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December 19, 2012 2:43 PM FHFA Report: Fannie & Freddie Should Consider Suing for $3 Billion LIBOR Loss

By Samuel Knight

Fannie Mae and Freddie may have lost more than $3 billion because of LIBOR manipulation between 2008 and 2010, according to an internal Federal Housing Finance Agency report obtained by the Wall Street Journal.

The FHFA report encourages the GSEs to consider taking legal action against the banks responsible.

Its a reminder why this scandal is so mind-blowing. No one is sure how deep this rabbit hole goes, so to speak, in terms of money or players involved. According to a Reuters report on a $1.5 billion fine doled out to UBS today, the LIBOR rigging probe involves “over a dozen banks.” About $800 trillion worth of financial instruments are affected by the rate.

In a July Economist report on the scandal, a CEO of a multinational bank described it as “the banking industry’s tobacco moment,” referring to the litigation and settlements that ended up costing tobacco companies’ $200 billion. After last week, one can’t but help see the parallels between LIBOR and the Sandy Hook shooting, in moral terms. Just as a previously unimaginable tragedy is forcing America to deal with gun control, a previously unfathomable theft might force the world to deal with global finance’s larcenous business model.

The judicial system might effectively do what legislators and regulators seem unwilling to do: break up the big banks.

Samuel Knight is a freelance journalist living in DC and a former intern at the Washington Monthly.

Comments

  • boatboy_srq on December 19, 2012 3:50 PM:

    The judicial system might effectively do what legislators and regulators seem unwilling to do: break up the big banks.

    You mean, with Alito, Scalia and Thomas on SCOTUS? BWAHAHAHAHAHA!

  • c u n d gulag on December 19, 2012 3:50 PM:

    Too big to fail?

    Too big to go to jail.

    Too big to exist.

    Ma Bell got broken-up into "Baby Bell's,"* let's break the big banks into "Baby Banks."

    *And yeah, I'm aware of some of the repercussions of THAT move - then, and now.
    One of which is that those "Baby Bell's" need to be broken up again. Verizon is WAAAAAAAY too big! So, now, are Comcast and Time Warner.
    Let's break those large Telecom's up into "Baby Ding-a-lings."
    It's easier to handle a bunch of small apes, than a few King Kongs.

  • geekalot on December 19, 2012 4:05 PM:

    Any banking institution that is too big to fail, is simply too big...period. Laws should be set up so that banks will scale back on their own or risk becoming state owned and forcibly broken up. It is simple, really. If a bank is large enough to cause serious damage by its failure, then it is a de facto extension of the government monetary system and thereby owned by "the people' who have the right to safeguard the interests of their country.

  • Ashbee on December 19, 2012 4:32 PM:

    LIBOR fraud will prove to be the mother of all financial scandals. F&F would be grossly negligent not to sue.

  • cmdicely on December 19, 2012 5:37 PM:

    After last week, one canít but help see the parallels between LIBOR and the Sandy Hook shooting, in moral terms.

    In moral terms, there's a not a lot of parallel between a lone spree killer and massive conspiracy of theft, except that they are both bad.

    Attempting to portray entirely dissimilar events as related because one of them is producing an emotional response that the speaker would like to have transferred to the other is a distressingly common rhetorical technique used in place of actual substantive argument.

  • square1 on December 19, 2012 6:01 PM:

    The difference is that identifying policies that reduce gun violence is not completely trivial. That's not to suggest that I am opposed to more gun regulation, but I acknowledge that passing a few new laws isn't a panacea.

    OTOH, sane FinRegs are blindingly obvious. For instance, it is hard to believe that LIBOR was chosen as a benchmark for any reason other than it could be gamed by the banks. Why would you possibly choose to peg U.S. mortgages and loans to a British rate that required voluntary reporting? There are only two reasons, neither of which benefits consumers: 1. LIBOR can be gamed. 2. LIBOR shields the private banking industry from losing money when banks screw up and face higher borrowing costs; the private financial services institutions are systematically and able to pass on their added costs of increases in lending fees to consumers.

  • square1 on December 19, 2012 6:08 PM:

    To be a little more clear, Sandy Hook is changing public views on gun law reform, which might then change policies.

    OTOH, the LIBOR scandal isn't remotely shocking. The reason that we don't have greater FinReg isn't because the public doesn't want it. Hell, everyone who doesn't have a vested interest in preserving the current status quo has known for years that the banks have rigged the game. The reason that we don't have reform is that the banks bought the politicians. New financial scandals are ho hum.

  • KK on December 19, 2012 6:34 PM:

    The banks converted to LIBOR because LIBOR doesn't suffer from "flight to quality" like USTreas adjusted to a 1 yr constant maturity. Banks got killed on ARM adjustments tied to UST. The artificial holding down of LIBOR rates hurt Fanny but actually helped consumers tied to LIBOR. Now, I'd never convert to a LIBOR ARM. That index doesn't accurately reflect conditions here and is always higher then UST. Sometimes a lot higher.

  • Mark on December 19, 2012 6:43 PM:

    Why not all of the towns that municipal bonds that were controlled by the LIBOR rates. They should go after all of the banks!

  • KK on December 19, 2012 6:58 PM:

    I believe the resets were lower, not harming borrowers. FNMA and FHMC are lenders, they got hurt. The WSJ article is behind a firewall so I can't get the details. You'd would think FN and FR were ok because they get paid a spread to LiBoR. Must be on the hedge or offset. I'd guess but only a guess. More info tomorrow.

  • Nancy Cadet on December 19, 2012 7:36 PM:

    Regarding banks and criminal prosecutions in the US, I recommend Matt Taibbi's writing in Rolling Stone and on his blog, and also a great interview Taibbi did with Sam Seder today, the host of the Majority Report podcast at majority.fm.

    "Too big to fail" becomes instead "too big to jail."

  • KK on December 19, 2012 7:46 PM:

    Dopey me spoke to soon. I read about UBS lowering LIBOR during the financial crisis. Not surprisingly, sometimes they lowered it other times they raised it. So I'd think everyone has cause to beef, if not sue. If FN and FR sue, boy are these theives screwed. Wanna bet they get off with a negotiated settlement? My apologies to all for useless posts. Now back to my Knicks!

  • golack on December 19, 2012 8:25 PM:

    Now wasn't the value for those "collateral debt obligations" larger than the world's combined GDP? Any real changes yet?

    OK, the manipulations may be easier to prove in court...