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Did taxpayers lose in Libor scam?

By Polyana da Costa · Bankrate.com
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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38 Comments
WILLIAM
December 23, 2012 at 5:15 pm

I BELIEVE THE GOVERMENT IS TAKING THE AMERICAN PEOPLE TO THE CLEANERS.ALSO ALL THE MORTGAGE COMPANYS ARE RIP OFFS,THEY DONT CARE ABOUT THE PEOPLE ALL THEY WANT IS YOUR MONEY.WITH OUT THE PEOPLE THE GOVERMENT AND MORTGAGE COMPANYS WOULD HAVE NOTHING.ITS TIME FOR ALL TO EVALUATE THE ISSUES THAT FACE US NOW.

judy
December 23, 2012 at 5:08 pm

call in the nra to save us poor souls!!!!!!!!!!!!!!!!!!

Nancy
December 23, 2012 at 4:14 pm

How these Criminals have been allowed to profit and carry on, is so beyond the imagination. Sick, and sad. If it hasn't happened by now.....it won't. Grotesque!

Nan
December 23, 2012 at 4:11 pm

There is a entiny/concience behind the organization ‘ponsie scheme’?_do they call it? Who are the thieves, culprits’ w/this all… huh? Talk about naming names someone had a grand idea on a grand scale on that issue. So, what do you all want us to say & why? I think that is a better question b/c as if they care! Why should we all sit back & be bitter, angry when nothing will be done about it. Let the Gov pay it back w/our money instead of the freaking worthless regrets & the public will forget & pay anyways! Separate banks from state/Gov? That will work for us! Religion & state did it & it worked out did it not? We need a trusted peacekeeping force of a few trusted. The purpose is to give people back to themselves – and so, to change the world.
” Simple. Eliminate money, or at the very least, eliminate its invisibility. If everyone knew everything about everybody’s money situation . . . there would be fairness and equity. Nothing breeds appropriate behavior faster than exposure to light of public scrutiny. I dare them to throw out all our money, all our papers and coins and individual national currencies, and start over. Develop an international monetary system that is wide open, totally visible, immediately traceable, completely accountable. Establish a compensation System establish what some have called a one- trusted established government, with a world court to settle disputes and a world peacekeeping force. People have the right to basic survival. Even if they do nothing. Even if they contribute nothing. All would be given minimal survival portions. Those who have more would be given an opportunity to contribute 10 percent of the earnings. Just as there would be lower limits on income, so would there be upper limits. First, nearly everyone will tithe 10 percent of their income to the world government. I am saying that the struggle between the “haves” and the “have-nots” has been gong on forever and is epidemic on our planet.It will not resolve with what we have in the house now, that's one thing that we are sure of~

Richard
December 23, 2012 at 3:35 pm

Where's a cop when you need him !!!!

Richard Bundy
December 23, 2012 at 3:04 pm

This is another fraud case that will be ignored and the taxpayer will suffer.
Again we are at the mercy of a bunch of fools in our government.
In some cases they ( government ) are padding their own bank accounts at the expense of taxpayers. Our own government is a big fraud.

David
December 23, 2012 at 2:50 pm

Why do you have a picture of a Fannie Mac sign, instead of a picture showing a definition of Libor, or a montage image of collection of the bank signs that represent the banks that have already been found guilty and/or settled for billions? Nice bias.

Dusty -
"Technically, under the terms of the bailout, GM has in fact paid back its obligation to taxpayers. Its payments were a mix of cash and GM stock, which is exactly what was called for in the agreement." - Dailyfinance.com

However, I'm assuming you're referring to this:
"GM: repaid $23.1 billion of the $49.5 billion it got from the U.S. Treasury, including all of its outstanding loans. But Treasury still owns 500 million shares, or 32%, of GM stock. To recoup its full investment, GM stock needs to hit $52.80 per share." - Forbes

Dusty
December 23, 2012 at 2:34 pm

Larry... GM paid back most of what they borrowed?
Really?

george Pears
December 23, 2012 at 1:51 pm

Why we let the government in our lives,....they cant balance their budget and we let them mess our homes and lives....

Ed
December 23, 2012 at 1:41 pm

No, it didn't. LIBOR rigging started on a grand scale in 2007, nearly a decade after Clinton left office.