LI(E)BOR-Gate Crosses Ocean, Blows Up Real Big..

US Attorneys General Jump On The Lieborgate Bandwagon; 900,000+ Lawsuits To Follow, And What Happens Next?  What does happen next, Zero Hedge?

The second Barclays announced its $450 million Libor settlement, it was all over - the lawyers smelled not only blood, but what may be the biggest plaintiff feeding frenzy of all time. Which is why it was only a matter of time: "State attorneys general are jumping into the widening scandal over whether banks tried to manipulate benchmark international lending rates, a move that could open a new front against the top global banks. A handful of state attorneys general said they are looking into whether they have jurisdiction over the banks, and are starting preliminary discussions to determine what kind of impact the conduct involving the Libor rate may have had in their states."


From Reuters:

"Our office is aware of the allegations around the manipulation of the Libor, and we are working with other state agencies to determine whether Massachusetts has suffered any losses as a result," a spokesman for Massachusetts Attorney General Martha Coakley said. 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 UK authorities and "will look at the case to the extent that our office might have any jurisdiction in the matter."


A spokeswoman for the Massachusetts transportation authority, MassDOT, said the agency "is actively investigating its portfolio for the purpose of determining if it was underpaid on its bonds due to the brewing Libor situation," as are many other issuers of debt whose rate is governed by Libor.

Lawyers for several states have had early discussions about whether they might pool investigative resources and launch a broader, multi-state effort, but no formal consortium has been established yet, people familiar with the discussions said. New York might be expected to lead such an effort, since most of the banks' U.S. operations are based there. A spokesman for the New York attorney general declined comment on whether the issue is being looked at.
Some municipalities, including the city of Baltimore, and funds including the Frankfurt-based Metzler Investment GmbH, which manages 47 billion euros ($59 billion) in assets, have already sued more than a dozen banks, arguing they were bilked of potentially billions of dollars.

How many potential lawsuits are we talking about here? Quite a bit in fact as the FT explains:

There are at least 900,000 outstanding US home loans indexed to Libor that were originated from 2005 to 2009, the period the key lending gauge may have been rigged, investigators have said. Those mortgages carry an unpaid principal balance of $275bn, according to the Office of the Comptroller of the Currency, a bank regulator.

Also, as explained here before, not only is this a legal bonanza, but it will be a political feast for the Congressional circus to earn numerous C-SPAN brownie points.

“I think the US government should be just as aggressive in getting to the bottom of this scandal as the United Kingdom has been,” said Senator Sherrod Brown, chair of the bank regulatory subcommittee on the Senate banking committee.



“This was not isolated to London, but affected tens of millions of investors, borrowers and taxpayers in our country as well,” Mr Brown added.

What does the above mean?
1) Starting today and going forward, there will be numerous essays, "analyses" and white papers, all of which will try to estimate (some on a paid basis) the damages and impact of the Libor manipulation that took place at least in the period under discussion 2005-2009. All of these will be absolutely wrong, as nobody has any clear idea of how the cumulative impact of the Libor rate, which may have been pushed below either lower or higher depending on how it suited a given BBA-member bank, over a period of years will have impacted hundreds of trillions in partially offsetting notional securities. Therefore, while one day it may have led to impairments, another day it would benefit the end-holder of a given interest-rate sensitive product. But they will try. And the bigger the number, the better, which leads us to...


2) The lawyers will crawl out of the woodwork like worms after a torrential downpour, and will all be willing to work on contingency, telling potential clients they are owed thousands, nay, millions based on such and such analysis. All they need is to have held a mortgage, or a credit card, or any variable interest liability in the 4 years in question. And to sign the dotted line.


3) The resulting lawsuits, most of which in class action format, will be of gargantuan proportions, simply to encourage settlement, as ongoing litigation will easily destroy the financial system. The litigation reserves at the TBTF banks will explode and will cause years of EPS writedowns. But at least they will be one-time charges, so the stocks don't get crushed too much. That said, forget any growth out of the banking sector, and certainly the 16 BBA member banks, all of whom are about to be sued to smithereens in civil suits as more and more banks step up and settle to avoid criminal prosecution.


4) The biggest irony is that the torrent of upcoming suits will be in effect targeting none other than the Fed. Because while banks which all were massively levered to even a one basis point move in Libor were very sensitive to the smallest variations in 3 month USD libor, end-clients who did not have this leverage were far less impaired. But that doesn't matter: after all the same clients were impaired through gross borderline criminal negligence which is all that matters in a court of law (assuming the honorable judge John Roberts is not presiding pro hac vice). Thus the entity that will be sued by proxy is the Federal Reserve, whose Federal Funds rate is really the setter for the baseline Libor rate. Note the chart below which shows that over the past decade, the 3M USD Libor and the Fed Funds rate were virtually interchangeable: (Chart available at the link..)
 
Yet while it was the Fed's decisions at the bottom of it all, unless someone implicates the Fed or the BOE further, both will get away scott free: after all what they do is public policy, for the public good and to defend their various appointed mandates. And neither pushed banks to manipulate their rates (even if both were well aware there was gambling going on here), or so they claim, even when presented with evidence to the contrary.



What will really happen, is that the private banks, having been bailed out by the central banks at the taxpayers' dime, will now serve as a buffer to protect these same institutions from rising popular anger, not just at Lieborgate, but Robosigning, Robosettlement, CDOs, rehypothecation, High Frequency Trading, toxic assets marked-to-unicorns, the end of Mark-to-Market, ZIRP, NIRP, expert networks, insider trading, MF Global, and countless other examples of what happens when financial fraud is let loose with no fear of consequence in a Bernanke Put world.


As a result, the status quo will literally buy itself a few more years as it delays the tipping point by any means necessary, in the process kicking back a little to politicians, lawyers, and the general public in exchange for a few years of subpar earnings for bank shareholders that should have been wiped out back in 2008 anyway. And everyone will be happy.


That's how Lieborgate will play out.

I'm down with the article's overall cynicism, but I don't quite agree:  The above post is a little too rosy a prediction regarding the status quo.  This numbers, players, and their connections will ultimately be too big to be ignored or downplayed(No matter how many people become complicit), especially when paired with economic black hole that is derivatives.  How do you visualize/quantify 600 plus trillion dollars?  This is the preliminary level of the upcoming financial conflagration..

50 Years of Gutting America's Middle Class

Happy Birthday, Wal-Mart.  We inexplicably love you despite your best efforts to kill our economy.  Other Words: 

Sam Walton opened the first Walmart store in Rogers, Arkansas, 50 years ago this month. Sprawled along a major thoroughfare outside the city's downtown, that inaugural store embodied many of the hallmarks that have since come to define the Walmart way of doing business. Walton scoured the country for the cheapest merchandise and deftly exploited a loophole in federal law to pay his mostly female workforce less than minimum wage.



That relentless focus on squeezing workers and suppliers for every advantage has paid off since July 1962. Walmart is now the second-largest corporation on the planet. It took in almost half-a-trillion dollars last year at more than 10,000 stores worldwide.


Walmart now captures one of every four dollars Americans spend on groceries. Its stores are so plentiful that it's easy to imagine that the retailer has long since reached the upper limit of its growth potential. It hasn't. Walmart has opened over 1,100 new supercenters since 2005 and expanded its U.S. sales by 35 percent. It aims to keep on growing that fast. With an eye to infiltrating urban areas, Walmart recently introduced smaller "neighborhood markets" and "express" stores.

While the big-box business model Sam Walton pioneered half a century ago has been great for Walmart, it hasn't been so great for the U.S. economy.


Walmart's explosive growth has gutted two key pillars of the American middle class: small businesses and well-paying manufacturing jobs.


Between 2001 and 2007, some 40,000 U.S. factories closed, eliminating millions of jobs. While Walmart's ceaseless search for lower costs wasn't the only factor that drove production overseas, it was a major one. During these six years, Walmart's imports from China tripled in value from $9 billion to $27 billion.


Small, family-owned retail businesses likewise closed in droves as Walmart grew. Between 1992 and 2007, the number of independent retailers fell by over 60,000, according to the U.S. Census.


Their demise triggered a cascade of losses elsewhere. As communities lost their local retailers, there was less demand for services like accounting and graphic design, less advertising revenue for local media outlets, and fewer accounts for local banks. As Walmart moved into communities, the volume of money circulating from business to business declined. More dollars flowed into Walmart's tills and out of the local economy.


In exchange for the many middle-income jobs Walmart eliminated, all we got in return were low-wage jobs for the workers who now toil in its stores. To get by, many Walmart employees have no choice but to rely on food stamps and other public assistance.


Walmart's history is the story of what has gone wrong in the American economy. Wages have stagnated. The middle class has shrunk. The ranks of the working poor have swelled. Whatever we may have saved shopping at Walmart, we've more than paid for it in diminished opportunities and declining income.
And the worse things get, the more alluring Walmart's siren call of low prices becomes. While the Ford Motor Co. once profited by creating a workforce that could afford to buy its cars, today Walmart profits by ensuring that Americans cannot afford to shop anywhere else. The average family of four now spends over $4,000 a year at Walmart.

Such market concentration is unprecedented in U.S. history, as is the concentration of wealth it has engendered. Sam Walton's heirs own about half of Walmart's stock and have a net worth equal to the combined assets of the bottom one-third of Americans — about 100 million people. This year alone, the Waltons will pocket $2.7 billion in dividends from their Walmart holdings.
They are among the few Americans who have reason to celebrate Walmart's 50th birthday. As for the rest of us, the milestone offers a good moment to reflect on the company's business model and where it might lead us if we allow Walmart's growth to continue full-steam for another 50 years.

Evidence that yeah, South Park is funny, but politically short sighted.  When no one has any money to buy their DVD's, do you think Trey Parker and Matt Stone will change their ignorant minds?  They're uber-rich, so probably not..

Mike Krieger: Where Food Stamps Go to Die

We live in fun times.  Guest post from Zero Hedge.  Excerpts:


Nothing exemplifies the ghetto status of the U.S. economy more than the success of Wal-Mart in the face of the ongoing destruction of what was once a vibrant and strong middle class. In case you missed it, Marion Nestle, Professor in the Department of Nutrition, Food Studies, and Public Health at NYU, came out with some interesting tidbits regarding the food stamp program. One of them is extraordinarily disturbing. She shows that Wal-Mart’s gets as much as 25% to 40% of revenue at some stores from food stamp dollars. This says it all folks. Food stamps are or course the perfect business for Wal-Mart and JP Morgan, which as I pointed out previously makes a lot of money running the program and keeping the populace in perpetual serfdom. Meanwhile, guess what another of the best performing stocks this year is? Corrections Corp of America, ticker CXW, up 41% YTD! Guess what they do? Yep, you guessed it. They lock up the serfs that get out of line. This is the Bloomberg description of CXW.



Corrections Corporation of America provides detention and corrections services to governmental agencies. The Company owns correctional and detention facilities in the United States and the United Kingdom. Services include design, construction, ownership, renovation, and management of new or existing jails and prisons, as well as long distance inmate transportation services.
There you have it folks. What sectors are leading the American economy in the “recovery”: Food stamps and Prisons. They are actually perfectly complimentary. If the food stamps don’t work the prisons will.

Or hip hop.  Don't forget the hip hop..