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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 8:54 pm

OMG. Obama was raised as a Muslim went to Muslim schools says he is a Muslim when he speaks to Muslims and clearly is a CINO. second Obama has used executive privilege to circumvent congress and the constitution to bankrupt this country. Are you blind to what is happening? Do you not understand what the $16t debt means!? My god people. Wake the FK up !

Citizens of America
December 23, 2012 at 8:32 pm

Obama pushed the 50 states attorney generals to all accept the recent settlement in which the banks agreed to pay the federal government who would in turn share some of that settlement money with the states ... in essence Obama was stopping the criminal justice system from prosecuting those banks for fraud ... so at the end of the day, Obama feels it's OK for those criminal acts to go un-punished and for those banks to continue foreclosing on citizens regardless of their fraudulant documents ... since when does a criminal activity get to continue as long as they pay the government a share of the stolen money ?? Are there now two different criminal justice systems? One for the rich and their banks , and one for the common citizens of America ? Obama put a stop to those states attorney generals prosecuting those banks for the frauds they committed... their criminal enterprise was protected by Obama's personal intervention .. it's a travisty. And now those same criminal banks who broke the laws of the land will continue taking the homes of our citizens even though they have no legal standing to do so , they broke the law and they should have had to pay the price for their criminal conduct. All of the politicians are guilty , but Obama is thge latest one to let the criminal banks off the hook, while he watches his own citizens who were victimized by these criminals, lose their homes ... the attorney generals were going to prove the banks committed fraud and had no right to foreclose.

December 23, 2012 at 8:25 pm thinks thou doest protest too much! As a retired Navy Chief I can tell you, from experience, leadership is supposed to start at the top! However in the case of Obama, there isn't any! As far as him being a muslim maybe you should do your homework on his background. He was adopted by Lolo Soetero, an Indonesian muslim and was raised as such. It's no secret. Sure he's tried to pass himself off as a Christian, however, the minister of the church he attended in Chicago is far from Christian. There is a passage of scripture that states "even Satan disguises himself as an angel of light". Obama is supposed to be over all these government organizations and, just like the Commanding Officer whose ship runs aground while the young Ensign has to Con, on the bridge, the CO is still responsible, ultimately. I suppose, you, being a civilian wouldn't understand that analogy. Let it suffice to say he is responsible for everything that happens on his watch.

December 23, 2012 at 8:21 pm

If anyone cares to check the voting records and committee members in charge when "The Community Reinvestment Act" was passed, or when the Financial Services Committee, headed by none other than US Rep. Barney Frank (D-MA), and my former Rep, unfortunately, they'd see that yes, the DEMOCRATS were in charge and CONTROL and said "we don't need no stinkin' regulations" -- it's all on You Tube, the actual hearings! Shame on the GOP though for not pushing harder to get REGULATION of Fannie and Freddie. The Community Reinvestment Act is a joke. It basically bullied, literally bullied bankers and lenders; the radical "community organizers" threatened bankers at their homes, picketing them, and harassing them, until our wimpy politicians in both parties and the banks caved in to their demands to give loans to those who would not "traditionally" qualify on the ability to repay a loan. This was all a house of cards and was destined to crash. I worked for bankers and remember the years where if you didn't have 15-20% down payment for a house, you didn't get a loan. Sorry, but we need to get back to those days. No skin in the game, guess what -- when the going gets tough, people walk away and those who are responsible to get to "pay" either literally or in terms of declining property values. STOP VOTING FOR DEMOCRATS!!!!! VOTE OUT ALL RINO'S -- REPUBLICANS IN NAME ONLY! WE NEED GOOD CONSERVATIVES WITH COMMON SENSE AND BACKBONE ELECTED TO OFFICE! WILL THIS COUNTRY AND MANY OF ITS VOTERS EVER LEARN?!?
p" te0 0 . W1-15vae

December 23, 2012 at 7:57 pm

@Rusty - How exactly is this Obama's fault? Did you even read the story? It's about greedy banks submitting false information to manipulate interest rates for their own profit, which resulted in Fannie and Freddy (and a lot of other people) losing money. That has nothing to do with Obama. It was a bunch of arrogant, corporate bankers (who I'm sure are all Republicans), so blame them for a change.

I don't care if you like Obama or not, but please stop being a complete ignoramus and just automatically blaming him for everything, even when he has nothing to do with it. I hated Bush, but I never blamed the guy for things that he had nothing to do with.

And please get over the muslim thing, it's idiotic. For the last time, the man is not a freaking mulsim. Geez, how clueless are you people.

sandra stevens-miller
December 23, 2012 at 7:33 pm

Please refer to paragrapshs just written on cloud reporting, wired to you directly, so that you don't fall out of the loop of being kept informed.

December 23, 2012 at 6:18 pm

Hay, watch it. I'm a Democrat, and that is how we earn our money. Keep the government out of it, it's too big anyway. I haven't even got my Lear Jet payed for, so give me a break.

rusty johnson
December 23, 2012 at 5:52 pm

Another fine job by our Muslim president Brock Obama!!!!!!!!

December 23, 2012 at 5:23 pm

I read the other day that the Gov was selling off it's last holdings in AIG for a supposed profit, and will be selling off their remaining 32% in GM with a fairly small loss. The GM loan was not for profit but for rescue, AIG was for potential profit. If you really want to get angry, look into the HSBC deal. Caught red handed helping launder money for the two largest drug cartels in Mexico and Columbia plus terrorist linked groups for several years and all they got was a "record fine" and made to promise not to do it again. The Gov also in their divine wisdom exempted the executives with a written guarantee of no prosecutions. So basically you or I can go to jail and have our lives thrown into disarray for having a small amount of marijuana, but these guys get off by paying their way out. Our Dept. of Justice is a joke.

December 23, 2012 at 5:19 pm

Hay, watch it. I'm a Republican, and that is how we earn our money. Keep the government out of it, it's too big anyway. I haven't even got my Lear Jet payed for, so give me a break.