Interest Rate Rigging By Big Banks May Have Cost U.S. Taxpayers Billions Of Dollars

UBS and Barclays have both been fined more than $1 billion by regulators for manipulating the LIBOR interest rate, a key global benchmark. UBS bankers were caught in emails bragging about the “fu*king humongous deals” they were arranging by gaming LIBOR.

LIBOR rigging could have affected Americans of all stripes, sucking funds from the cities they live in and hurting the pension funds that hold their retirement savings. And as the Wall Street Journal reported, American taxpayers may lose up to $3 billion due to LIBOR rate rigging:

Fannie Mae and Freddie Mac may have lost more than $3 billion as a result of banks’ alleged manipulation of a key interest rate, according to an internal report by a federal watchdog sent to the mortgage companies’ regulator and reviewed by The Wall Street Journal.

The unpublished report urges Fannie and Freddie to consider suing the banks involved in setting the London interbank offered rate, which would add to the mounting legal headaches financial firms such as UBS and Barclays face from cities, insurers, investors and lenders over claims tied to the benchmark rate. […]

Analysts from the inspector general’s office said in the internal report, dated Oct. 26, that Fannie and Freddie likely lost more than $3 billion on their holdings of more than $1 trillion in mortgage-linked securities, interest-rate swaps, floating-rate bonds and other assets tied to Libor from September 2008 through the second quarter of 2010, which the report says was the height of banks’ alleged false reporting of the interest rate.

As Reuters’ Alison Frankel wrote, “The drive for profits in people like the UBS traders and their brokerage conspirators, as described in the FSA filing, is obviously more powerful than any qualms about morality or fear of being found out. That’s why moaning about Dodd-Frank whistle-blowers or duplicative actions against the banks rings hollow.” Federal regulators, including Treasury Secretary Tim Geithner (then president of the Federal Reserve Bank of New York), reportedly knew about LIBOR rate rigging as far back as 2008.