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..

Things That Make You Go Hmmm - Such As The Transition From Conspiracy Theory To Conspiracy Fact

Here comes the LIBOR scandal!  And it's BIG.  And probably The Tipping Point for all Financials.  BIG.  From Grant Williams, author of Things That Make You Go Hmmm, via Zero Hedge:



Attempts to manipulate free markets invariably end badly - after all, they are, supposedly, by their very nature, free.


Over the past few weeks, the exposure of the Libor-rigging scandal has monopolized the headlines of the financial press and inveigled its way onto the front pages of every major news publication in the world through the sheer size and scale of the story.


Something as big as this just CAN’T be hidden from the public.


Only... it can.


It has been. It no doubt still is to a certain extent. I’m not going to go through all of the events of the past few weeks as you are no doubt familiar with them, but [simply understanding how LIBOR works makes for a simple conclusion].


I’m afraid it’s rather obvious. Given that almost half the reported inputs that help establish the Libor rate are discarded immediately, Barclays simply CANNOT have manipulated the Libor rate alone. Period.

What’s more, to effectively ensure the rate is set at the price required, you’d need to not only establish the highest and lowest 25% of prices, but then ensure the remaining 50% average out to the required rate and, based on the fact that there are 16 banks that submit rates, that would mean about 13 of the 16 involved would need to be complicit.



As a very good friend of mine put it earlier this week; at best this is a cartel, at worst it’s outright fraud on a scale that is completely unprecedented.


So for five years there have been attempts to fix the Libor rate and, take it from me, during that time, many inside the financial industry were familiar with the rumors of such manipulation but it was another huge scandal with such high powered connected interests that it would no doubt be brushed squarely under the carpet. Forget ‘too big to fail’. This was ‘too deep to prove’.


Libor is so important to so many people in the financial industry that the question of why it was manipulated really ought to be framed differently:

Assuming you COULD manipulate something as important and potentially beneficial as the Libor rate with such ease for years, why wouldn’t you?

The answer to this question would ordinarily be:

"Because it’s illegal and government regulators would throw the book at us"

So, working from the ground up; we have a set of traders looking to produce the best profits they can for personal gain, the major bank they work for and who should be supervising them with a need to disguise the level of its own funding costs and above them all, a government seeking to keep borrowing costs down in the middle of a gigantic financial storm. From such alignments of interest are the greatest of conspiracies born.



In my humble opinion, the Libor scandal (which has a LONG way to go before it has played out and which will claim a LOT more scalps) will mark a fundamental change in the treatment of financial conspiracy theories in the media. The sheer amount of coverage it will undoubtedly receive will signal a shift in attitude towards the exposing of such scandals rather than the blind-eyes that have been regularly turned in recent years.
But perhaps, most-of-all, watching how quickly those in high places begin to throw each other under the bus, it will hasten the end of many other possible government conspiracies as exposing such events becomes an exercise in self-preservation. Prime amongst conspiracy theories that may soon be finally proven to be either valid or the figments of overactive imaginations, are those alleged in the gold and silver markets.


The allegations concerning precious metal price manipulation predate those surrounding Libor by decades but until now day they have remained similarly acknowledged within financial circles and ignored without. That may well be about to change.

Unencumbered by liability, the rising price of gold has always been a barometer of governmental failure to protect the purchasing power of fiat currency and the best indication of the damage that inflation does.Forget inexorably rising gold prices. Forget the corrections that shake loose hands from the wheel at every turn. In the broader context they carry far less relevance than the intrinsic values that gold provides a consistent yardstick to.
A look at the value of assets measured in ounces of gold remains the most consistent way to get a sense of their real value and the charts below demonstrate all too clearly the true performance of the Dow Jones Industrial Average and average US house prices over the long term when measured in gold ounces.
 

If the long-stated claims about government-sanctioned, bank-led manipulation of precious metals markets put forward so eloquently by the likes of Ted Butler, Bill Murphy & Chris Powell at GATA as well as Messrs. Sprott, Sinclair, Davies et al are eventually proven to have any validity whatsoever, the fallout from the Libor scandal will prove to be (to use the words of Jamie Dimon) just another “tempest in a tea pot” as the precious metals are the very underpinnings of the entire global financial system. Conspiracy or no, it would be a blessed relief to get closure no matter what the truth turns out to be.




Oh Snap. Are we really here? If 13 of 16 banks are complicit, how much further statistically is 16 of 16? The answer?  Not far at all.  How crazy will the public response be when this finally goes mainstream? Financial Pandora's Box blowing open in 3.. 2..

Lastly;  Lest anyone forget, people have been talking about the derivatives collapse for quite some time now.  Also:  While this might not be the first time Barclays got caught shit handed, it might be the last.. 

Barclays boss under pressure as bank inquiry launched

The first derivatives domino is rocking back and forth.  Can Barclay's "stabilize"(sweep under the rug/publicly ignore) the situation before events get out of hand?  Reuters.  Excerpts:

Pressure grew on Barclays Plc Chief Executive Bob Diamond to quit as Britain launched an inquiry on Monday into a market-rigging scandal, saying a "culture that flourished in the age of irresponsibility" among bankers had to end.
Barclays Chairman Marcus Agius resigned on Monday, saying "the buck stops with me" as the scandal over manipulating Libor interest rates claimed its first major scalp.
But his departure did not take the heat off Diamond, who ran Barclays' investment banking arm when the rate rigging took place, drawing a record fine for the lender last week in a scandal likely to involve many more banks.
"The buck in Barclays stops with Bob Diamond, and it is Bob Diamond who must accept responsibility," said John Mann, an opposition Labor member of a parliamentary committee that later this week will question Agius and Diamond.

"He must resign. He's got to go," Mann told Sky News.



Anger with the culture of bankers in London, a world financial capital and major part of the British economy, crossed the political divide with Conservative finance minister George Osborne outlining the parliamentary inquiry.


"The behavior of some in the financial services has damaged the reputation of an industry that employs hundreds of thousands of people and is vital to the economic prosperity of the country," Osborne told parliament. "It's time to deal with the culture that flourished in the age of irresponsibility and hold those who allowed it to do so to account."


Barclays has admitted that some of its traders tried to manipulate the London Interbank Offered Rate (Libor), which is used worldwide as a benchmark for prices on about $350 trillion of derivatives and other financial products across a range of currencies and loan durations.

Well, gosh!  I ain't never heard of no derivatives!  They really couldn't kill the global economy, could they?  Yes.  Yes they could..

Spain formally asks Eurogroup for bank aid

Because of the huge news day we had yesterday, Spain asking for bailout got lost amongst the chaos.  Make no mistake:  This is a big story.  CNN Money via The Extinction Protocol.  Post:

June 25, 2012 – SPAIN - The Spanish government made a formal request to the Eurogroup on Monday for up to €62 billion ($77 billion) in financial aid for its troubled banking sector. “I have the honor to write to you, in the name of the Spanish government, to formally request financial assistance for the recapitalization of the Spanish banks that require it,” wrote Economy Minister Luis de Guindos, in a letter to Eurogroup president Jean-Claude Juncker. In a worst case scenario, Wyman found that Spanish banks would need between €51 billion and €62 billion in additional capital. Berger estimated the banks would need €51.8 billion. The auditors used stress tests similar to those conducted by the International Monetary Fund, which said last month that banks need to raise €40 billion. The Spanish government did not specify the exact amount it would need. The uncertainty around Spanish banks has raised speculation that Spain will need a bailout similar to those given to Greece, Ireland and Portugal. Investors are also worried about how Spain’s problems will impact Italy. The fear is that bailing out Spain would drain the euro area’s crisis resources and leave Italy without a safety net. The leaders of the four biggest eurozone economies agreed Friday on a plan to boost economic growth in the troubled currency union. Without going into detail, the leaders said they agreed on a set of growth-enhancing policies equal to about €125 billion, or 1% of eurozone gross domestic product.

Spain's GDP is bigger than Greece, Ireland, and Portugal together.  Spain very well could be the Eurozone's Tipping Point into collapse. 

Forget the PIIGS, the EU as a Whole is Insolvent

Impending Systemic Collapse has an ominous ring to it.  Zero Hedge has the bad news..  Excerpts:

Europe is heading into a full-scale disaster.
You see, the debt problems in Europe are not simply related to Greece. They are SYSTEMIC. The below chart shows the official Debt to GDP ratios for the major players in Europe.


As you can see, even the more “solvent” countries like Germany and France are sporting Debt to GDP ratios of 75% and 84% respectively.



These numbers, while bad, don’t account for unfunded liabilities. And Europe is nothing if not steeped in unfunded liabilities.


Let’s consider Germany. According to Axel Weber, the head of Germany’s Central Bank, Germany is in fact sitting on a REAL Debt to GDP ratio of over 200%. This is Germany… with unfunded liabilities equal to over TWO times its current GDP.
To put the insanity of this into perspective, Weber’s claim is akin to Ben Bernanke going on national TV and saying that the US actually owes more than $30 trillion and that the debt ceiling is in fact a joke.
What’s truly frightening about this is that Weber is most likely being conservative here. Jagadeesh Gokhale of the Cato Institute published a paper for EuroStat in 2009 claiming Germany’s unfunded liabilities are in fact closer to 418%.

And of course, Germany has yet to recapitalize its banks.


Indeed, by the German Institute for Economic Research’s OWN admission, German banks need 147 billion Euros’ worth of new capital.

To put this number into perspective TOTAL EQUITY at the top three banks in Germany is less than 100 billion Euros.

And this is GERMANY we’re talking about: the supposed rock-solid balance sheet of Europe. How bad do you think the other, less fiscally conservative EU members are?
Think BAD. As in systemic collapse bad.

Tickticktick..

Eurozone critical mass: How it could all go down this summer with Italy and Finland exiting and banks in flames

Interesting theory as to how the Eurozone may spin down/spin out of control and implode/explode..  The Extinction Protocol.  Excerpts:

 Here’s how the Eurozone crisis might come to a head over the summer: a “Spanic,” followed by a “Quitaly,” followed by a “Fixit.” A fresh panic in Spain might be followed by rising demands for Italy to quit if it doesn’t get the same terms its fellow Mediterranean country has been offered, followed by a Finnish departure from the euro that might finally bring the whole saga to a climax. It would be a rough ride — and you wouldn’t want to be holding many assets other than dollars or gold or possibly Swiss francs while it was playing itself out. But at least it might bring a resolution to the crisis. Almost a quarter of the euro’s 17 members have now needed outside help, and Cyprus will probably join the list soon. It is hardly a great record for a monetary experiment, which, let us remember, was meant to bring greater stability — not less. So how could this play out over the summer. Here’s how the sequence might work: First, the Spanic (for a panic in Spain). We’ve just seen one rescue package for the troubled Spanish banks. But who says 100 billion euros is enough? This is a country that is sliding into deep recession, and where the government is cutting spending fast — which is only going to deepen the recession.
..
 Imagine how that is going to feel to the Italians. The Spanish get borrow money at half what it costs them — and this at a time when very high borrowing cost are pushing your country into the fifth recession since the nation joined the single currency. Worse, Italy has to stump up around 22% of the Spanish rescue — borrowing money at 6% to give to its neighbors at 3%. That isn’t going to go down well.  Finally a Fixit (for a Finnish exit). The crisis will finally come to a head when one country decides to get out. Finland is the most likely. Why? Because it is a small nation with a strong economy. It is easy to head for the door. Finland would be better off on the first day, just as Estonia was when it decided to leave the ill-fated ruble zone created after the collapse of the old Soviet Union. It doesn’t particularly have to worry about the impact on the European Union, in the way that Germany would if it opted out. If a country such as that leaves, it is effectively game over, but no one can really say that of a tiny place such as Finland. And it has a strong anti-euro political grouping; the True Finns scored well in the last election and may well improve their position in the polls. Finland is already demanding collateral for its portion of the Spanish loan. That could well turn into a deal-breaker — no collateral, so we’re out of here. Once one country leaves, it is much easier for the next to leave, in much the same way as it is easier to be the second person to leave a really bad party than the first.

(Emphasis from the article)European Banks will be wiped out: Few large eurozone banks would be left standing and the banking sector could face a €370bn (£298bn) loss if the euro crisis results in the single currency bloc breaking apart, according to one of the first in depth analyses of what might happen if the eurozone disintegrates. The analysis by Credit Suisse estimates that up to 58% of the value of Europe’s banks could be wiped out by the departure of the “peripheral” countries – Greece, Ireland, Italy, Portugal and Spain – from the eurozone. Even if the single currency remains intact some €1.3tn of credit could be sucked out of the system as banks retrench to their home markets, unwinding years of financial integration, the Credit Suisse analysis warns his represents as much as 10% of the credit in the financial system. “We find that a Greek exit could be manageable … but in a peripheral exit, few of the large listed eurozone banks would be left standing,” the Credit Suisse report said. The banking sector could need capital injections of as much as €470bn if the three scenarios considered by the Credit Suisse analysts – a Greek exit, an exit of the periphery countries and a situation where banks retrench domestically – happen at once.
And:(My emphasis)
The Credit Suisse analysts insist they are not expecting the euro area to break up – or for Greece to leave – but they believe it is likely there will be a dramatic reduction in cross-border business – leading to less loans for businesses and individuals. The International Monetary Fund has estimated that some €2tn of credit could be lost through a euro zone break up and the Credit Suisse analysts point out they have only analysed the impact on banks they research.

Remember the good old days of say, January, when any mention of Greek, Spanish, or Italian bailouts, defaults, or anyone at all leaving the European Union was so far fetched it wasn't even discussed?  Wow, six months later, and here we are..  So what does that say about the real magnitude and urgency of Credit Suisse's analysis?  Is this close to an accurate assessment, or a vastly under-estimated threat?

Iceland Forgives Mortgage Debt for the Population. Putting Bankers and Politicians on "Bench of Accused"

Short, Spanish language video(subtitled) courtesy Sherrie Questioning All.  At least one coutry in the entire world seems to have pulled its head out of its collective ass.  Power to the Icelandic People!  Boo-Yaa!  Bring it-Bring it!  Boo-Yaa!


Ladies and gentlemen:  Bjork.