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Big Banks Accused of Price-Fixing Interest-Rate Swaps

The world’s biggest interest-rate swap broker, based in London, is under investigation by U.S. regulators for potentially working with a handful of the world’s most powerful banks to tweak the international benchmark figure used to calculate the prices of interest-rate swaps.

Interest-rate swaps are figures used by major companies and cities and even sovereign governments to aid in managing their debt. The scale of use is about $379 trillion. To give you an idea of how much money we’re talking about: It’s 100 times the size of the United States federal budget.

Our Miami foreclosure lawyers know all of this is closely related to the previously revealed Libor rate price-fixing scandal that stemmed from banks that were fraudulently deflating or inflating their rates in an effort to either appear more creditworthy than they were or to profit from trades.

To give you an idea of why this is relevant, some of the American markets that rely upon the accuracy of these rates are:

  • Mortgages;
  • Student loans;
  • Financial derivatives;
  • Other financial products.

Those believed to have been a party to this latest price-fixing scandal include some familiar players, including Bank of America, JP Morgan Chase and UBS. Additionally Barclays, which was involved in the Libor scandal, as well as the Royal Bank of Scotland, are also alleged to have been involved.

Many of these companies have already had to pay many millions of dollars for their role in the Libor scandal. But as we have previously mentioned, these penalties are usually a drop in the bucket to these companies, and it’s hardly been a deterrent.

Many are describing this latest accusation as a “manipulation of a manipulation,” as this figure, as the Libor already sets the interest-rate swap figures.

Rolling Stone Writer Matt Taibbi had a nice way of explaining this: Picture paying $25 for a not-so-good peanut butter and jelly sandwich because a number of agriculture businesses got together to fix the prices of peanut butter AND peanuts.

In the case of the Libor, traders were found to have submitted falsified daily numbers in exchange for such niceties as a bottle of champagne and day-old sushi. We’re talking about rates that literally affect the lives and livelihoods of billions of people across the world.

Morals? Apparently there is such thing in the banking industry.

Punishment for this? Barely. U.S. Attorney General Eric Holder conceded that prosecuting these entities to any real extent would have too great of an effect on world markets, meaning the economy could suffer.

So apparently, we are supposed to simply accept that some amount of manipulation or outright theft should be expected and tolerated.

Meanwhile, these financial institutions grow bigger and ever more powerful.

We wish it were still plausible to say that this is some type of radical conspiracy theory. It’s not.

Essentially, the prices are set by companies that have a profitable incentive to falsify them.

So will this newest investigation yield much of anything? We aren’t hopeful.

We do know that subpoenas have been sent to ICAP, the primary interest-rate swap setter, as well as more than a dozen member banks.

We’ll be following the developments as they unfold.

If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Mortgage Wars,” discussing foreclosure topics that matter to YOU.

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