Invisible Hands Unrestrained

“Mother” of All Bank Frauds Shocks and Awes Regulators, As LIBOR Victims Seek Justice

August 28, 2012   ·   0 Comments

William Jennings Bryan
William Jennings Bryan after the Cross of Gold Speech, 1896, and an editorial cartoon at the time

By Jeffrey R. McCord of The Investor Advocate
August 28, 2012

Many wonder why Federal regulatory precincts are so quiet several weeks following discovery that the London Interbank Offered Rate (LIBOR), a key interest rate determining charges to and earnings by American borrowers, lenders, pension funds, retirees and consumers had been rigged for years to benefit a handful of the world’s largest banks.  Experts estimate damages to the economy can be measured in multiples of trillions of dollars.

Predictably, a relatively minor fine of $450 million – chump change in Jamie Dimon’s world – was levied by US and British regulators upon Barclays Bank, the most obvious of several likely perps in history’s biggest bank heist.  Fortunately, the vigilant attorneys general of New York and Connecticut are issuing subpoenas to JPMorgan, Chase and Citigroup, among other banks too big to regulate federally.  And, private class action lawsuits charging violations of securities and anti-trust laws have been launched.

But, where are the expressions of horror and outrage, and other hot air emissions from the people’s elected representatives in Washington?  We look in vain for a William Jennings Bryan, the Nebraska Congressman and 1896 presidential candidate who shouted at bankers:  “You shall not crucify mankind on a cross of gold!”

Time to Order Golden Crosses?

Should middle-Americans use remaining credit on nearly maxed-out cards to buy life-sized gold-plated crosses at mall jewelry stores and report to their local mega-bank offices?  Will bank “relationship managers” provide the nails, or will we need to pay for those as well?

These are just a few of the questions that cannot be fully answered until after the election.  But, we can draw some conclusions from the statements of our presidential candidates and the views of well-informed observers.

Mitt Would Roll-back Regulations; President “Can’t get Too Involved”

First, let’s try on the Mitt.  Governor Romney has long said he would roll back the regulatory knuckle raps enacted in the Dodd-Frank financial reform law.  On the LIBOR fraud, he is apparently voting with his wallet. During his much publicized Olympic trip to London, Governor Romney met privately with bankers from Barclays and other financial behemoths, pocketing $2 million in campaign contributions for his time and this promise:  “I’d like to get rid of Dodd Frank and go back and look at [all financial] regulation piece by piece.” (The Nation, “Romney Promises Libor-Scandal Banksters He’ll Score for Them”)

With his Treasury Secretary accused of looking the other way years ago when as NY Fed Bank president he learned of LIBOR rigging, it is unlikely President Obama will call for “heads to roll.”  Indeed, in one comment made by the White House on what is now being called the “Crime of the Century” by at least one syndicated columnist, White House press secretary Carney admitted he hadn’t discussed LIBOR with the President, but assured reporters the Administration supports financial reform, adding:  “I don’t want to get too involved in Libor because I know it’s under investigation.” (Press Briefing by Press Secretary Jay Carney, 7/12/12)

What of the announced SEC and Department of Justice investigations?  Based on their record pursuing the mortgage-backed securities and derivatives swindlers, we can’t hope for much.  A Zachs financial analyst writes in a NASDAQ blog that a few more fines may be levied:

“Currently, we remain skeptical for JPMorgan and wait to see what the future beholds. If it is found guilty in this LIBOR scam, it is liable to be fined by authorities. Notably, in June, Barclays already faced a fine of $450 million by certain U.S. and U.K. authorities for rigging the rate.”(NASDAQ, “JPMorgan Under Scrutiny Over LIBOR“)

With recently revised and reported profits of $4.92 billion in just the first quarter of this year and with Cracker Jack PR and lobbying teams operating effectively, Jamie Dimon and his senior managers are likely sleeping soundly.  After all, if anyone gets jail time, it will be line traders or lowly underlings.

Hedge Fund Says Private Lawsuits Will Recover LIBOR Damages

No wonder James Rickards, a New York hedge fund manager, author and columnist, wrote in US News & World Report that recovery of the immense financial damages suffered in this “mother of all bank scandals” by US mortgage holders, investors, small financial institutions and so many others will not come through regulators. Although a few criminal prosecutions may be launched and more fines levied, justice will be achieved and damages recovered by private lawsuits prosecuted by class action attorneys on behalf of victims, Rickards suggests.

He even dares to give voice to what many on Main Street have been thinking since 2008:

“Of course, the insolvency of a major bank in the face of LIBOR rate rigging charges cannot be ruled out. In that case, good riddance. The big banks have perpetrated a crime wave longer than that of Bonnie and Clyde. If it has taken the law this long to catch up with them, it’s better late than never.”  (Economic Intelligence, “LIBOR Fraud May Be the Mother of All Bank Scandals”)

Lonely Federal Candidate Calls for Accountability

At least one federal candidate this year joins Rickards in demanding accountability for LIBOR fraudsters.  Elizabeth Warren, whose Massachusetts Senate campaign is not bank-rolled by financial services giants, says:

Real accountability would mean prosecuting the traders and bank officials who violated federal laws and prosecuting the executives who knew what they were up to. It would mean forcing executives to pay back any inflated compensation that was based on padded profits.”  (The Washington Post, “Libor fraud exposes Wall Street’s rotten core”)

Syndicated columnist and University of Southern California professor Robert Scheer seconds Ms. Warren’s call for justice. Unfortunately, he doesn’t see jail cells for LIBOR fraud masterminds:

 “Modern international bankers form a class of thieves the likes of which the world has never before seen. . .  The modern-day robber barons pillage with a destructive abandon totally unfettered by law or conscience and on a scale that is almost impossible to comprehend.”  (Truth Dig, “Crime of the Century”)

Federal Judge Calls Time-out for LIBOR Suits, But Invites More

That brings us back to lawsuits and private enforcement of securities laws.  Despite a decade or more of Congressional and Supreme Court efforts to reduce liability for those corporate and financial officers who design and perpetrate such complex crimes, investor and consumer lawsuits filed in federal and state courts can still recover damages and discipline robber barons with the only punishment they understand: taking away their money.

Small banks, municipalities, pension funds and other victims of the rigged LIBOR market are lining-up to do just that.  In response to the magnitude and intricacy of the alleged violations of securities and anti-trust laws, on August 6th  US District Judge Naomi Reice Buchwald in Manhattan placed a hold on new LIBOR lawsuits while she sorts out the complaints already filed. She did, however, encourage the filing of new complaints, as she explained to the Chicago Tribune:

“While parties are free to file new complaints—and, indeed, are encouraged by the court to do so if they do so promptly . . . I am imposing a stay on any action that is not the subject of a pending motion to dismiss. The stay will last until the current motions to dismiss are resolved.” (Bank Credit News, “District judge puts Libor lawsuits on hold to consider earlier related suits”)

Once again, hedge fund manager Rickards explained in layman’s terms what is likely to happen:

“Bank defendants in cases like this typically ask a judge to dismiss the case because the claims are too vague. However, the facts in this case have already been made plain by Barclays . . . Once the plaintiffs get past the motion to dismiss, they begin discovery, which gives the class action lawyers access to internal E-mails, tape recordings, depositions, and other books and records of the perpetrator banks. Based on small glimpses of the doings at Barclays, the communications of the other major bank LIBOR trading desks could be shocking.”

Banks May Be Held Accountable This Time

Once the undoubtedly “shocking” internal documents of the mega-banks come to light and the public learns the sordid details of the “crime of the century,” politicians may find standing idle a difficult posture.  Regulators and the Department of Justice may be handed the evidence to seriously prosecute the perpetrators (whether they want to or not).

If the private actions and discovery process are permitted to proceed, the mega-banks who have caused global economic mayhem of historic and biblical proportions may finally be brought to justice.  Middle-Americans may get their day in court.

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