BANK FRAUD: The Big Losers in the Libor Rate Manipulation

Tuesday, July 3, 2012
By Paul Martin

Local Governments Which Entered Into Interest Rate Swaps Got Scalped

by Washington’s Blog
Global Research
July 3, 2012

Local Governments Which Entered Into Interest Rate Swaps Got Scalped

We know that the big banks conspired to manipulate Libor rates, with the approval of government authorities.

We know that the Libor manipulation effected the world’s largest market – interest rate derivatives.

But who are the biggest victims?

Sometimes the big banks manipulated the Libor rates up, and sometimes down. Different groups of people got hurt depending which way the rates were gamed.

Bloomberg’s Darrell Preston explained last year how cities and other local governments got scalped when rates were manipulated downward:

In the U.S., municipal borrowers used swaps to guard against the risk of higher interest costs on variable-rate debt by exchanging payments with another entity and tying how much they pay to an underlying value such as an index. The agreements can backfire if rates move in unexpected directions, resulting in issuers making larger payments.The derivatives were often designed to offset the risks of increases in the short-term rates tied to auction-rate securities, fixing borrowers’ costs by trading their debt- service payments with another party. Instead, rates dropped.

The yield on two-year Treasury notes fell from about 5.1 percent in June 2007 to a record 0.14 percent on Sept. 20. On Oct. 6, the U.S. Treasury sold $10 billion of five-day cash- management bills at 0 percent.

The Rest…HERE

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