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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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...

 

 

 

 

Lednbrass's picture

Well, it is at least good to know that with your vast and superior intellect you were able to master something as complex as the posting function on an internet forum.

It really does lend credence to your "I AM TEH SMARTEE" claim.

OldPhart's picture

DING!  DING!  DING!  DING!  DING!  DING!  DING!  DING! 

OT, "Holy Shit!!" news.

LOS ANGELES (CNS) - Supervisor Mike Antonovich wants to know if Los Angeles County is headed down the road that led Stockton to bankruptcy and has put San Bernardino in financial ruin.

The lone Republican on the five-member board asked the county's chief executive officer for a report on how Los Angeles County's fiscal practices compare to those of Stockton, his spokesman said today.

``Stockton's bankruptcy provides an ominous warning for other municipalities who fail to apply fiscally responsible policies in their budgetary planning,'' Antonovich said, speaking at the weekly Board of Supervisors meeting.

``Rather than matching spending to revenue, they float bonds in order to cover escalating costs for retiree health care, pensions and public facilities and capital improvements. This is a recipe for fiscal collapse.''

Stockton, a city of nearly 300,000 and the seat of San Joaquin Valley
, recently filed for bankruptcy. On Tuesday, the   San Bernardino City Council, facing about $46 million in debt, also voted to seek Chapter 9 bankruptcy, and city officials said some public employees may not get paid in coming months.

Chapter 9 enables municipal governments to be shielded from creditors while reorganizing its finances.

Testing the waters.

j0nx's picture

Who would have guessed that catering to and throwing tens of billions of dollars and services to people who shouldn't even BE in this country would bankrupt you? I personally would NEVER have guessed such a thing. But I'm sure it's all those evil unions' fault and all those exorbitant pensions...

SHEEPFUKKER's picture

Clusterfuck Nation. 

CrazyCooter's picture

Oh, I see ... the AGs must be done dry humping the fraudclosure case ...

Regards,

Cooter

ghengis86's picture

Exactly.  This will be another 'could bring all the banks down costing them trillions!!' but will end up settled out of court, admitting no wrong doing, settling for pennies on the dollar for straight up criminal fraud all while these AG's claim 'victory' over their bankster masters.  One more circle jerk.

Wake me up when either:

perps are walked into pound me in the ass prison or bankers hang from lamp posts.

 

Until then.  Same shit, different day.  The serfs get fucked.

Yes_Questions's picture

 

 

This time could be different.

Lowe's, Home Depot, ACE, Cabelas, et al still carry the public is pissed accoutrements and it won't always be so stifling hot outside.

 

Mostly, we protest in quiet solitude.

Mostly.

 

 

youngman's picture

I said it before with the robo signing...this is a way for the Federal government to bail out the states.....the states sue....collect billions...the banks are to big to fail..they cry wolf..the Fed bails them out.....its the way to get around the law that the Federal Government canot bail out the states...

odatruf's picture

Which law prevents the feds from bailing out the states?  Looks to me like most 'stimulus' dollars had this sole purpose in mind.

 

nmewn's picture

It was only a smoke break.

Miss Expectations's picture

I think that it was the AGs who were dry humped by the banks.  Well, there's dry humping and then there's that uncommon and inexplicable moment when the big bad boy dog gets his huge swollen article stuck in the bitch and then HE gets dragged all over the neighborhood.  Here's hoping that the AGs run farther and a faster this time.  Then again, there's clear evidence that the AG's like it.  They like it A LOT.

holdbuysell's picture

So, we have to wait another few years until Blankfein, et al are finally put into 'pound me in the ass prison'?

No problem, can do.

tom a taxpayer's picture

I'm sick and tired of the AGs huffing and puffing like they really gonna break the balls of the muthafucha bankstas…but in the end allowing the criminals to pay fines instead of serving 10 years to life prison hard time.

fonzannoon's picture

CNBC had smug guy in fancy suit today yelling that the Municipalities were going to sue the shit out of the banks because they have been ripped off in the form of lower yielding bonds by LIBOR. The other more smug guy who was a bit more femine in nature wearing a suit and cufflinks was apologizing for the banks and saying it was no big deal. The first smug guy accused the second smug guy of being an apologist for the banks and the first smug guy said that was unfair. I guess my point is the municipalities may sue the banks too.

Tyler Durden's picture

We grouped them, and all others who had IR-exposure under "end clients"

fonzannoon's picture

Well just a heads up, the 2nd smug guy with cufflinks and the Deutsche Bank hat thinks you (and the 1st smug guy) are exaggerating. He seemed sincere.

Comay Mierda's picture

trying to do damage control

but its like showing up to post-atomic explosion Hiroshima with only a broom and dust pan

The They's picture

when i read this comment i just about died laughing.

Pure Evil's picture

Was that grouped them or groped them in the 'end' clients.

The TSA might want to get in on this.

Kayman's picture

I bet a can of deep-browned beans that Britain and the U.S. write legislation giving these criminals a pass.

Wait for the Hank Paulson moment.

Debt-Is-Not-Money's picture

"Wait for the Hank Paulson moment."

Another Shakedown?

You're probably right.

We are sooooo screwed!

Dr. No's picture

Although the circumstances may allow it, I dont think Timmah has the balls that Paulson had.  Timmah is a paper shuffeler worried about his pension.

zanez's picture

The only balls Timmy has are the ones bouncing off his chin.

disabledvet's picture

i agree that municipalities "blaming the banks" for their distress is a big deal. of course unlike lawyers municipalities can't "sue their way to prosperity" (they'll have to get in line when it comes to the banks anyways. what is it called? "Foreclosuregate"?) So "being smug" or "not being smug" doesn't change a damn thing when it comes to a friggin' interest rate. SUBORDINATION matters of course...which is why a "simple policy of avoidance by...CAREFUL...application of some good old fashioned equities" helps. I do agree "it's all out war in the land of debt" however. While i do agree LIBOR price fixing (isn't that what they call it in London? where you go to get "the fix"? meaning...LIBOR right?) is a big deal...that is the point of the process..."to fix the price." in effect "an interest rate cartel." i don't believe it's illegal...per se...of course it is a "private rate" and therefore the ULTIMATE in being part of an exclusive club...unlike say "what the Fed is doing" which is more like...i don't know...interest rate porno? "so good everyone stops and stares"? good luck suing that bro!
http://www.youtube.com/watch?v=5j2F4VcBmeo
that's right folks..."the Fed ordered the Code Red." And still is actually...

Jumbotron's picture

William Shakespeare wrote in Henry VI

"First thng we do, let's kill all the lawyers."

Jumbo says....."Bill...let's hold off for just a little while"

 

whisperin's picture

For all the legal eagles out there; is it possible to sue the regulators like the Fed, SEC, CFTC, OCC etc. if they don't have jurisdiction against the bank? I'm not sure what the claim would be besides gross negligence. We know they are fucking insane to allow this shit but could it be constructively done?

Almost Solvent's picture

A properly constructed Supreme Court decision could rule that willful violation of the constitution and/or oath of office is sufficient grounds to overcome either soverign immunity or qualified immunity.

 

Enforcement of the ruling might be difficult however. And there may not be a private right of action either. 

MachoMan's picture

It's going to have to take some NFP or legal activist group to challenge it then..,.  I don't think the Plaintiffs' attorney buzzards are interested in that one on contingency...  ok, so you remove government immunity for whatever actors you can directly pin to illicit behavior...  then you're still left with turnips.  Cost prohibitive.

Unbezahlbar's picture

You could certainly nab a majority of the private players with mail fraud when it's hard to prove a complex thing like securities violations or securities fraud. Mail fraud is much much easier from what my lawyer neighbor told me.  See wiki below:

Elements

There are three elements to mail and wire fraud:

  1. Intent;
  2. A "scheme or artifice to defraud" or the obtaining of property by fraud; and,
  3. A mail or wire communication.[5]

To be fraudulent, a misrepresentation must be material.[6]

Mail fraud does not require that the mailing cross state lines; however, wire fraud does require that the wire communication cross state lines.[7]

 

https://en.wikipedia.org/wiki/Mail_and_wire_fraud

illyia's picture

U R supposed to "vote" "that administration" out of office.... instead...

Which is where lynching comes in handy.

tony wilson's picture

like the donald duck rumsfelds sept 10th 2001 press statement about missing pentagon trillions.

silenced by missile not plane into the very pentagon  dept that had all the info.

like the enron files that would of busted the case wide open and sent many to jail.

the  enron files where kept safe in wt7 a building that collapsed from minor fire damage.

these minor financial troubles all get covered up and forgotten in times of false flag crisis followed by world war.

the total theft of everything and death of many more innocents is still to come.

these lunatics are having way to much fun to give up now.

Hopium Dealer's picture

You're telling me it wasn't the brown cave dwellers with Blue Angel piloting skills?

tmosley's picture

Because it is SOOO hard to crash a plane.  Especially into a target the size of the Pentagon.  Also, the people on the plane that supposedly hit it?  All imaginary.  Don't tell that to their families though.  Those guys are really committed to the lie.

Tijuana Donkey Show's picture

No one said they were all in on it,just the pilot

tmosley's picture

If it was a missle that hit the pentagon, where did the missing plane go?

This is the problem with crackpot theories.  They don't stand up to even a tiny bit of scrutiny.  But people who believe in the greater conspiracy defend them to the death because they think the truth is a war, and that ideas are soldiers, and if you fail to defend one of your soldiers, you are a traitor to your cause.  They don't realize that the truth exists, no matter what they think.  They gain nothing but derision by defending idiot theories just because they are in the same idiom.

spentCartridge's picture

That's why they're gonna nuke the London Olympics.

Gets rid of all the evidence ...

fonzannoon's picture

Paging Dick Bove.....Dick Bove to the studio.

zero19451945's picture

Highly doubt the banks care about lawsuits. They have an unlimited taxpayer bailout.

I would be making the most outrageous bets possible if I were them. 

The Gooch's picture

cookie meet crumble

q99x2's picture

Libor8

As long as Holder isn't involved this might not get covered up.

Timmay's picture

The Locusts are about to FEED.....

PulpCutter's picture

Mass atty general Coakley, who has the lead quote in the article, is outstanding.  She is the one who was running against Scott Brown for the senate seat left open when Kennedy died.  The TeaBaggers sent money in from around the country to support Brown, and Coakley lost.  Brown, judged by his voting record, has proven to be a WallSt stooge.

I'd admire the TeaBaggers civic enthusiasm, if they weren't all brainwashed FoxNews idiots.

Some of Brown's votes; (THANKS TeaBaggers!)

4/26/10: S. 3217, Restoring American Financial Stability Act of 2010 (Senate Vote 124)
The bill was the original financial regulatory reform bill, increasing accountability and transparency, and ending "too big to fail."  Brown voted against.

7/27/10: S. 3628, Democracy is Strengthened by Casting Light on Spending in Elections (DISCLOSE) Act (Senate Vote 220)
This bill would have increased transparency of corporate and special-interest money in national political campaigns, in response to the notorious Citizens United decision by the Supreme Court, as well as prohibited foreign influence in federal elections.  Brown voted against.

 

Unbezahlbar's picture

Since we have a complete failure in regulation, we are lucky to have private lawsuits left to seek "justice."

Boy, I never thought I'd be glad to see so many plaintiff attorneys hard at work....it's enough to give me .....emotional distress!!!!!

Arnold Ziffel's picture

Ms Unbezahlbar, you look awful! Did those Big Bad LieborBankers cause you......

Sleepless nights?

Anxiety?

Vomiting?

The need for psychological counselling?

Loss of gainful employment?

Weight gain?

You may have a legal recourse to help sooth that there nasty emotional distress.

 

Here is  my card...

MachoMan's picture

Generally, plaintiffs will "pool" up and there will be a few lead counsel designated...  these folks will handle depositions, filings, and the leg work (many hearings/status updates)...  the court will create a common benefit fund for their efforts and everyone who follows in their footsteps will get to pay the fiddler (% of their recovery).

I suspect this type of lawsuit will actually be ripe for classes...  it's actually fairly difficult to get a class certified...  but I think many of the plaintiffs will be so similarly situated so as to warrant it...  but who knows...  judge might not even certify classes on this one.

PS, why in the fuck would AGs have to ask whether they can go after banks that operate in their states?  Do they really think their own state courts are going to deny jurisdiction is proper? lol...  go ahead and appeal...  all it's going to do is bring up round 2...  and you're not going to get to recover shit from the state...

Paul Atreides's picture

Lawsuit/fine just more money changing hands and who do you think is going to foot the bill? us John Q Taxpayer, there is no justice for the little people and no law for the political puppets and the financial ruling elite. Humanity needs to unify and start purging these fucking parasites from this earth or we will wind up being forever slaves.