Banks' Defenses to Potential Trillions in Libor Claims Fail

George Washington's picture

The big banks have been manipulating the world’s central economic indicator – Libor – for decades, harming homeowners, students, credit card holders, small businesses, cities and many others.

The sums involved were huge. As the Economist notes:

The sums involved might have been huge. Barclays was a leading trader of these sorts of derivatives, and even relatively small moves in the final value of LIBOR could have resulted in daily profits or losses worth millions of dollars. In 2007, for instance, the loss (or gain) that Barclays stood to make from normal moves in interest rates over any given day was £20m ($40m at the time). In settlements with the Financial Services Authority (FSA) in Britain and America’s Department of Justice, Barclays accepted that its traders had manipulated rates on hundreds of occasions.

The Independent notes that potential liability from the Libor suits could wipe out Barclays, RBS and other banks … and that the big banks have taken inadequate reserves against litigation risks.

David Kotok - Chairman and Chief Investment Officer of Cumberland Advisors, with $2 billion dollars under management - writes:


The LIBOR rigging is systemic.




This scandal is going to take down many more than just Barclay’s leaders.  The claims are likely to be in the trillions.

But the banks say that they are judgment-proof because their manipulation didn’t cause any damage.

Specifically, the banks claim:

(1) Sometimes they nudges rates up and sometimes down …. so it’s a wash;

(2) Some people won and others lost … so it’s a wash; and

(3) It would be impossible for anyone who sued to quantify the amount of damages they suffered due to rate manipulation.

But the first argument is easily debunked. As Yves Smith notes:

The idea that one party’s loss from the manipulation was another’s gain is irrelevant to those on the losing side [quoting the Economist]:

….banks will be sued only by those who have lost, and will be unable to claim back the unjust gains made by some of their other customers. Lawyers acting for corporations or other banks say their clients are also considering whether they can walk away from contracts with banks such as long-term derivatives priced off LIBOR.

The second argument is also easily dispatched. For example, it is clear that for many years up until 2007, every time the banks nudged Libor rates higher, homeowners, students, credit card holders, small businesses and other borrowers were damaged by artificially inflated interest rates.

The case would be especially easy for people who borrowed money and finished paying off their loan during this period. For example, someone who bought a house in 2005 and sold it in 2007 could have a strong case.

Similarly, it is clear that Barclays and other big banks manipulated rates downward after the financial crisis hit in 2007, to make themselves look stronger than they really were. Because of the way their interest rate swaps were structured, local governments got creamed by lower Libor rates.

So governments which bought interest rate swaps during the relevant period based upon the assumption that rates would keep rising - especially if they were misled as to the likely direction of rates by one of the banks that participated in rigging Libor (Citi, Chase,, UBS, RBS, etc.) - could have a solid case.

Finally, I can assure you that derivatives experts, mortgage experts, statisticians, and alot of other people are crunching numbers right now to start quantifying damages.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Dburn's picture

Nothing will happen here . Nadda. Each time they get away with one of these, you can bet they are thinking up more shit to screw us with because nothing every happens Nadda. Bruce can't even get anyone to take his beer bets. Nadda, nothing happens.


It will however drive all of us Batshit insane if we aren't already.

Getting Old Sucks's picture

So, can we expect the FDIC to lower coverage to 10K per depositor soon?

Ned Zeppelin's picture

The money they made after they sold the swaps and then fooled around with the rates should be an easy target. Line up the swaps, cross check against the rates, and poof - the bank blows up.

mess nonster's picture

Scandals that were going to "Take them down":


2.Birth Certificate

3. Fast and furious

4. Iran Contra

You get my point

billybobtx's picture

Bring out the COMFY CHAIR!!

lamont cranston's picture
Anthony Migchels's picture

Can there be any doubt these banks are a cartel and in this together to rape us all?

how come the same jerks that did 2008 are still around now doing this?

Get your money out of the bank NOW!

mobtown's picture

Rico does not apply to large powerful entities. Example: the catholic church pedophile club.

2bigtoofail's picture

Racketeer Influenced and Corrupt Organizations Act

Pedophilia is not covered under RICO. While many may consider the Catholic Church or any church a racket it does not meet the standard definition. But I hear what you are saying as far as powerful companies and people being more equal than the other pigs. The Plutocracy is growing to support the growing Plutocracy.

Gringo Viejo's picture

What part don't you get about these people and institutions being above the law? Have the last 4 years shown you nothing? Libor is rigged? So, what in today's Master & Serf world isn't? Want justice? You'll have to make your own.

ebworthen's picture

The banks will pay billions in "fines" and "penalties", then get the money back via back door no interest lending from central banks and bailouts via the taxpayers (again) which = no penalty whatsoever.

None of the crooked wankers who jiggered libor and broke the law will have to miss their catered lunches or vacation.

mind_imminst's picture

Yep. Looks like another bank bailout I'll be paying for, along with millions of other taxpayers.

The Alarmist's picture

Too big to fail = too big to destroy. There might be a settlent pool, but it will be a mere pittance of what is due, because we don't want to risk global financial armageddon, now do we?

Winston Churchill's picture

TBTF has morphed into into too big to save,through the

reckless increase in derivatives writing.

The next crisis(soon) will be the last.

When te euro finally collapses,it will bring down all fiat money

with it.

Roger Knights's picture

According to those who pooh-pooh "conspiracy theories," this couldn't happen, because too many widely dispersed people (over 1000) knew for too long, so it couldn't have been kept secret.

Haole's picture

Great stuff George, thanks!

You can now add the man-made Fukushima "disaster"/conspiracy/attack to your list of examples although it is not quite a secret anymore.

Keep up the great work.

CustomersMan's picture



The most important aspect is THE HAVE BEEN TRADING OFF THE INFORMATION, long and short, making hundres of millions, tens of billions, to use as they see fit. Promoting their connections.


Thats it.

SlipperyPete's picture

No way they take down anyone big over this.  Maybe a midlevel trader or two.  But thats about it

Bicycle Repairman's picture

Wrist slaps all the way around.  Case closed.

DeadFred's picture

Somehow this reminds me of banks that made money fabricating small details in mortgages and somehow exposed themselves to enormous liabilities. Seems to be a pattern here.

Edit: I do see one major difference, the ones who got screwed on interest rate derivatives have much better lawyers than the unemployed carpenter who had his house foreclosed.

Seasmoke's picture

stop paying ALL your credit card bills and mortgages and call it EVEN !!!!!

jonjon831983's picture

Cough... ref. Fight Club.

hedgehog9999's picture

We need someone to start a class action suit against these crooks and the items required should be:

Loan amount and interest rate paid or charged on a given date (this would also include broker margin accounts) and the damage should be then calculated based on the delta between the proper LIBOR rate  minus the rigged LIBOR associated interest + the cost of money for the years since. 

For millions of people, this will only amount to a few hundred to a few thousand dollars and for corporations, municipal governments and selected individuals, it could be hundreds of thousand to millions of a few cases even billions as for instance a leverage buyout at the wrong rates.

So these could easily add into the trillions of dollars

Sue the fuckers!!!!! they desrve it + jail terms for some...

sablya's picture

It doesn't take politicians to stand up to it.  A class action suit will be hard to brush aside.

ghenny's picture

If Holder does not take the banks on this time he should be impeached.  I am voting for Obama in the fall as I did in 2008 but if he fails to rise to the challenge - as he failed with the banksters before - he too should be impeached.  If Romney is elected and does not take on the banks again he needs to be impeached.  This is the end of the line folks.  Either we stand up now or we become serfs forever or have to engage in a bloody revolution which no one wants.  We have a legal system for a reason - to avoid civil war and all against all.  Lets use it.  Corrupt as it might be - in favor of the rich and powerful - it is less corrupt than the politicians and the banks.

SilverIsKing's picture

You lost me at, "I'm going to vote for Obama in the fall as I did in 2008..."

He failed to rise to the challenge in his first term so what makes you think a second term would be different? It will actually be worse because he'll have nothing to lose by continuing to support those who pay the most. Chicago politics at its best and you want more of it?

I'm not saying Romney will be better but if you suck after 4 years, someone else should get a turn.

eatthebanksters's picture

The large banks are guilty of predatory lending, securities fraud, robosigning and many other crimes.  There has been no investigation, not arrests and no prosecutions for these criminal acts.  No one has been held accountable.  The Obama Administraton, according to a recent quote from Barney Frank, turned down the opportunity to do principal write downs on loans in favor of continued bailouts for the big banks (QE and ZIRP).  Lending to Main Street has not increased.  Big Banks are bigger and stronger than ever, unless of course you go back to 2008 FASB accounting rules on mark to market....they woud be insolvent.  The loan mod programs promoted by Obama's Administration have been abysmal failures for homeowners while providing backdoor help to the big banks.  Everything his administration has done has been packaged to look like it helped out consumers but in fact he has been the big banks best friend.  Why would you expect that to change.  While JPM has broken more laws (see Enron) and now we have the LIBOR scandal spread amongst the banking cartel, why would you think that the Obama Administration and Eric Holder would hold the banks and their executives accountable for additional law breaking?  Are you that naive? Jaime need his bonus and Geithner will soon need a job!

steve from virginia's picture


Don't get yr hopes up kiddies, the bankers and industrialists have been stealing for 400 years and nobody has ever done anything about it. It's all part of the game, in fact it is the entire game.

Best to look for an 'honest' game of 3-card monte.


edzorino's picture

When this first blew up myself and a collegue arrived at a figure based on some pretty generous assumptions


1. manipulation only from 2005

2. rate of manipulation average 50% below most estimates


Looks to be somewhere in the region of 2 trillion USD of fairly iron clad liability. People are now talking about evidence of rigging going back much longer, the liabilities there are cataclysmic and would run into many trillions; end of the economic world stuff. The 2 trillion liability would completely wipe out the big banks in UK and USA.



Bugsquasher's picture

As the law suits pile up just the the litigation costs alone could seriously degrade their balance sheets to the point of precipitating another ratings down grade, and more margin calls, more damage to the balance sheet and so on and so on and so on.  Stack and pack folks! For those of us who have this might be a healthy dose of schadenfreude!

monad's picture

Does Lloyd's underwrite Barclay? Is this going to start with a twofer?

Bugsquasher's picture

Good question! Finding out Lloyd's is the new AIG on steroids would be another bale of straw on the camel's back.

jimijon's picture

It has become quite apparrent that the whole financial system is corrupt. As such, it has become incredibly brittle. This means that a black swan event will smash the tower like an angry bird through glass. 

The simple fact is that all systems are susceptible to an outside energy point. The question becomes one of timing and the context that the source point was received.

The leaders are now scared. The advent of computers gave them so much derivative power that they now find themselves being consumed by it on the bottom of their ponzi pyramid. 

The only conclusion is that conjuring money into existence and then demanding more back than was conjured is Black Hat Alchemy and as such will always fail.

In the meantime, I put up a facebook page to nominate Charles Ponzi for a posthumous Nobel:

OutLookingIn's picture

This is the straw that breaks the banks backs.

No getting around this one and skateing free.

This is global in scale. Around $350 trillion of lending and derivatives is priced of LIBOR. If misconduct by banks caused LIBOR to increase by a mere one tenth of one basis point (0.001%), this amounts to $35 billion a year in extra interest.

Over 90% of American mortgage rates are directly affected by the LIBOR, as are forward rate agreements, futures contracts, interest rate swaps, floating rate notes, syndicated loans, currencies, (especially the US dollar) and over-the-counter derivatives.

To say nothing of insurance, short term paper, over night bills, term deposits, guaranteed investment certificates, credit card rates, revolving credit accounts, etc. You name the financial vehicle and you will find the LIBOR at the foundation of the document.

This is HUGE. The fallout from this will be massive. Can't hide it ~ it's out there!

bigkahuna's picture

Nothing is going to break them until they reach "critical popular mass" and a shit ton of extremely angry people, and I mean at least a couple hundred thousand, show up to start ripping off heads and shitting down necks. Outside of that, prepare to accept more girth. 

mt paul's picture

hey brother

hook me up

with some hoppium...

world_debt_slave's picture

IT will end up like BP's settlement, Obama will step in and ask for $20bn to make it go away.

Bugsquasher's picture

Libor and the Black Swan

Snakeeyes's picture

The definition of economic harm. LIBOR follows the Fed Funds rate closely and after the financial crisis, some of the LIBOR blips can be explained by risk blips. You have to identify changes in LIBOR NOT due to Fed changes or risk blips.

I am Jobe's picture

More Bonus pay and a slap and on to tanotehr bank to be raped and the financial world will move on as usual . Politicans all bought and paid off and have no balls to stand up and end this shit.


Peter Pan's picture

For the banks to even suggest that they are judgement proof because of the various defences noted above, begs the question as to why the Barclay's Chairman resigned and why the penalty was paid.

What we are seeing once again is wrong doing followed by arrogance.

We, who leave our money in the bank instead of putting it in a safety deposit box or under a matress deserve to get what they are dishing out to us. Fractional reserve banking is their wonder tool but also their Achilles Heel.

XitSam's picture

You missed one defense: The banks are too big to prosecute. They can accept a few hundred million in fines but nothing larger because it would mean a collapse the banking system. And prosecution of individuals? One name: Corzine.

2bigtoofail's picture

 RICO makes it “unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity.” §1962(c). The statute defines “enterprise” to include “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” §1961(4).

Charge the lot of just one bank with RICO and put them all in Jail. That would get the point across. We survived Lehman going away and Bear Sterns. We can do without another mega bank.

bigkahuna's picture

shhhhhhhhhhhhhhhhhhhhhhiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiitttt!  Just us man! Justice is for just US!


Oh, proper citation: Gerald Celente

WTFx10's picture

Charge the BIS ,shut it DOWN.

The bankers who sold this Planetary CON of them controlling countries money for profit hundreds of years ago have turned the planet into their private backyard operating on a feudalistic system. Kings and lords and serfs and the colonies they control have just been updated to the 21st century with private central banks.

It is NOT the governments that caused this but they are the enablers,the governments are just on the mafias payroll to make sure the CON men always control the money,collect the extortion payments and control the marks with muscle.

The financial system and the Kings and Lords who control it have to be dethroned and exposed as the criminals they are before anything will change. If the governments are unwilling to prosecute which they are as it would mean they are just as guilty as the CON men they endorsed.

It is up to the people who were CONNed out of their wealth, their liberties,their children sent off to WAR,their land. We have to declare a War on the Kings Banks and once the stolen wealth has been liberated then the nations can decide how they want to live not the KINGS and LORDS.

Each country can decide if they want to evolve or stagnate or pick a new King to control their money.The god known as the BIS and her central banks can enter history with the other failed religions or as the largest criminal case for crimes against humanity.

Change history for the planet not just what the Kings and LORDS demand. Their demands always demand more war, more poverty ,more disease anything that they can extract a profit from no matter who suffers. Because they never DO suffer.

When a nation goes to war with another nation how come the BANKS are NOT targeted? They supply the funds to both counties in battle so logic dictates if the banks and the financial system was destroyed how would they fund their WAR?

were fucked

Bicycle Repairman's picture

They will also promise not to do it again.  Case closed.

Sudden Debt's picture

i don't I read anything on that promise.... don't assume it untill it's written in blood and punishable by death.

have you heard a president saying they will hunt them down?
does the media get allover this?
who do you know in your seroundings that now know anything about libor?
do you think they heard the name so far?