers misrepresented or otherwise fraudulently put taxpayers on the hook for millions by obscuring the risks involved, or purposefully structuring them to implode to the banks’ benefit.

Note: For those keeping track, the scalping of local governments discussed above is totally separate from the mafia-style big-rigging fraud perpetuated by the big banks against local governments. For details on that scandal, see this, this and this.

 

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Wed, 07/04/2012 - 01:50 | 2586101 gregga777
gregga777's picture

For decades I was an aerospace engineer at a major defense contractor with a substantial commercial aerospace business.  I was on the Peacekeeper ICBM program, original design of the B-2 Spirit stealth bomber, and other mostly highly classified programs.  Periodically uniformed representatives from the US Air Force's System Program Office for Project X, Y or Z would attend various meetings, design reviews, program schedule reviews, etc.  We were not allowed to give them so much as a free cup of coffee.  We had to collect the going rate for each cup of coffee, each can of soda and each meal we gave them.  They were subject to Courts Martial if they accepted anything of value from our company or from any individual company employee.

The morass of political and federal law enforcement corruption in the United States will continue until we demand enactment of laws to make it a Federal Felony for any Federal-level elected, appointed or salaried employee to accept anything of value the same as already exists for members of the uniformed armed services. That would necessarily include a total ban on political campaign contributions from any source on behalf of any candidate in any way, shape or form.  Insider trading by the usual suspects would be felonies, too.  A lot of problems can be solved once we cleanse the toxic cesspool of Federal Government by slamming lots of Presidents, Senators, Congressmen, Cabinet Secretaries, various and sundry political appointees, and corrupt salaried employees into Leavenworth Prison for 10-year stretches doing hard labor for their room and board.  The laws would have to apply from the state-level down to the lowest level of local government, too.  

We DO represent greater than 99.9% of the taxpayers against the less than 0.1% benefitting from the Federal Government's systemic corruption!   

 

Wed, 07/04/2012 - 00:06 | 2585984 JuicedGamma
JuicedGamma's picture

This brings back fond memories of a PBS special that aired sometime after the demise of the fiendish Enron.  Where Kenny "boy" Lay was caught laughing hysterically when the interviewer suggested that Enron might take a haircut on some the trades made with California power generators.

There was also the sad energy trader that was interviewed.  I have never met a trader like her, she worked for the California utility or something but belonged teaching kindergarten or maybe running payroll at a school district.  It's these folks, like OC's Citron (lost billions when the fed unexpectedly raised rates in 94), who don't belong running finances at a local Legionair Post, that somehow get political plumb jobs and end up the Rubes (now commonly referred to as muppets in a weak attempt to disguise Wall Streets disdain) who lose taxpayers millions a year.

One interesting coincidence is that csfb called in Citron's margin, collapsing his scheme, the very same fb where Bob Diamond was running the fixed income floor in '94.

Tue, 07/03/2012 - 23:26 | 2585944 Antifaschistische
Antifaschistische's picture

Why do Municipalities and Transit Authorities engage in SWAPs?

Because these organizations are affirmative action/advance everyone who ISN'T qualified institutions.  Go ahead and down arrow me but I have extensive experience with these organizations and they are an EASY sell for all kinds of crap that they don't need...like every single Light Rail Train System sold into the US which has absolutely no financial OR "green" benefit.  Winners?  Banks who loan billions, Siemens, CAF, Large Construction Companies....and then, the overpaid union member operators.

Tue, 07/03/2012 - 22:17 | 2585824 Bansters-in-my-...
Bansters-in-my- feces's picture

So.....

Remind me again which big bankers have had criminal charges brought against them.....

And oh ya,Free Jon Corzine...!!!!!!!

Time to crash the system.

Tue, 07/03/2012 - 22:13 | 2585820 Ned Zeppelin
Ned Zeppelin's picture

The swaps were sold hard to everyone, inlcuding commercial enterprises, they were a bad idea all around.  Our firm had to pay $$$ t unwind several swaps when the time came. 

And still the banks don't have enough money, after stealing all that money.

Tue, 07/03/2012 - 20:18 | 2585653 Benjamin Glutton
Benjamin Glutton's picture

pardon my continued arrogance wizards but this was my first observation when the story broke.

 

 

all enemies vanquished in one fell swoop....Milton Friedman's greatest achievement,imo.

 

 

As always love your work George.

Tue, 07/03/2012 - 18:48 | 2585478 deerhunter
deerhunter's picture

While waiting for 20 minutes to pay 185.00 for a permit to put in 12 replacement windows at a local city hall as the employee who would issue said permit sat at her desk eating her lunch looking at me and not moving or acknowledging me past saying she was on her lunch break for 20 more minutes I made a decision.  I bit my lip, hard.  For the last time I am paying a city suburb a permit fee to ply my trade.  Police officers here make 90K per year on average.  My son in law paints over graffiti  in city parks and plows snow in winter and makes 80 k a year and told me he was upset his raise was only 4% this year.  I am leaving the madness behind.  Done,  no more 7200 a year in property taxes.  Done funding the beast.  Been working since I was 12 and have had enough.  I will take my chances in South Africa.  America I grew up in is dead and gone.  The light at the end of the tunnel is another train.  We will have 3 sets of people soon and are close now.  Government employess of all levels.  Those who haven't ever and won't ever do an honest days work who I have supported for two generations.  And last and fading fast us.  The other 30% remaining who feed for life and support til death the first two groups.  Done.  Over.  Out.  Saddens me greatly but it doesn't change the truth.   City manager where son-in-law works makes 165K.  Suburb population 12 thousand people.  Most reading this web page could do that suburbs budget in 3 days with adequate coffee breaks of course.  Ov er and all the way out.

Tue, 07/03/2012 - 23:28 | 2585949 JuicedGamma
JuicedGamma's picture

You have my permission to use my avatar, you have earned it.

+1 to you sir and Godspeed.

Tue, 07/03/2012 - 23:15 | 2585918 Spider55
Spider55's picture

So what you are saying you hate you son-in-law.  Have you told your daughter how you feel about this.  Sorry, dude I have been working since I was 10 years old, have worked for the Federal Government at a Veterans Hospital for 20 years, I consider myself hard working, and after 20 years as a Gardener only make 36K  per year, I live in San Francisco where the averave cost of a one bedroom apartment is 1,500 per month.  You did not mention what kind of work you do and how much you make per year.  What are you scared too.  All talk and no action.

Tue, 07/03/2012 - 22:03 | 2585802 Bringin It
Bringin It's picture

Go Galt.  I did.  Spent yesterday afternoon fishing in nature.  Caught 3 nice fish for dinner.

Tue, 07/03/2012 - 18:42 | 2585470 CustomersMan
CustomersMan's picture

 

In addition to the other problems with having the FED in the first place, reliance on the 16 or so Primary Dealers in the system sets us up to get fucked again, and its designed that way deliberately. Another Jewish designed power grab from the beginning.

This dealer network (many members of the FED) gives far too much power to the Banks/Brokerages/now Bank Holding Companies, that are all part of the same group.

 

We have to rely on them to take down US Treasuries and place them, even if they go back via FED purchases. The network should be in the thousands, the fact that its only a handful gives them additional power that they use against us.

Tue, 07/03/2012 - 23:17 | 2585920 Spider55
Spider55's picture

Most of the banks are no longer controlled by Jews, but by Germans, English, and Asians.

Tue, 07/03/2012 - 22:55 | 2585459 Widowmaker
Widowmaker's picture

Mission Accomplished!

No one saw a thing except record bonuses.  

Tue, 07/03/2012 - 18:28 | 2585439 CustomersMan
CustomersMan's picture

 

Above all the principals of Responsibility as a Fiduciary on the part of the Banks/Brokerages still apply:

 

1. Rule 405 . Know your customers and his/her/their ability to assume risk.

 

2. Full explanation of Risk and potential Risks

 

3. Due Diligence

 

3. Prudent Man Rule

 

     None of these rules have been rescinded, and they still are the basic guidelines for ANY financial sale / transaction, no matter what.

 

Doesn't look as though they were followed in any of these cases. Looks like lawsuits could be initiated based on what was NOT done.

 

Tue, 07/03/2012 - 22:56 | 2585513 Widowmaker
Widowmaker's picture

fiduciary anything is 100% bullshit.

Tue, 07/03/2012 - 18:05 | 2585388 printmoremoney
printmoremoney's picture

Gosh, I don't think the US Citizens can afford to have such big fancy banks around with all their confusing products. They cost too much money. The large banks should be broken up and limited in size and made to make loans based only on deposits so they have to compete to earn money and the loans create real Wealth. Is anybody's Congressman working on that kind of Bill right now? Maybe we should start a petition and get signatures and make signs and wave them around. We need representation. Maybe we could all give $20 to our own PAC and buy it. We would have enough money to outspend the lobbyists that lobby for the banks and screw us Sheep. We are getting a BBaaaaAAAHHHHHDDD deal.

Tue, 07/03/2012 - 18:02 | 2585375 hedgehog9999
hedgehog9999's picture

The problem starts with the fed, the biggest manipulator of markets of all kinds.

The large banks in effect are agents for the fed to achieve certain objectives at a given time.... a racquet in legal parlance................

True in Europe and everywhere else in the planet. 

So what to do???

 

 

Tue, 07/03/2012 - 19:38 | 2585573 disabledvet
disabledvet's picture

claim "Fortress Balance Sheet"..."and keep repeating that term until you believe it."

Tue, 07/03/2012 - 17:59 | 2585369 notadouche
notadouche's picture

Why do people insist on "investing" or "gambling" on "financial instruments" or "games of chance' that they don't understand?  PT Barnum has to be laughing his ass off.  No one is forcing another person or institution to put funds into any thing.  The fact that they do it willingly and when it's up will let everyone know how smart they are and when it goes bad point the finger.  Geez, wake up people, if you always beleive that a shiny lure comes with a hook we would all be a lot better off.  If an institution is offering a product that's in your best interest to enrich or enhance your wealth you must first realize that if it were so great they wouldn't be peddling it.  The money is in the peddling, not the thing being peddled.

Tue, 07/03/2012 - 21:34 | 2585738 I am on to you
I am on to you's picture

I think your not quite right on this one:

If somebody invest taxpayers money,exampel,a municipal what ever,they dont ask the Taxpayers before,but the lose is payed of by the taxpayers,in turms of lost jobs lost infrastrutures repairs less healtcare bad schools,ect,so this should be discused with taxpayers,like are you all willing to risk,if it was in this way,ill accept the lose,not beacuse a fancy foirm like Goldman or JP M or Mo Stanley or Barclay or RBS or HBSC the list is long,want some big bonuses and fees beoynd imagine,manipulated by the casino wheel:

Casino is for gamblers,municipal investement,with taxpayers money,is unly and again unly to be  handled by HONEST PEOPLE,let Goldman and other paly at Las Looser street,but for thier own acount,then the song would have a different tune:

I dont dispute or criticise you to have your own oppinion,just think its all wrong:Its like saying Gaddafi knew the risk,i dont think Tonyboy or Sarkozy told him,when we come a year or two further ahead,we are gona Kill you!

Either the deck is open,or you play with the Mafia,they know how to deal the Deck,sort of speak!

Tue, 07/03/2012 - 21:58 | 2585791 notadouche
notadouche's picture

I agree 100% with you on this but I break it down to that individual who invested the taxpayer's money complaining how he or she didn't understand what they were buying and looking to blame someone else other than looking into the mirror for being a fool.  A fool with the citizen's money no less.  Makes that person even more of a dunce.  Yet we the taxpayer pay the price.  Doesn't exactly do us any good but that doesn't mean we shouldn't hold that individual accountable for losing all of the citizen's money.  He or she can't play the victim is my point.  We the citizen were the victim of a damned fool who is looking to escape responsibility by blaming the seller.  He the buyer should've been totally qualified and totally understood the angles, if not he or she should've left the taxpayer money alone and safe from external forces.  If I risk and lose all of my money I'm a fool.  If I risk and lose all of the citizen's money I should be flogged in the town square.  In the end we don't get our money back no matter what we do.  It appears that the ruler's have no consequences and if we let the sap that lost the taxpayer's money play the victim we will never start getting people understand there are consequences to squandering the treasury be it by hook or by crook.   BE BETTER STEWARDS OF OUR MONEY OR PAY A PRICE.

Tue, 07/03/2012 - 18:58 | 2585503 Widowmaker
Widowmaker's picture

You are in fact a fucking douche.

Tue, 07/03/2012 - 19:03 | 2585510 notadouche
notadouche's picture

I'm in awe of your astounding intellectual retort.  Kudo's.

Tue, 07/03/2012 - 20:46 | 2585687 putaipan
putaipan's picture

attempted gwashington blog hijacking- will tyler or anyone here please coment on w.blog's coverage of CAFR . please? i've heard of this before, but it sounds a little in the treeelion dollar gold bearer bonds nesara land

Tue, 07/03/2012 - 17:45 | 2585342 northerngirl
northerngirl's picture

How can we be such fools?  When will this insanity end?

 

Tue, 07/03/2012 - 17:28 | 2585302 MrBoompi
MrBoompi's picture

Can everyone see where our jobs are going and why we have less spending money in our pockets?  Can somebody finally put two and two together without needing a math PhD?  It's not a fucking coincidence, it's cause and effect.

 

Tue, 07/03/2012 - 17:17 | 2585277 Sudden Debt
Sudden Debt's picture

on a long enoughh timeline everything goes to zero....
with one exception.... Libor rates... they'll go parabolic.

Tue, 07/03/2012 - 19:43 | 2585583 disabledvet
disabledvet's picture

entire markets still getting nuked. hmmmm. at least no one will be arguing over "where the profit growth will be coming from." the answer "nowhere" sounds pretty accurate right now. SEND IN YOUR GENTLEMEN BANKSTER SCUM!

Tue, 07/03/2012 - 16:47 | 2585194 Akrunner907
Akrunner907's picture

And yet they have not arrested and prosecuted John Corzine!!!!  

Tue, 07/03/2012 - 16:44 | 2585182 Umh
Umh's picture

Do you want the extended warranty?

Tue, 07/03/2012 - 16:43 | 2585177 sgt_doom
sgt_doom's picture

A blog post of Brogdinagian proportions, so I've got absolutely nothing to add!

Outstanding, and outstandingly nauseating.

 

Tue, 07/03/2012 - 16:08 | 2585054 anyways
anyways's picture

The capital markets as a whole are rigged, manipulated and dead. All assets are manipulated, there is zero free market, the price finding process is a joke, but not for the 99% loosers. The criminal banksters and their criminal buddies in politics, federal banks and establishment finally fucked it up.

Tue, 07/03/2012 - 16:00 | 2585026 CustomersMan
CustomersMan's picture

 

 

This kind of shit has been going on in the options market for over a generation. I think that's where they broke their first teeth.

Tue, 07/03/2012 - 15:50 | 2585002 Savyindallas
Savyindallas's picture

The depressing part is that fraud is so blatant and damaging and harmful, because our whole country is a nation of muppets  -we are this way because the criminal oligarchy owns and controls our media, Wall Street, our educational system and Congress(presidents also)  - We all know now how it feels in Chicago in 1930 when some Gangster comes to your business and charges you a weekly fee for "protection" . When the cops are on the take, and the city council and mayor are owned by the crooks -what choice do you have?  I think people in Chicago understood this. Most people today are too stupid to understand. Retarded Republicans really think that getting rid of Obama  will solve their problems. Meet the new boss-same as the old boss. When  (or if ) Americans finally realize this , then we won't get fooled again. Don't see it happeneing soon. By the time people figure it out, the FEMA camps will be ready. Hope I am wrong.

Tue, 07/03/2012 - 15:44 | 2584989 Burticus
Burticus's picture

Yes, there are real victims.

The banksters suckered two of my major clients into interest rate swaps on huge amounts of debt.  Then, "act surprised," LIBOR went to near zero despite market conditions that should have sent rates much higher.

These financial skim-scams cost them millions of FeRNs, which, of course, got passed on to their customers or absorbed by their shareholders.

Financial Repression 101.

Tue, 07/03/2012 - 16:02 | 2585038 Savyindallas
Savyindallas's picture

Just a part of doing business in Amerika. I was a white collar fraud prosecutor for 6 years from 89-95. The typical con-man mentality is that they are doing nothing wrong  -if you are dumb enough to get conned out of your money, they believe they have earned it. Unfortunately this attitude was been institutionaliized  -actually made legal. Because of incompetence, bribery, or whatever-the cops are no longer a threat. Some of them skirt because of the fine print drafted into the legislation which essentially gives loopholes for fraud  -most get by because the fraud, graft and theft is simply so big, so brazen and so commonplace -the defense that everyone else is doing it  -is so effective that people think it must be okay. Then there's the defense that if we prosecute every one for fraud, we'll have to put everyone in jail  -including the politicians, bureaucrats and regulators and police -there simply aren't enough competent, honest people around to take on this task  -and even if we did, financial armeggeddon would certainly destroy the whole world, as quadrillions in derivatives and other financial weapons of mass destruction would detonate and kill us all. What a mess.  

Tue, 07/03/2012 - 22:51 | 2585846 cranky-old-geezer
cranky-old-geezer's picture

 

 

The typical con-man mentality is that they are doing nothing wrong  -if you are dumb enough to get conned out of your money, they believe they have earned it.

City and county finance people are dumb as a box of rocks.  Political cronies with no real finance experience.  No match for professional Wallstreet con artists and pirates.

If I worked for the squid or JPM, I'd go after the easy money, fucking cities and counties over six ways to sunday. 

And there's so many of 'em to fuck over.  Hundreds of 'em.  Thousands of 'em.   With moron finance departments in each one.

Billions of property tax dollars mananged by morons.  Man what a goldmine.  Just take what you want.

Tue, 07/03/2012 - 18:50 | 2585484 Al Gorerhythm
Al Gorerhythm's picture

To make an omlet, you have to crack a few eggs. So, you create a mess in the kitchen. That doesn't mean that in order to avoid a mess you simply don't cook. Fire up the griddle.

Tue, 07/03/2012 - 17:23 | 2585293 Not Too Important
Not Too Important's picture

Speaking of, did anyone notice that Dimon was not put under oath when he testified before Congress recently? Courtesy of Senator Bacus.

 

Just an ol' drunk:

http://www.youtube.com/watch?v=M5Y9X5ggxzA

Tue, 07/03/2012 - 19:51 | 2585593 disabledvet
disabledvet's picture

trust me, he was under oath. "they made him watch" as they say. and i blew his mind away i might add...

Tue, 07/03/2012 - 15:34 | 2584971 tony bonn
tony bonn's picture

debt is not a secure foundation on which to build anything, but the people got what they deserved...and these local financial mavens are plying their incompetence elsewhere....

in the end, however, the banks will receive a royal butt whomping when their federal government interest rate swaps implode under a mountain of debt.......jpm is a smoldering nuclear reactor quickly running out of water.......meltdown is on the way....

Tue, 07/03/2012 - 15:29 | 2584954 geno-econ
geno-econ's picture

What a goldmine for ambulance chasing law firms with mathematical wizards on their payrolls capable of suing major banks for interest rate swaps and derivatives fraud. Derivatives are a nuclear disaster with the potential explosive force of $ 600 Trillion.  Even Ben could not come to the rescue.

Tue, 07/03/2012 - 17:20 | 2585284 Not Too Important
Not Too Important's picture

Not just ambulance chasing law firms. Tens of thousands of District Attorneys, and their equivalent, from around the world.

Contract cancellation and clawback, bitchez!

Tue, 07/03/2012 - 15:09 | 2584874 Financial_Guard...
Financial_Guardian_Angel's picture

I'm sick to my stomach after reading this story...

Tue, 07/03/2012 - 23:52 | 2585981 Roger Knights
Roger Knights's picture

Imagine how Elsie & Elmer feel!

Tue, 07/03/2012 - 15:58 | 2585022 the not so migh...
the not so mighty maximiza's picture

yeap

Tue, 07/03/2012 - 15:15 | 2584901 falak pema
falak pema's picture

every stomach has a silver lining. As that guy LH would say, when in doubt buy silver!

Tue, 07/03/2012 - 14:53 | 2584832 Duuude
Duuude's picture

Meanwhile...

 

Tha ThiefInChief begs for fund$...

 

From tha Cartel$

 

 

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