FDIC SUING OVER LIBOR RATE FIXING: HIGH OCTANE SPECULATIONS
Ellen Brown, who is running for treasurer in California, and who is also a major advocate of the "public bank" solution(i.e., a central bank owned by the government, not a consortium of private banks, and issuing debt-free money), has written an interesting article from any viewpoint, whether or not one agrees with her on the issue of public banks. The article is interesting, not only for what it says, but for the many things that might be gleaned from it, reading between the lines, and indulging in some high octane speculation. On the surface, the article is significant because the FDIC it joining in a lawsuit against several major banks over LIBOR rate fixing. But before we get to the article, a word for our non-American readers: the Federal Deposit Insurance Corporation, the government entity that [supposedly] guarantees an individual's deposits in a bank for up to $250,000. It was established in the wake of the Depression and runs on banks. Thus, the FDIC joining any such lawsuit is a significant event:
1. Harvesting Local Economies
I want to draw the reader's attention to a number of points in the article. First, in confirmation of an observation made by my colleague Catherine Austin Fitts, the international financial system has been so constructed so as to entwine significant localities directly into the system so that local monies can be harvested for the system; observe carefully the mechanism described by Brown here:
"Interest-rate swaps are sold to parties who have taken out loans at variable interest rates, as insurance against rising rates. The most common swap is one where counterparty A (a university, municipal government, etc.) pays a fixed rate to counterparty B (the bank), while receiving from B a floating rate indexed to a reference rate such as LIBOR. If interest rates go up, the municipality gets paid more on the swap contract, offsetting its rising borrowing costs. If interest rates go down, the municipality owes money to the bank on the swap, but that extra charge is offset by the falling interest rate on its variable rate loan. The result is to fix borrowing costs at the lower variable rate.
"At least, that is how it’s supposed to work. The catch is that the swap is a separate financial agreement – essentially an ongoing bet on interest rates. The borrower owes both the interest on its variable rate loan and what it must pay out on this separate swap deal. And the benchmarks for the two rates don’t necessarily track each other. As explained by Stephen Gandel on CNN Money:
"The rates on the debt were based on something called the Sifma municipal bond index, which is named after the industry group that maintains the index and tracks muni bonds. And that’s what municipalities should have bought swaps based on.
"Instead, Wall Street sold municipalities Libor swaps, which were easier to trade and [were] quickly becoming a gravy train for the banks."
2. The Biggest Cartel in History
The second thing I want to draw your attention to, is that this process was put into place by what the article - rightly - calls "the world's biggest cartel," and some of the players are well known by now:
On March 14, 2014, the FDIC filed suit for LIBOR-rigging against sixteen of the world’s largest banks – including the three largest USbanks (JPMorgan Chase, Bank of America, and Citigroup), the three largest UKbanks, the largest German bank, the largest Japanese bank, and several of the largest Swiss banks. Bill Black, professor of law and economics and a former bank fraud investigator, calls them “the largest cartel in world history, by at least three and probably four orders of magnitude.”
One can easily name what the three largest UK banks would be(Barclay's, Lloyd's and so on), Deutschebank is easy, as are the Mitsubishi group in Japan, Union Bank, Credit Suisse, and so on in Switzerland. But to say that this is the largest cartel in history, trading in interest rate swaps which alone exceeds the entire world's gdp by a factor of seven (and that's not including all those credit default swaps and other sorts of derivatives, which run(by some estimates) into the quadrillions of dollars).
Now here comes my high octane speculation of the day. Recently we've seen a spate of strange murders in the guise of suicides of bankers, and, in a couple of perhaps related cases, a CIA official, and a gentleman involved in the mortgage title business. Most of these murders have been of middle-echelon individuals, people involved in the computerized end of banking, and, in a few cases, of people more highly placed. I and others have been maintaining that they are meeting their untimely deaths because they may have been able to expose the vast amount of fraud in the system. Enter Brown's article once again:
"Suits to recover damages for collusion, antitrust violations and racketeering (RICO), however, have so far failed. In March 2013, SDNY Judge Naomi Reece Buchwald dismissed antitrust and RICO claims brought by investors and traders in actions consolidated in her court, on the ground that the plaintiffs lacked standing to bring the claims. She held that the rate-setting banks’ actions did not affect competition, because those banks were not in competition with one another with respect to LIBOR rate-setting; and that 'the alleged collusion occurred in an arena in which defendants never did and never were intended to compete.'"
One shouldn't be too surprised that a corrupt court would rule in favor of a corrupt system, and do so by stating the plaintiffs "lack standing" on a clear case of what amounts to a cartel. In other words, in my opinion, the judge acted to protect the system from the exposure of something; her's is the flip side of the murders.
The question is, where is all this money going? Careful reading of Brown's article shows how decoupled the financial system is from productive reality: after all, if securities instruments exist in the hundreds of trillions of dollars, and those exceed the world's GDP by a factor of seven (and we're still not counting the estimated quadrillions of dollars of credit default swaps), then should we all have been seeing people carrying their grocery shopping money in wheelbarrows long before now?
A clue, perhaps, lies not only in the absence of hyper-inflation thus far, but the people involved in the "suicides" thus far, and the lack of mention of two important banking players, for note that many of the "suicides" were in the computer end of the business. Since so much of the modern securities market is now electronic, a computer becomes the equivalent of a paper shredder. The only link to what has been electronically shredded is, so to speak, the person hitting the delete key. The omissions in the article are significant as well. There is no mention of the Vatican Bank or HSBC(neither involved in the LIBOR scandal... or so we're told), but if you've been following the bankster story of the past few years, these are also major and significant players in an international structure designed - if I may borrow Catherine Fitt's insight again - to harvest local economies.
And thus comes Brown to the crux of the matter, at least, legally: the plaintiff's in the lawsuit were denied standing because they were not suing for the right thing: fraud:
Why would keeping interest rates low enrich the rate-setting banks? Don’t they make more money if interest rates are high?
The answer is no. Unlike most banks, they make most of their money not from ordinary commercial loans but from interest rate swaps. The FDIC suit seeks to recover losses caused to 38USbanking institutions that did make their profits from ordinary business and consumer loans – banks that failed during the financial crisis and were taken over by the FDIC. They include Washington Mutual, the largest bank failure inUShistory. Since the FDIC had to cover the deposits of these failed banks, it clearly has standing to recover damages, and maybe punitive damages, if intentional fraud is proved.
And, at the end of her article, this:
"In the meantime, if the FDIC can bring a civil action for breach of contract and fraud, so can state and local governments, universities, and pension funds. The possibilities this opens up for California(where I’m currently running for State Treasurer) are huge. Fraud is grounds for rescission (terminating the contract) without paying penalties, potentially saving taxpayers enormous sums in fees for swap deals that are crippling cities, universities and other public entities across the state. Fraud is also grounds for punitive damages, something an outraged jury might be inclined to impose. My next post will explore the possibilities for California in more detail. Stay tuned."
In stating the legal implication in this fashion, Brown has perhaps inadvertently set off the tripwire... because localities are were the fraud begins. Can you say... "money laundering?" To prove the fraud case in court would mean being able to reconstruct the paper-electronic trail... hence, I suspect, the murders...
The problem for the people at the top of this scheme is that of any Mafioso capo: no hit list is ever complete... no purge is ever sufficient. "Did I get everyone...?"
See you on the flip side...
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