US Attorneys General Jump On The Lieborgate Bandwagon; 900,000+ Lawsuits To Follow, And What Happens Next?

Tyler Durden's picture

The second Barclays announced its $450 million Libor settlement, it was all over - the lawyers smelled not only blood, but what may be the biggest plaintiff feeding frenzy of all time. Which is why it was only a matter of time: "State attorneys general are jumping into the widening scandal over whether banks tried to manipulate benchmark international lending rates, a move that could open a new front against the top global banks. A handful of state attorneys general said they are looking into whether they have jurisdiction over the banks, and are starting preliminary discussions to determine what kind of impact the conduct involving the Libor rate may have had in their states."

From Reuters:

"Our office is aware of the allegations around the manipulation of the Libor, and we are working with other state agencies to determine whether Massachusetts has suffered any losses as a result," a spokesman for Massachusetts Attorney General Martha Coakley said. A spokesman for Florida Attorney General Pam Bondi said his office is aware of the recent settlement reached by British bank Barclays with U.S. and UK authorities and "will look at the case to the extent that our office might have any jurisdiction in the matter."

 

A spokeswoman for the Massachusetts transportation authority, MassDOT, said the agency "is actively investigating its portfolio for the purpose of determining if it was underpaid on its bonds due to the brewing Libor situation," as are many other issuers of debt whose rate is governed by Libor.

 

Lawyers for several states have had early discussions about whether they might pool investigative resources and launch a broader, multi-state effort, but no formal consortium has been established yet, people familiar with the discussions said. New York might be expected to lead such an effort, since most of the banks' U.S. operations are based there. A spokesman for the New York attorney general declined comment on whether the issue is being looked at.

 

Some municipalities, including the city of Baltimore, and funds including the Frankfurt-based Metzler Investment GmbH, which manages 47 billion euros ($59 billion) in assets, have already sued more than a dozen banks, arguing they were bilked of potentially billions of dollars.

How many potential lawsuits are we talking about here? Quite a bit in fact as the FT explains:

There are at least 900,000 outstanding US home loans indexed to Libor that were originated from 2005 to 2009, the period the key lending gauge may have been rigged, investigators have said. Those mortgages carry an unpaid principal balance of $275bn, according to the Office of the Comptroller of the Currency, a bank regulator.

Also, as explained here before, not only is this a legal bonanza, but it will be a political feast for the Congressional circus to earn numerous C-SPAN brownie points.

“I think the US government should be just as aggressive in getting to the bottom of this scandal as the United Kingdom has been,” said Senator Sherrod Brown, chair of the bank regulatory subcommittee on the Senate banking committee.

 

“This was not isolated to London, but affected tens of millions of investors, borrowers and taxpayers in our country as well,” Mr Brown added.

What does the above mean?

1) Starting today and going forward, there will be numerous essays, "analyses" and white papers, all of which will try to estimate (some on a paid basis) the damages and impact of the Libor manipulation that took place at least in the period under discussion 2005-2009. All of these will be absolutely wrong, as nobody has any clear idea of how the cumulative impact of the Libor rate, which may have been pushed below either lower or higher depending on how it suited a given BBA-member bank, over a period of years will have impacted hundreds of trillions in partially offsetting notional securities. Therefore, while one day it may have led to impairments, another day it would benefit the end-holder of a given interest-rate sensitive product. But they will try. And the bigger the number, the better, which leads us to...

2) The lawyers will crawl out of the woodwork like worms after a torrential downpour, and will all be willing to work on contingency, telling potential clients they are owed thousands, nay, millions based on such and such analysis. All they need is to have held a mortgage, or a credit card, or any variable interest liability in the 4 years in question. And to sign the dotted line.

3) The resulting lawsuits, most of which in class action format, will be of gargantuan proportions, simply to encourage settlement, as ongoing litigation will easily destroy the financial system. The litigation reserves at the TBTF banks will explode and will cause years of EPS writedowns. But at least they will be one-time charges, so the stocks don't get crushed too much. That said, forget any growth out of the banking sector, and certainly the 16 BBA member banks, all of whom are about to be sued to smithereens in civil suits as more and more banks step up and settle to avoid criminal prosecution.

4) The biggest irony is that the torrent of upcoming suits will be in effect targeting none other than the Fed. Because while banks which all were massively levered to even a one basis point move in Libor were very sensitive to the smallest variations in 3 month USD libor, end-clients who did not have this leverage were far less impaired. But that doesn't matter: after all the same clients were impaired through gross borderline criminal negligence which is all that matters in a court of law (assuming the honorable judge John Roberts is not presiding pro hac vice). Thus the entity that will be sued by proxy is the Federal Reserve, whose Federal Funds rate is really the setter for the baseline Libor rate. Note the chart below which shows that over the past decade, the 3M USD Libor and the Fed Funds rate were virtually interchangeable:

Yet while it was the Fed's decisions at the bottom of it all, unless someone implicates the Fed or the BOE further, both will get away scott free: after all what they do is public policy, for the public good and to defend their various appointed mandates. And neither pushed banks to manipulate their rates (even if both were well aware there was gambling going on here), or so they claim, even when presented with evidence to the contrary.

What will really happen, is that the private banks, having been bailed out by the central banks at the taxpayers' dime, will now serve as a buffer to protect these same institutions from rising popular anger, not just at Lieborgate, but Robosigning, Robosettlement, CDOs, rehypothecation, High Frequency Trading, toxic assets marked-to-unicorns, the end of Mark-to-Market, ZIRP, NIRP, expert networks, insider trading, MF Global, and countless other examples of what happens when financial fraud is let loose with no fear of consequence in a Bernanke Put world.

As a result, the status quo will literally buy itself a few more years as it delays the tipping point by any means necessary, in the process kicking back a little to politicians, lawyers, and the general public in exchange for a few years of subpar earnings for bank shareholders that should have been wiped out back in 2008 anyway. And everyone will be happy.

That's how Lieborgate will play out.

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vmromk's picture

Let them sue Bernanke.

I think I need to buy a gun's picture

Muligan bitchez!!!!!!!!!!!!!!

Comay Mierda's picture

<---------- no one goes to jail

<---------- some go to jail but Obummer pardons in exchange for some campaign $$$

Marginal Call's picture

I don't see how they'll be able to nail the guys who set the rates for manipulating the rates.  They can do whatever they want with them. 

ihedgemyhedges's picture

Long office supply companies and temp agencies servicing law firms.........

nmewn's picture

Send lawyers, guns & money,,,

strannick's picture

BS. This is just like the robo-signing scandal. The the playbook seems to be to have the AGs scream bloody murder while the issue is on the front page, then start plotting the big roll over after the news fades in a week.

tmosley's picture

This is a bit different.  People here lost money because of out and out theft, not because they were lent more than they could afford to pay back.

I don't think this is going to go away.  Not without some politician stepping forward as a "hero" so he can get re-elected.  I wonder who it will be?  lol

knukles's picture

Great, just fucking great.
Another settlelment in which those injured get shit while the states get a another bazillion dollars for their bottomless shit hole general revenue funds to spend on crap like High Speed Internet or Inter-modal Rail or some such shit profiting the politicians via campaign contributions from the contractors chosen to receive the rigged bidding for the projects funded by the settlements.

Super.
Fucking sooooper.

Yes, I'm Yelling!

AldousHuxley's picture

ECONOMY OF NAZI GERMANY

 

HIGH UNEMPLOYMENT

Nazis came to power in the midst of the Great Depression. When the Nazis came to power the most pressing issue was an unemployment rate of  30%.[17] Before World War II, Hitler appointed Hjalmar Schacht, a former member of the German Democratic Party, as President of the Reichsbank in 1933 and Minister of Economics in 1934.

 

KEYNESIAN DEFICIT SPENDING

Policies were Keynesian, relying on large public works programs supported by deficit spending – took advantage of the freedom provided by the end of the gold standard to keep interest rates low and government budget deficits high, with massive public works funded by large budget deficits.

 

ANTI-UNION

Trade unions were abolished, as well as collective bargaining and the right to strike.[45] The right to quit also disappeared: Labour books were introduced in 1935, and required the consent of the previous employer in order to be hired for another job.

 

HIGH MILITARY SPENDING

They also directed Schacht to place more emphasis on military production and rearmament.In 1936, military spending in Germany exceeded 10% of GNP, higher than any other European country at the time, after years of limitations imposed by the Versailles Treaty. Military investment also exceeded civilian investment from 1936 onwards

 

STATE SPONSORED ENTERPRISES

the German state came to play an increasing dominant role in the German economy through state-owned companies

 

FASCISM: BIG BUSINESS & STATE

As big business became increasingly organized, it developed an increasingly close partnership with the Nazi government. The government pursued economic policies that maximized the profits of its business allies, and, in exchange, business leaders supported the government's political and military goals

The largest firms were mostly exempt from taxes on profits

 

LOWERED LIVING STANDARDS

While the strict state intervention  led to full employment during the 1930s, real wages in Germany dropped by roughly 25% between 1933 and 1938. 

 

Unrest caused by the breakdown of German social policies, and the sharp drop in living standards for the German working class forced Hitler into going to war at a time and place not of his choosing.

 

WAR AS FOREIGN POLICY

when faced with the deep socio-economic crisis the Nazi leadership had decided to embark upon a ruthless “smash and grab” foreign policy of seizing territory in Eastern Europe which could be pitilessly plundered to support living standards in Germany.

 

ANY OF THIS SOUND FAMILIAR AMERICANS?

PiratePawpaw's picture

Ok....thanks.........and in related news; Buffy the wonder-hamster is having her nails done. At first she wanted pink, but then she thought about that kinda off pink with a hint of red..............................................................................................................

mharry's picture

Yeah your right, but we read this already. Knock it off, we get it.

The Big Ching-aso's picture

 

 

Well ain't this a bitch.

Red Pill's picture

Rubbish. What sounds and looks familiar is that you just follow and advocate the propaganda of the current system and its thieves which screw you time and time again. Because this is not at all what * really * happened. It is the spin given by your masters. They got you where they want you: you think you are clever dissent, but you are just another tool for them. Truth is there where it is most dangerous to go and wander! This applies also here in your topic.

Sandmann's picture

Do a lot more reading - Hjalmar Schacht was there long before Hitler working closely with the Bank of England which has exceedingly good relations with Germany until 1939. You seem to know very little about Germany economic history. State enterprises started in Germany under Frederick The Great. You have zero comprehension of German Foreign Policy which suggests you are like Woodrow Wilson who transferred millions of Germans to live under Czech and Polish rulers and suffer discrimination. Danzig was a German cIty under League of Nations protection. Bohemia was majority German.

Stop reading comins and go read some Harold James - at least Princeton employs a real historian

 

Temporalist's picture

Of course they are going to try to pass legislation just like they did to benefit Freddie&Fannie and AIG and all the others. 

 

Executive orders bitchez. Too big to jail.

Bicycle Repairman's picture

YAY more kabuki.  Oh look, there's an AG with a mask on!!!!!!!!!!!!!

HardAssets's picture

Exactly. The state AGs get their cut (as a fine or 'settlement') and print a 'get out of Jail free' card for the crooks. Kinda like how the church used to grant indulgences to rich sinners back in the Middle Ages. Those sinners could get through the Celestial Gates even if 'they done a bad, bad thing'.

Then its on to the next scam.

DaveyJones's picture

Nice analogy.  The ex prosecutor in me says things are too corrupt to expect real justice  granted at some point as people see the system being repeatedly bought with their own money something will explode

Buck Johnson's picture

Exactly right, they will come up with some penny on the dollar settlement that goes to the states to shut up the AG's and it doesn't do anything for the people.

The Gooch's picture

"I learned something from the experience. I never take vacations".- Warren Zevon.

http://www.youtube.com/watch?v=S5puAN1PGQw

smlbizman's picture

it is probably that asshole who was trying to trick people with .999 1 oz slv. coins worth 30 0r 70$ of frns....to trick them into thinking it was worth a buck......but they gotem they knew that was a fake dollar...and if they can get him you know these other dudes dont stand a chance...

Dingleberry's picture

Speaking of coins.....this shit along with MF global got me thinkin'.......with all the rampant fraud in these brokerages....how can anyone trust ETFs and other "paper gold" instruments? Seriously, how can you sleep at night knowing one day you will awaken to your gold account frozen (i.e. gone)?

 

 

PiratePawpaw's picture

You read ZH and still own paper?..........................wow!

Kingbingo's picture

Also Barclays rates was almost always in the 25% top end that was not inculded in the rate. So no impact on LIBOR. These lawyers parasites need to pace themselves, not spunk off too early.

 

Given it another quarter and all the other banks will be implicated too.

Sandmann's picture

Barclays Chairman sat on the BBA Committee

laomei's picture

LOOK OUT BANKS! THIS SLAP ON THE WRIST MIGHT USE 2 FINGERS INSTEAD OF THE REGULAR 1!

Hayabusa's picture

Comay is correct!  No one goes to jail, they are questioned via the dog and pony show by the talking heads, pay "fines", receive obscene bankster bonuses, pay off politicians and it's back to business as usual.  I wish all I had to do was pay a fine if I got caught stealing from millions of people in lieu of jail time... double standard folks, double standard.

Surly Bear's picture

If you're gonna sue someone for manipulating interest rates then sure as fuck it shouldn't be Barclays. Just saying, bitchez!

tmosley's picture

I wonder if the next stimulus won't be in the form of treasury or Fed funded "rebate checks" that go out in some sort of mass settlement for this.  I wouldn't be surprised to see them send everyone in the country a check for $5000 or so in exchange for not suing any bank over this issue.  I would bet they would throw in some nice ultra fine print including a bunch of other scandals in the making at the same time.

fonzannoon's picture

Good point. I will fully admit that tonight I sat at my compter for 3 1/2 hours and reading these posts and commenting on them. I think I would have more fun sometimes sitting outside and straining my eyes looking for a fucking comet to come towards the earth than to see any of the impact of the shit we all discuss actually go down the way we want it to. At least I would have got some fresh air.

Yes_Questions's picture

 

 

Saw the ISS go quickly through the night mountain sky recently.

Sure beats AC and, well, just fits somehow.

 

http://spaceweather.com/

 

+billions and billions..Sagan

ACP's picture

...which would result in the next executive order...

HardlyZero's picture

No, I think the idea is that after the banks (now) get sued for BILLIONS...there will now be a 'new' reason to bail out the banks even more.  The printing presses will be running into super-ludicrous speed very soon.

Its all in the "CRISIS" planning...now bad crises things can lead to printing money things...*GOOD*.  Feels better ?  hmm.

Its just like planning for problems...the problems actually lead to more budget and bailouts...dismal.

Muppet of the Universe's picture

This one's for you Ben.  http://www.youtube.com/watch?v=ipJTqCbETog

 

Me & you, all the way; I'll be waiting for you.

vast-dom's picture

I wrote today that banks were complicit with TeH FeD and vice-versa in rigging, gaming, perverting rates, and that the latter must be sued. Especially after the chart in this post, which goes beyon interest rates, but all in the same meddling destructive illegal anti-free market mandate:

http://www.zerohedge.com/news/chart-year-fed-has-doubled-sp-admits-fed

Someone must step up and SUE THE FED. WHY? BECAUSE THE FED IS CONSIDERED A PRIVATE BANK! That's right folks! The Fed is considered by itself and the very government that elects fed chairman as a PRIVATE INSTITUTION. Ergo, it may be sued! 

AlaricBalth's picture

There is a sense of conviction in your post.
Therefore: http://www.suethefed.com/about-us

vast-dom's picture

i do not agree with suethefed approach. suethefed are half-baked crackpots -- most unfortunate as they will cheapen any other call to sue. 

sporb's picture

As far as I can tell you are a bunch of mouth-breathers - idiots who rode the LIBOR when it worked for you and now you are "We The Comment-Board Sheeple" who bleat "sue them!"  (oh wait, you can't get jurisdiction - maybe not).

I'd be sad if I wasn't taking all your cash as we (I) speak...

 

 

 

 

sporb's picture

Come on, somebody mention Ron Paul - please

sporb's picture

Come on, somebody mention Ron Paul - please

Lednbrass's picture

I think the ZH masses are too busy being awestruck at your incredible posting skillz.

Maybe you can repeat yourself 3 or 4 times next? That will really show how awesome you are.

tmosley's picture

Actually, we want to murder you in the streets.