LIBOR: THE CULMINATION OF DECADES OF DISASTROUS DE-REGULATION

The LIBOR scandal that has overwhelmed London in the past week is now splashing onto America’s shores, and is the culmination of decades of disastrous de-regulation. It’s negative effects on the economy CAN NOT be overemphasized.

 AUTHOR’S NOTE: And what did network “news” focus on last week for two days? Whether the Affordable Care Act was a tax or a penalty, (actually it’s neither for 98% of the population) while The GOP fiddles and piddles with Voter Suppression, Stealing Women’s Rights, Crushing Hispanics’ Rights, and receiving BILLIONS in campaign contributions to ensure that these same wealthy “JOB-DESTROYERS” keep getting their tax breaks.

GOP Leaders

GOP Leaders (Photo credit: Talk Radio News Service)

Four years ago, the Federal Reserve of New York asked Barclays about how it submitted its suggested Libor rates — and that has spurred Congress to question what U.S. regulators knew about manipulation of a key financial indicator during the financial crisis

Yesterday, an oversight panel of the House Financial Services Committee sent a letter to the New York Fed asking for transcripts of phone calls between Fed officials and Barclays executives from 2007 and 2008.

Lawmakers want to learn more after a New York Fed statement released Monday, July 9th. The bank said it had received “occasional anecdotal reports from Barclays of problems with Libor.”

The secondary issue at hand is whether the NY Fed ignored reports of irregularities in the LIBOR market during the financial crisis, as U.K. regulators are alleged to have done. But the bigger issue here is that LIBOR is at the very heart of the financial market; if you can’t trust LIBOR, what can you trust?

LIBOR — officially the London Interbank Offered Rate — is the rate at which banks will lend to other banks. The Commodity Futures Trading Commission estimates over $800 trillion of financial instruments are pegged to LIBOR, including $350 trillion in swaps and $10 trillion in loans, including mortgages and auto loans, The WSJ reports.

To date, most of the attention over the LIBOR scandal has focused on Barclays and U.K. regulators. On Monday, Bank of England deputy governor Paul Tucker faced tough questions from U.K. Parliament after Barclays executives suggested he condoned LIBOR manipulation. (Tucker denied wrongdoing but when asked if the LIBOR market was still rigged, he confessed: “I can’t be confident of anything after learning of this cesspit.”)

One Failure (of Ronald Reagan’s Followers of De-Regulation) After Another

Official Portrait of President Ronald Reagan

Official Portrait of President Ronald Reagan (Photo credit: Wikipedia)

 

In the early 1990s, the Fed suspended its surveillance of primary dealers, another example of Ronald Reagan’s choice (Surprised? Me either.) for Federal Reserve Chairman Alan Greenspan’s (Mr. “NBC’s Andrea Mitchell”) laissezfaire approach to regulation.

Since then, there has been failure after failure among their ranks. Among them:

  • Lehman Brothers
  • Bear Stearns
  • Merrill Lynch
  • MF Global
  • Countrywide, and now
  • Barclays

What kind of supervision and regulations do we have of the most important entities that deal with our own central bank if the regulatory authorities, who are supposed to be protecting investors, institutions and participants, are already ill-equipped to keep up with all of the lies and “self-regulation” that the GOP swears spurs job growth? And the GOP and Willard Mitt Romney repeatedly, unceasingly, call for LESS REGULATION!

Does anyone have any doubt as to why?

Financial reporting organizations(sans television “News” of course) are united that more ugly revelations are going to come out of the ongoing investigations, on both sides of the Atlantic, of alleged LIBOR manipulation.

Last week, Barclays paid roughly $450 million to settle charges by U.S. and U.K. regulators that its traders had manipulated LIBOR. Most observers believe Barclays is just the first firm to settle; global regulators are investigating more than 10 other major banks, including UBS, for whom ex-Senator and bank lobbyist Phil Gramm works. How many times has Phil Gramm, his wife Wendy (who both have ties to the Reagan administration) or Ronald Reagan’s name come up after a financial scandal has occurred?

  • The Savings and Loan Collapse– The Garn–St. Germain Depository Institutions Act of 1982 (Pub.L. 97-320, H.R. 6267, enacted October 15, 1982) is an Act of Congress that deregulated savings and loan associations and allowed banks to provide adjustable-rate mortgage loans.
    • Garn-St.Germain was Ronald Regan’s maiden voyage into de-regulating the banking industry.
    • By 1983, 35% of the country’s S&L’s were unprofitable, and 9% were technically bankrupt.
    • By 1989, Congress and the president had to bail out the industry with a taxpayer-financed bailout measure known as the FIRREA  by providing $50 billion to close failed banks and stop further losses. Result: total  collapse of S&L Industry. All in all, Reagan’s “jack-pot” cost the taxpayers of the U.S. approx. $150 billion back when that was a lot of money.
  • The Enron Scandal Wendy Gramm- of The Presidential Task Force on Regulatory Relief in the Reagan administration, chairwoman of the U.S. Commodity Futures Trading Commission from 1988 until 1993, wife of Senator Phil Gramm(R), Texasapplied for and was subsequently granted government exemption for energy commodities from government or public disclosure.
  • Wendy Gramm was paid over $2 million, never convicted, while ENRON donated more than $97k to Phil Gramm campaigns during the time his wife served as Enron Board Member while serving as Chairwoman of the Commodities Futures Trading Commission for Ronald Reagan.
  • 70 billion loss to investors from embezzled funds, misappropriated trust funds, pension plans and retirement plans of 22,000 employees.
  • Gramm Bliley Leach Act of 1999(Also known as Financial Services Modernization Act) Sponsored by Senator Phil Gramm(R) Texas-Repealed the Glass-Steagall Act of 1933 and allowed commercial banks, investment banks, securities firms, and insurance companies to consolidate.

 

I know this is wonky stuff for people who aren’t familiar with the jargon, but LIBOR is big. Really big.  Without a doubt it is the culmination and worst-case scenario of De-Regulation that has been a GOP mantra for decades.

Evidence Mounts for the Volker Rule at Least or Better-Yet Re-Instituting Glass-Steagall

This morning, the Senate Banking Committee said that it had already scheduled a hearing later this month, and that senators could ask Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke about the scandal involving the manipulation of LIBOR rates, which impacts interest rates on mortgages and loans worldwide on an estimated $10 Trillion in loans for mortgages, credit cards, business loans, personal loans, etc.  Among the prominent officials expressing outrage and disbelief that such a scandal could occur after the 2008 Housing Bubble were :

  • Sen. Tim Johnson, a South Dakota Democrat  and head of the oversight panel of the House Financial Services Committee. “It is important that we understand how any manipulation may impact American consumers and the U.S. financial system,” said the head of the panel. The panel will also hold “bipartisan briefings with relevant parties.”
  • Rep. Barney Frank, a Massachusetts Democrat – Over the weekend, Frank, who has spent most of his career trying to reform Wall Street, called the scandal “outrageous” in an interview with the Financial Times.
  • Phillip Swagel, a former assistant secretary of the Treasury in 2008 under George W. Bush, who now teaches at University of Maryland  was quoted  as saying, “We used LIBOR as an indicator of stresses facing banks,”. “It’s disturbing to know that the indicator was manipulated. We never would have imagined that it would be manipulated.”

Between 2005 and 2008, Barclays traders have admitted to repeatedly requesting that colleagues in charge of the LIBOR process tailor the bank’s submissions to benefit their trading positions. Barclays staffers also colluded with counterparts from other banks to manipulate rates, according to the settlement.

This is clear-cut fraud and people should go to jail.

AND THIS IS JUST THE BEGINNING.
Harvey Gold

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