From The Ramparts
Junious Ricardo Stanton
International Bankers Are the Blame For the US Financial Implosion
“The latest stage in the bankruptcy hearings has highlighted the role of the banks in wrecking municipal and family finances across the country. Detroit had one of the highest percentages of subprime loans—many from Countrywide, which was taken over by Bank of America in 2007—and an estimated 69,000 home foreclosures that have left entire neighborhoods abandoned and boarded up. This disaster was the outcome of predatory lending schemes—using variable interest rates—similar to those entered into by the city in 2005.” Emergency manager acknowledges bank deals pushed on Detroit were likely illegal. By Thomas Gaist http://rinf.com/alt-news/breaking-news/emergency-manager-acknowledges-bank-deals-pushed-on-detroit-were-likely-illegal/
The big story in Detroit’s bankruptcy hearings is the deals the city entered into with the major “Too Big to Fail” banks (loan sharking cartels) were probably illegal and the SEC failed to respond to city inquiries about their legality. In testimony during the bankruptcy hearing in Detroit the state appointed Emergency Manager Kevyn Orr testified he had serious misgivings about paying UBS and Bank America the money the city owed them. Take a few minutes to read his reasons in an article at http://rinf.com/alt-news/breaking-news/emergency-manager-acknowledges-bank-deals-pushed-on-detroit-were-likely-illegal/. It will open your eyes to the vastness of the corruption and fraud and how endemic it is within the system.
I have been saying for years the financial and economic implosions we are experiencing are not the result of “free market” cycles but of massive fraud, malfeasance and criminal collusion among big banks, local, state, the federal government and the corporate media (who treat us like mushrooms, keep us in the dark and feed us cow manure). In his testimony Orr mentioned five key reasons he felt the banks engaged in illegal dealings with the city. You can see them at http://rinf.com/alt-news/breaking-news/emergency-manager-acknowledges-bank-deals-pushed-on-detroit-were-likely-illegal/
Keep in mind Orr was testifying under oath and his former law firm Jones Day was making big money in billable hours on Detroit’s financial crisis. This is on top of the hundreds of millions banks like Bank of America, JPMorgan Chase, USB, Merrill Lynch made off of interest rate swaps (an agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate [most often the LIBOR]. A company will typically use interest rate swaps to limit or manage exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without the swap. http://www.investopedia.com/terms/i/interestrateswap.asp), loans and bond underwriting fees.
It was discovered in 2012 the international “too big to fail” banks were rigging the London Inter-Bank Offer Rate (LIBOR) and in true Klepocracy form when they got caught they only received a slap on the wrist. This is one of the reasons Orr said the Detroit deals with the banks were illegal.
What is LIBOR and why is it so important not only to cities like Detroit and Philadelphia but for everyday folks like you and me? About.com puts it this way, “In 2012, Barclays' bank was accused of falsely reporting lower rates than they were actually being offered during the period 2005-2009. As a result, Barclays' was fined $450 million, and its CEO Bob Diamond resigned. However, Mr. Diamond said that most other banks were doing the same thing, and that the Bank of England knew about it.
Why would Barclays', or any bank, lie about its LIBOR rate? It could make higher profits, because a low LIBOR rate is seen as a mark that the bank is more sound than one with a higher LIBOR rate. Since Barclays' submitted a lower rate, you could benefit, too. A lower LIBOR rate translates to a lower interest rate on many adjustable-rate loans.(Source: Business Live, Barclays' Defense on LIBOR Fixing, July 4, 2012) In addition to setting rates for interbank loans, LIBOR is also used to guide banks in setting rates for adjustable-rate loans, including interest-only mortgages and credit card debt. Lenders typically add a point or two to create a profit. The BBA estimates that $10 trillion in loans are affected by the LIBOR rate. LIBOR is also the rate used to base the price for credit default swaps. These are a form of insurance against the default of loans. They helped caused the financial crisis of 2008 by lulling banks and hedge funds into thinking there was no risk to the mortgage-backed securities these swaps insured. However, when the subprime mortgages that were behind these derivatives began to default, insurance companies like AIG didn't have enough cash on hand to pay off all the swaps. The Federal Reservehad to bail out AIG to keep all those who held swaps from going bankrupt. Even today, LIBOR is the basis for $350 trillion of credit default swaps… A higher LIBOR rate is like a fear tax. At the time, the LIBOR rate affected $360 trillion worth of financial products. As LIBOR rose to a full point above the Fed funds rate, it was like an additional $3.6 trillion in interest that was being charged to borrowers, but contributing nothing in return. Investors were afraid this ‘fear tax’ would slow economic growth -- which is exactly what it did. Not until the$700 billion bailout helped reassure banks did LIBOR return to normal levels.” http://useconomy.about.com/od/glossary/g/LIBOR.htm
The fraud was not only in Barclay’s; all the “too big to fail” banks were doing it! This impacted the whole global financial capital/lending/borrowing system, Detroit included. In effect the LIBOR rigged interest rates around the world. Interest rates are the life blood of the banking system just like with street level loan sharking. But in this case the whole system was rigged! This impacted ordinary folks because “If you have an adjustable-rate loan, your rate will reset based on the LIBOR rate. As a result, if LIBOR rises, so will your monthly payments. The same will happen to your outstanding monthly credit card debt. Even if you have a fixed-rate loan and pay off your credit cards each month, a rising LIBOR will make all types of consumer and business loans more expensive. This reduced liquidity will cut back on consumer demand, slowing economic growth. Businesses that can't expand won't need to hire. As demand falls, they may even need to lay off workers. If LIBOR remains high, then it could create a recession and resultant high unemployment. ” http://useconomy.about.com/od/glossary/g/LIBOR.htm. Also the taxpayers are on the hook for the bailouts to the TBTF banks, GM and other entities.
The Bush and Obama administrations were in cahoots with the banksters which is why no one went to jail and at worst they paid a few million dollars in fines (out of the trillions they made off rigging LIBOR) and the beat goes on. The problem is ordinary people are suffering because of their criminality like the millions who lost their homes or whose mortgages are more then the houses are now worth and the workers and pensioners in Detroit who will get messed over big time. During the bankruptcy the banks may get 75 cents on the dollar while the pensioners will only get 10 cents on the dollar to cover their pension fund obligations. This means cuts in pension benefits, possible default on pensioners if the plans go belly up for lack of funds!
Detroit is not alone; this is a national and global game plan as the banksters plot and scheme to steal our pensions and retirement funds (which are already severely underfunded) as well as gut the pension plans of municipalities, counties and states caught in their web of debt, fraud and mismanagement. Keep in mind it was the bankers, consultants and think tanks that influenced and induced politicians to go along with their schemes not to adequately fund the pension obligations and to get deeper into debt using exotic interest swaps and loans based on a rigged LIBOR to fund projects and cover budget shortfalls. Either way the banksters win! The bankers, agents and attorneys make millions off the processing fees for these loans and bonds but it’s the taxpayers who are on the hook to repay the money or take the hit when the bottom falls out.
I’m not trying to be a Chicken Little or a prophet of doom and gloom, we need to know the real causes of the crisis (as opposed to the corporate media fairytales) who the culprits are and be aware of their game plan. Let’s hope the people of Detroit and the unions get a smidgen of justice in the courts and the banksters don’t steal everything out from under them.