LIBOR Crime-Spree Blows Doors Open for Glass-Steagall
July 11, 2012 • 8:07AM

The scandal of bottomless bankster criminality evidenced in the LIBOR rate-setting has now "jumped the pond" and is hitting U.S. institutions directly, specifically the New York Fed, which at that time under investigation was under Obama's Treasury Secretary Tim Geithner.

At the same time, the protection has been lifted from Wall Street in the press, where the truth about Wall Street's criminality is finally being aired, reviving memories of the Pecora Commission of the Roosevelt era. In The Nation, dated July 6, Robert Scheer, author of The Great American Stick-Up, calls LIBOR "The Crime of the Century." Sheer's opening salvo is enough to wake up any Congressman: "Forget Bernie Madoff and Enron's Ken Lay — they were mere amateurs in financial crime. The current Libor interest rate scandal, involving hundreds of trillions in international derivatives trade, shows how the really big boys play. And these guys will most likely not do the time because their kind rewrites the law before committing the crime."

Another blow is an outrageous (in the best sense) episode of Eliot Spitzer's CNN "Viewpoint" television show, done July 4, on which he interviewed financial bloodhound Matt Taibbi and "white shoe" legal investigator Dennis Kelleher. Making the point that this goes back to the bank de-regulation in the 1980s, Kelleher states that, since then, corruption "has become the business model," and Wall Street has reached the point where it is now "rotten to its core." Taibbi's point was that this is a cartel, that one bank couldn't influence the rate — of the 16 banks which set the rate, the BBA throws out the top four and bottom four numbers — to which Kelleher added "Libor means 'lie more.'"

Headlines across the country this morning are filled with more revelations — ultimately coming from Barclays documents released last Tuesday, July 3 — that the New York Federal Reserve was communicating directly with Barclays as early as 2007. Forced to respond to these revelations, the Fed said in a statement that they "received anecdotal reports from Barclays of problems with Libor" in the wake of the market crash in 2007," and that this dialogue continued until after the collapse of Bear Stearns in March of 2008. Indicating that there was more than simple "exchange of information" going on here, the Fed admitted that "[w]e subsequently shared our analysis and suggestions for reform of Libor with the relevant authorities in the U.K."

Based on these reports, Congress was forced to at least begin to (re)act. The House Financial Services Subcommittee on Oversight and Investigations has sent notification to the Fed, seeking transcripts of specific phone calls between Barclays and the Fed during that interval. In the letter, Subcommittee chair Randy Neugebauer (R-TX) said that he was concerned about, "12 contacts between Barclays and the Federal Reserve of New York related to its Libor submissions." Today, Senate Banking Committee chair Tim Johnson (D-SD) indicated that Ben Bernanke and Tim Geithner "should be prepared" to testify on this topic, and his staff is now preparing briefings for members. The Baltimore Sun reveals that Geithner even had a meeting scheduled for April 28, with a note "Fixing LIBOR" in his calendar. "At least eight senior staffers" were invited to attend, according to the Sun.

By any estimation, these hearings alone could be very contentious, although a lot more will happen before they even begin. With just a single e-mail's contents exposed thus far, the "temperature" could get very warm, indeed. A 2006 e-mail from a trader to a LIBOR rate-setter just revealed by the Baltimore Sun, says, "For Monday we are very long 3m [three-month—ed.] cash here in NY and would like the setting to be set as low as possible." Shades of Enron, anyone?