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Did taxpayers lose in Libor scam?

By Polyana da Costa ·
Thursday, December 20, 2012
Posted: 5 pm ET

The latest loser in one of the largest banking scams in history appears to be U.S. taxpayers. Libor manipulation may have cost mortgage giants Fannie Mae and Freddie Mac up to $3 billion.

The estimate comes from an internal report sent by the inspector general for the Federal Housing Finance Agency to Edward DeMarco, the agency's acting director. The 14-page preliminary study, first reported Wednesday by The Wall Street Journal, says Fannie and Freddie should consider suing the banks that manipulated this key interest rate during the financial crisis.

Why should you care?

Fannie and Freddie have received more than $187 billion in taxpayer's money since they were bailed out during the financial crisis of 2008.

Housing and policy experts say they suspected the rate-rigging scandal had affected the entities, but this is the first estimate of how much Fannie and Freddie may have lost as a result of banks submitting false information to manipulate the Libor.

"I think the surprise is bigger than just cost to (Fannie and Freddie); it’s the whole outrageous Libor rigging scam -- the audacity and scope," says Janneke Ratcliffe, executive director for the Center for Community Capital at the University of North Carolina at Chapel Hill. "It just says so much about the reckless practices of the big financial institutions that got us into the great recession."

Libor -- the London Interbank Offered Rate -- is used as a benchmark for interest rates on more than $300 trillion in financial instruments, including about $10 trillion in loans to consumers and small banks.

Several banks are under investigation for submitting false information to manipulate the rate. Just this week, one of those banks, the Swiss UBS, admitted to fraud and agreed to pay $1.5 billion to settle the charges. Earlier this year, Barclay's was fined $451 million for attempts to manipulate the rate.

During the financial crisis, the banks manipulated the Libor downward to hide their financial troubles. As a result, Fannie and Freddie might have lost money due to artificially lower interest rates on floating-rate bonds and interest-rate swaps, the report says.

Will FHFA try to recoup the supposed losses?

Barry Zigas, director of housing policy for the Consumer Federation of America, says that if the report is accurate, FHFA should try to recover at least part of its losses. The agency has been aggressive in suing lenders to buy back mortgage that were not properly underwritten, he says.

But it's unclear if and when FHFA will act on the issue. On Wednesday, it posted a statement saying it "has not made any determination regarding legal action," and it has "not substantiated any particular Libor-related losses" for Fannie and Freddie.  The agency continues to evaluate the issues related to Libor, according to the statement.

FHFA could try to recoup its losses outside of the courts, says Dean Baker, co-director of the Center for Economic and Policy Research.

"Assuming that everything cited in the memo can be solidly supported, Barclay's will undoubtedly want to bargain," Baker says.  "There is no point in going to court when you know you will lose, especially when you will look awful in the process."

Follow me on Twitter @Polyanad.

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December 23, 2012 at 1:40 pm

It seems to me if the report says they scammed us. Its up to them to proof they did not. I know, I know innocent until proven guilty is the American judicial system.

mary Lukins
December 23, 2012 at 1:35 pm

Greed will be the downfall of all these money grabbers..
I agree all foreclosed homes should be taken back and given to those who have lost theirs or are about to, and make payments to the Government to get the taxpayer money back at least some of it.
It's a kick them while they are down attitude with most banks. and credit cards.. thank god I never fell for the buy now pay later..I pray that someone will wake up to all the graft that goes on in our country what happened to....
( ask not what your country can do for you ,
ask what you can do for your country..

(This should be posted in all Banks here in America)

December 23, 2012 at 12:54 pm

Let's remember, this started with Bill 'Slick Willy' Clinton!

Roger Clark
December 23, 2012 at 12:46 pm

If the US government had never gotten into the banking business this scandal would have no direct impact on the US taxpayer. The federal government should exit the banking business immediately to eliminate taxpayer exposure in the future!

December 23, 2012 at 12:39 pm

general motors paid back most of what it barrowed and these banking giants are only interested in giving each other big bonuses and not paying even the interest on what they owe . when they get done raping america we the people will pay for it.

robert reed
December 23, 2012 at 12:38 pm

Once again the little guy's lose. All we have to do is BOYCOT the MF's. But most people are too SCARed to do any of that, thinking they will lose more... LEMMINGS, LEMMINGS ALL OF YOU THAT BANK WITH THE BIG BANKS. Go CREDIT UNION....

1of We The People
December 23, 2012 at 12:33 pm

I think all of the foreclosed houses should be taken away from these banks. Put all the names of the people who have lost their homes due to the tricks played by the banks and have a lottery and give them back for a very low price so they can begin over. Give Americans a chance to gain the American Dream off the backs of the hacks.

William H.Arnold sr
December 23, 2012 at 12:26 pm


December 23, 2012 at 12:19 pm

Just another footnote of the greed going on with the banking clan.
I suspect there will be an agreement out of court.

Hopefully the President and Congress can get the "Responsible Homeowners Act" rolling next year.
Pretty sad when we the responsible homeowners, who never missed a payment, been in our houses for almost 20 years can't get a simple streamline to a lower rate because we can't qualify due to uncertain past financial difficulties, and jump through all the hoops and land mines these crooks lay out for us.

It disgusts me.

Jon lee
December 23, 2012 at 12:10 pm

Well, If some law was broken then there should be an arrest, fines and or JAIL. Till then it's "BUSINESS AS USUAL".