Business

Rick Scott: How Much Is 'Libor' Scandal Impacting Florida?

By: Jim Turner | Posted: July 18, 2012 3:55 AM
Timothy Geithner, Rick Scott and Ben Bernanke

Treasury Secretary Timothy Geithner, Gov. Rick Scott and Federal Reserve Chairman Ben Bernanke

Gov. Rick Scott wants Florida’s congressional delegation to dig deeper into a growing scandal involving the manipulation of important benchmark interest rates, which he says could reach beyond Barclays Capital and impact Florida businesses and residents.

He also wants the U.S. representatives and senators to address allegations that the Federal Reserve Bank of New York in 2008, when under the direction of President Obama’s Treasury Secretary Timothy Geithner, may have been advised of problems with the reporting of the London interbank offered rate “Libor.”

“Based on what has been reported already, these inappropriate banking practices have cost hard-working Floridians money,” Scott wrote to Florida’s congressional members on Tuesday.

“As investigations into other institutions proceed, the question that must be answered is, 'How much money has this cost Florida families?’”
Barclays has agreed to pay $453 million, admitting it lied in its Libor submissions regarding borrowing costs.

Florida Attorney General Pam Bondi is among a handful of state attorneys general already trying to determine if they have jurisdiction over banks found manipulating lending benchmarks following British-based Barclays settlement with both U.S. and U.K. authorities.

According to Reuters, “A spokesman for Florida Attorney General Pam Bondi said his office is aware of the recent settlement reached by British bank Barclays with U.S. and U.K. authorities and ‘will look at the case to the extent that our office might have any jurisdiction in the matter.’”

Federal Reserve Chairman Ben Bernanke on Tuesday defended U.S. regulators before the Senate Banking Committee, saying he couldn’t guarantee that Libor rates are accurate even today because few of the reforms proposed by U.S. regulators in 2008 were accepted by the British Banking Association, according to Fox Business News.

“Bernanke explained during his testimony that regulators in 2008 were only aware that some banks may have been low-balling their borrowing costs when reporting to Libor in order to maintain an appearance of fiscal health,” Fox Business News reported.

“At the time, if a bank's borrowing costs were rising it meant lenders were worried about that bank’s ability to repay the loan -- information that could have spooked markets and led to a Bear Stearns-like run on banks seen as unhealthy.”

Bernanke is scheduled to appear before the House Financial Services Committee on Wednesday.

“As congressional hearings continue,” Scott wrote, “I would sincerely appreciate your consideration and investigation of the potential impacts of Libor manipulation on our residents as well as a careful review to ensure the federal government acted to sufficiently protect the cost of living, retirement and investments of Floridians.”

The LIbor scandal is "so big I don't think people have got their minds around it," says Jim Rickards, a partner at JAC Capital Advisors, a New York-based hedge fund. "This is the largest financial scandal I've seen in my career."

If $500 trillion of swaps are based on Libor and the rate was manipulated by 10 basis points over five years, that's $2.5 trillion of fraudulent transactions -- more than the combined capital of the nation's five largest banks, Rickards explains. "Congress may have to step in to limit the damages because it would threaten the banking system."





Reach Jim Turner at jturner@sunshinestatenews.com or at (772) 215-9889.



Comments (2)

vey9
12:29PM JUL 18TH 2012
This is a huge scandal. It touches everybody, if not directly, indirectly.

What does it matter? The too big to fail banks will just come back and bite us if anything is done about it. Sue them too much and they will just threaten to go bankrupt and kill the worldwide economy.

Deregulation built the doomsday device.
Frank
7:03AM JUL 18TH 2012
Perhaps Rick Scott may want to look at where all that Barclays and other Libor raised bank money may be going: playing a role in the financing of the Romney campaign, especially into his Super-Pac.

It's gotten so bad that British Labour MP Jim Cunningham of Coventry South is already calling "on Barclays and its executives to cease fundraising for political candidates immediately [Mitt Romney] and to concentrate entirely on repairing confidence and trust in the banking system instead".

Romney apparently brought in more than $22 million from the financial sector by the end of May, with six of the banks under investigation in the Libor rate-rigging scandal -- JPMorgan, Citigroup, Credit Suisse, UBS, Bank of America and Barclays -- ranking among Romney's top 20 donors.

Meanwhile, Romney seeks more deregulation of financial institutions. Makes one wonder why?

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