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Matt Taibbi Dishes on the "Biggest Insider Trading You Could Ever Imagine"

Sixteen international banks are accused of rigging a key global interest rate used in contracts worth trillions of dollars.
 
 
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JUAN GONZÁLEZ: We end today’s show with Matt Taibbi. He’s a contributing editor for  Rolling Stone magazine. His most recent in-depth  piece is "The Scam Wall Street Learned from the Mafia: How America’s Biggest Banks Took Part in a Nationwide Bid-Rigging Conspiracy—Until They Were Caught on Tape."

Matt Taibbi has also been closely following the Libor scandal. Sixteen international banks are accused of rigging a key global interest rate used in contracts worth trillions of dollars. The London Interbank Offered Rate, known as Libor, is the average interest rate at which banks can borrow from each other. Some analysts say it defines the cost of money. The benchmark rate sets the borrowing costs of everything from mortgages to student loans to credit card accounts.

AMY GOODMAN: Matt Taibbi is with us here in New York. His latest book is called  Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History.

Matt, welcome to  Democracy Now!

MATT TAIBBI: Good morning.

AMY GOODMAN: Explain Libor.

MATT TAIBBI: Libor is basically the rate at which banks borrow from each other. It’s a benchmark that sets—that a lot of international investment products are pegged to. When Libor is low, that means that the banks feel confident in each other; and when Libor is high, that means there is generally instability. And what we’ve been dealing with in this scandal are really two different types of manipulation: one in which the banks manipulated Libor downward so as to create the appearance of good health generally, and then, more specifically, a much more insidious kind of corruption where they were manipulating it both up and down in order to capitalize on particular trades, depending on what the banks were holding that day. So this is an explosive, gigantic financial scandal.

JUAN GONZÁLEZ: But, Matt, you know, I was listening to Lawrence Kudlow a couple of nights ago on  CNBC, the guru of business journalism, and he claims this is a victimless crime, that this has been blown up out of proportion by the rest of the media and by some of the government regulators.

MATT TAIBBI: I mean, it’s—I can’t imagine how he could possibly—a sane person could possibly describe this as a victimless crime. Basically, every city and town in America, to say nothing of the rest of the world, has investments that are pegged to Libor. Most of them are holding investment accounts that actually will decrease in value as Libor goes down. So, you’re talking—

JUAN GONZÁLEZ: Well, I think that’s what most people don’t understand, that they say, well, if the interest rate goes down—

MATT TAIBBI: Right.

JUAN GONZÁLEZ: —that means you’re paying less. But they don’t understand the interest swaps that have occurred with many of these governments.

MATT TAIBBI: Right, most individuals think of it in terms of their own mortgages or their own credit cards. And it’s true, most of those people probably benefited when they were manipulating Libor down. But now, remember, they also manipulated it upwards at times. But when it was downward, those individuals did benefit. But on the whole, overall, ordinary people actually suffered when Libor was manipulated downward, mainly because local governments, municipal governments tended to lose money. So if you live in a town that had a budget crisis, that had to lay off firemen or teachers or policemen, or couldn’t provide services or textbooks in their schools, you know, that might be due to this. And remember, even the tiniest manipulation downward, when you’re talking about a thing of this scale, would result in tens of trillions of dollars of losses. So it’s an enormous scandal. It eclipses anything we’ve seen since 2008.

 
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