LIBOR Fraud

Good stuff, cyclo. This was discussed at length on NPR just yesterday. We have reason to believe this will be the major global bombshell in the coming weeks. I agree -- why isn't anyone on A2k discussing it?

It's only just broke over here in the last week or so. You're way ahead of the game on us with class actions and such. We're looking at what's going on over there to try to understand what's going on over here.

Interesting, since the major arena of action seems to be London.

Some huge fines that in actuality amount to a piddling sum but jail time, I seriously doubt it.

Dunno. The powers that be seem to be extremely upset this time. Thorough investigation and, yes, jail time, is being talked about. Make an example etc. and all that.

I think the reason this has not been of interest is that it is generally assumed that bankers are scum sucking crooks. Bring a news idem which shows paints Bankers as fine upstanding citizens....now that would be worthy of discussion!

The powers that be know that they have to talk about how upset they are. That doesn't mean, nor does it often translate into serious jail time for these folks. Consider what happened in the latest economy crash. Really, was there anyone held accountable? Maybe, and I just wasn't paying attention.

That would depend upon whether you're receiving or paying.

The Roubini interview is mostly about the EUR.

Kind of late to bring bank fraud to the forefront of a2k discussions. In addition to the numerous media reports about bank failures over the past several years, banks are still screwing the consumer by paying very little interest while they charge consumers high interest. In addition to all that, they have the gall to start charging fees for everything including charging for taking out your own money from an ATM by BofA - which was reversed from the outcry of consumers. Many banks still charges those fees, and even charge fees when consumers use debit cards (money debited directly to one's bank account).

I think something like 30 banks have been closed by the feds this year, and more are closed almost weekly.

Pretty soon the only place safe to keep your money is under your mattress.

The thing is people are all saying it's terrible, but nobody really understands exactly what's gone on. And more importantly there aren't any actual examples of victims yet, (in the UK at least). So far the only thing that seems to have happened is that mortgage rates have been kept down.

It's still early days though.

A lot of US credit card rates are tied to LIBOR. It is unclear as to whether they were driving rates down the entire time or just during the crisis. If they were artificially driving them up at the end of quarters to adjust card rates higher then a lot of people will have been harmed by this.

The interesting thing is that it is within the last 10 years that I have seen credit cards tied to Libor instead of a US rate. I'm guessing the card issuers were aware of the manipulation and took advantage of it.

A decent explanation of what was happening.

http://money.cnn.com/2012/07/03/investing/libor-interest-rate-faq/index.htm
The real key seems to be they were manipulating rates to benefit their trader's holdings.

I believe that nothing will be improved until by law, depository banks are not permitted to engage in proprietary trading (similar to the prohibition of combined investment and commercial banking in the Glass–Steagall Act)

Legislative response and passage:

President Barack Obama meeting with Rep. Barney Frank, Sen. Dick Durbin, and Sen. Chris Dodd, at the White House prior to a financial regulatory reform announcement on June 17, 2009.

The bills that came after Obama's proposal were largely consistent with the proposal, but contained some additional provisions and differences in implementation.

The Volcker Rule was not included in Obama's initial June 2009 proposal, but Obama proposed the rule later in January 2010, after the House bill had passed. The rule, which prohibits depository banks from proprietary trading (similar to the prohibition of combined investment and commercial banking in the Glass–Steagall Act was passed only in the Senate bill, and the conference committee enacted the rule in a weakened form, Section 619 of the bill, that allowed banks to invest up to 3% of their Tier 1 capital in private equity and hedge funds as well as trade for hedging purposes.

The initial version of the bill passed the House along party lines in December by a vote of 223-202, and passed the Senate with amendments in May 2010 with a vote of 59-39[1] once again along party lines. The bill then moved to conference committee, where the Senate bill was used as the base text although a few House provisions were included in the bill's base text.

One provision on which the White House did not take a position and remained in the final bill allows the SEC to rule on "proxy access" – meaning that qualifying shareholders, including groups, can modify the corporate proxy statement sent to shareholders to include their own director nominees, with the rules set by the SEC. This rule was unsuccessfully challenged in conference committee by Chris Dodd, who – under pressure from the White House – submitted an amendment limiting that access and ability to nominate directors only to single shareholders who have over 5% of the company and have held the stock for at least two years.

The "Durbin Amendment" is a provision in the final bill aimed at debit card interchange fees and increasing competition in payment processing. The provision was not in the House bill; it began as an amendment to the Senate bill from Dick Durbin and led to lobbying against it. The law applies to banks with over $10 billion in assets, and these banks would have to charge debit card interchange fees that are "reasonable and proportional to the actual cost" of processing the transaction. The bill aimed to restrict anti-competitive practices and encourage competition, and included provisions which allow retailers to refuse to use cards for small purchases and offer incentives for using cash or another type of card.

The Durbin Amendment also gave the Federal Reserve the power to regulate debit card interchange fees, and on December 16, 2010 the Fed proposed a maximum interchange fee of 12 cents per debit card transaction, which CardHub.com estimated would cost large banks $14 billion annually. On June 29, 2011, the Fed issued its final rule, which holds that the maximum interchange fee an issuer can receive from a single debit card transaction is 21 cents plus 5 basis points multiplied by the amount of the transaction. This rule also allows issuers to raise their interchange fees by as much as one cent if they implement certain fraud-prevention measures. An issuer eligible for this adjustment, could therefore receive an interchange fee of as much as 24 cents for the average debit card transaction (valued at $38), according to the Federal Reserve. This cap — which will take effect on October 1, 2011 rather than July 21, 2011 as was previously announced — will reduce fees roughly $9.4 billion annually, according to CardHub.com. As a result of the government limiting their revenue from interchange fees, banks made plans to raise account maintenance fees to compensate.

The New York Times published a comparison of the two bills prior to their reconciliation. On June 25, 2010, conferees finished reconciling the House and Senate versions of the bills and four days later filed a conference report. The conference committee changed the name of the Act from the "Restoring American Financial Stability Act of 2010." The House passed the conference report, 237–192 on June 30, 2010. On July 15, the Senate passed the Act, 60–39. President Obama signed the bill into law on July 21, 2010.

Therein lies the problem; our own government allows banks to hang on to consumer money "free" while they charge for everything they can.

Banks still engage in illegal transactions in the stock market, and very few have been charged with fines. JP Morgan reported a loss of $3 billion recently, but subsequent reports put their loss at $6 billion. Our government isn't doing their job to protect the consumer.

The consumer always end up paying for bank's mistakes.

Provisions

Title VI, or the "Bank and Savings Association Holding Company and Depository Institution Regulatory Improvements Act of 2010", introduces the so called "Volcker Rule" after former Chairman of the Federal Reserve Paul Volcker by amending the Bank Holding Company Act of 1956. With the aim of reducing the amount of speculative investments on large firms' balance sheets, it limits banking entities to owning no more in a hedge fund or private equity fund than 3% of the total ownership interest. The total of all of the banking entity’s interests in hedge funds or private equity funds cannot exceed 3% of the Tier 1 capital of the banking entity. Furthermore no bank that has a direct or indirect relationship with a hedge fund or private equity fund, "may enter into a transaction with the fund, or with any other hedge fund or private equity fund that is controlled by such fund" without disclosing the full extent of the relationship to the regulating entity, and assuring that there are no conflicts of interest, “Banking entity” includes an insured depository institution, any company controlling an insured depository institution and such a company’s affiliates and subsidiaries, and must comply with the Act within two years of its passing, although it may apply for time extensions.

The rule distinguishes transactions by banking entities from transactions by nonbank financial companies supervised by the Federal Reserve Board. The rule states that in general, "an insured depository institution may not purchase an asset from, or sell an asset to, an executive officer, director, or principal shareholder of the insured depository institution, or any related interest of such person… unless— the transaction is on market terms; and if the transaction represents more than 10 percent of the capital stock and surplus of the insured depository institution, the transaction has been approved in advance by a majority of the members of the board of directors of the insured depository institution who do not have an interest in the transaction." Providing for the regulation of capital, the Volcker Rule says that regulators are required to impose upon institutions capital requirements that are "countercyclical, so that the amount of capital required to be maintained by a company increases in times of economic expansion and decreases in times of economic contraction," to ensure the safety and soundness of the organization. The rule also provides that an insured State bank may engage in a derivative transaction only if the law with respect to lending limits of the State in which the insured State bank is chartered takes into consideration credit exposure to derivative transactions. The title provides for a three year moratorium on approval of FDIC deposit insurance received after November 23, 2009, for an industrial bank, a credit card bank, or a trust bank that is directly or indirectly owned or controlled by a commercial firm.

Background

The Volcker Rule was first publicly endorsed by President Obama on January 21, 2010. The final version of the Act prepared by the conference committee included a strengthened Volcker rule by including language by Senators Jeff Merkley, D-Oregon, and Carl Levin, D-Michigan, that covers a greater range of proprietary trading than originally proposed by the administration, with the notable exceptions of trading in U.S. government securities and bonds issued by government-backed entities, and the rule also bans conflict of interest trading. The rule seeks to ensure that banking organizations are both well capitalized and well managed. The proposed draft form of the Vocker Rule was presented by regulators for public comment on October 11, 2011, with the rule due to go into effect on July 21, 2012.[/b]

Back to the LIBOR fraud ...

This report mentioned it already yesterday:
Today, it was published in spiegel-online that other (and greater) fonds could join those suits ...

BBB, Thanks for sharing that info; didn't know about the effective date of July 21, 2012, on the Volker Rule.

Thnx for that Spiegel link, Walter. What I've been saying -- this is a lot bigger on an international scale than appears at a first and cursory glance.