Wall Street's Biggest Heist Yet? How the High Wizards of Finance Gutted Our Schools and Cities
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Wall Street banks have hollowed out our communities with fraudulently sold mortgages and illegal foreclosures and settled the crimes for pennies on the dollar. They’ve set back property records to the early 1900s, skipping the recording of deeds in county registry offices and using their own front called MERS. They lobbied to kill fixed pension plans and then shaved a decade of growth off our 401(K)s with exorbitant fees, rigged research and trading for the house.
When much of Wall Street collapsed in 2008 as a direct result of their corrupt business model, their pals in Washington used the public purse to resuscitate the same corrupt financial model – allowing even greater depositor concentration at JPMorgan and Bank of America through acquisitions of crippled firms.
And now, Wall Street may get away with the biggest heist of the public purse in the history of the world. You know it’s an unprecedented crime when the conservative Economist magazine sums up the situation with a one word headline: “Banksters.”
It has been widely reported that Libor, the interest rate benchmark that was rigged by a banking cartel, impacted $10 trillion in consumer loans. Libor stands for London Interbank Offered Rate and is supposed to be a reliable reflection of the rate at which banks are lending to each other. Based on the average of that rate, after highs and lows are discarded, the Libor index is used as a key index for setting loan rates around the world, including adjustable rate mortgages, credit card payments and student loans here in the U.S.
But what’s missing from the debate are the most diabolical parts of the scam: how a rigged Libor rate was used to defraud municipalities across America, inflate bank stock prices, and potentially rig futures markets around the world. All while the top U.S. bank regulator dealt with the problem by fiddling with a memo to the Bank of England.
Libor is also one of the leading interest rate benchmarks used to create payment terms on interest rate swaps. Wall Street has convinced Congress that it needs those derivatives to hedge its balance sheet. But look at these statistics. According to the Office of the Comptroller of the Currency, as of March 31, 2012, U.S. banks held $183.7 trillion in interest rate contracts but just four firms represent 93% of total derivative holdings: JPMorgan Chase, Citibank, Bank of America and Goldman Sachs.
As of March 31, 2012, there were 7,307 FDIC insured banks in the U.S. according to the FDIC. All of those banks, including the four above, have a total of $13.4 trillion in assets. Why would four banks need to hedge to the tune of 13 times all assets held in all 7,307 banks in the U.S.?
The answer is that most swaps are not being used as a hedge. They are being used as a money-making racket for Wall Street.
The Libor rate was used to manipulate, not just tens of trillions of consumer loans, but hundreds of trillions in interest rate contracts (swaps) with municipalities across America and around the globe. (Milan prosecutors have charged JPMorgan, Deutsche Bank, UBS and Depfa Bank with derivatives fraud and earning $128 million in hidden fees.)
Rigging Libor also inflated the value of the trash that Wall Street was parking in 2008 and 2009 at the Federal Reserve Bank of New York to extract trillions in cash at near zero interest-rate loans from the public purse. When rates rise, bond prices decline. When rates decline, bond prices rise. The Federal Reserve made loans to Wall Street based on a percentage of the face value of their bonds and mortgage backed securities that they presented for collateral. By pushing down interest rates, the banks were getting a lift out of their collateral, allowing them to borrow more.