Libor, Sandy Weill, and Endless Corruption
Note: This post was written by donnyg1941 and JeffreeB
By now you’ve probably heard of Libor, the London Interbank Offered Rate, and the scandal surrounding it. And unless you have an advanced degree in finance, the complexity of the scandal (and Libor itself) probably makes your head spin. In simple terms, as Rolling Stone contributing editor Matt Taibbi explained it in a recent interview with Democracy Now!, “Libor is basically the rate at which banks borrow from each other. It’s a benchmark that… a lot of international investment products are pegged to. When Libor is low, that means that the banks feel confident in each other; and when Libor is high, that means there is generally instability.”So what does some esoteric, inter-bank lending rate in London have to do with you? Quite a bit, actually. As Taibbi points out, Libor, “sets the borrowing costs of everything from mortgages to student loans to credit card accounts… Basically, every city and town in America, to say nothing of the rest of the world, has investments that are pegged to Libor. Most of them are holding investment accounts that actually will decrease in value as Libor goes down.” And as municipalities lose money because big banks stack the deck, the same big banks make billions.Somehow Wall Street has convinced municipalities countrywide that they will save money by engaging in interest rate swaps based on Libor. But in practice, these swaps have been devastating to communities. Pam Martens writes in her article, “How Wall Street Gutted Our Schools and Cities,” “In many cases, continuing to this day, the municipality ended up receiving a fraction of one percent, while contractually bound to pay Wall Street firms as much as 3 to 6 percent in a fixed rate for twenty years or longer. If the local or state governments or school boards wanted out of the deal, a multi-million dollar penalty fee could be charged based on the rate structure and notional (face amount) of the swap.” While you may need a degree in finance to understand how Libor works, you don’t need that degree to know that when you’re receiving a fraction of a percent and have to pay 3 to 6 percent, you’re losing money. And of course, where does that money you’re losing go? Right into the pockets of the deck stackers themselves.
Martens points out that between 2006 and 2008, banks, “collected as much as $28 billion in termination fees from state and local governments who were desperate to exit the abusive interest rate swaps. That amount does not include the ongoing outsized interest payments that were and are being paid. Experts believe that billions of abusive swaps may be as yet unacknowledged by embarrassed municipalities.”
Not only have the big banks rigged Libor to appear stronger than they really were, a key factor in the economic situation in which we found ourselves in 2008, but they also did it simply to steal billions from your city, your state, and your schools. When the house gets to stack the deck, the house always wins.
Enter Sandy Weill, former CEO of Citibank, who now professes religion. In a move seeming to come right out of left field, Weill stated on CNBC(the paragons of economic objectivity) that he believes too big to fail banks should be broken up. Oddly enough, Weill was largely responsible for creating the current structure of big banking.
Who is Sandy Weill you might ask? Well, he’s been around the block a few times in the Financial industry, starting in 1955. “Weill began serving as president of American Express Co. in 1983 and as chairman and CEO of American Express’s insurance subsidiary, Fireman’s Fund Insurance Company, in 1984. Weill was succeeded by his protégé, Peter A. Cohen, who became the youngest head of a Wall Street firm. While at American Express, Weill began grooming his newest protégé, Jamie Dimon, the future CEO of JPMorgan Chase.”(credit Wikipedia). Are you seeing a pattern here yet? For more background on Mr. Weill, see the Wikipedia page.
As CEO of Travelers Insurance Group, Weill oversaw the 1998 Travelers Group and Citibank merger, a merger that, as Bonnie Kavoussi at the Huffington Post points out, was, “at the time, the largest merger in history.” Weill remained CEO of Citi until 2003 and remained chairman until 2006. He did this in defiance of banking law extant at the time, and guess who gave him a free pass? Right, Alan Greenspan, that apostle of Ayn Rand, and originally appointed to the Fed by that great president, Ronald Reagan.
Not only did Weill create yet another big bank monster out of Citi, he was also the lobbyist-in-chief for repealing the Glass-Steagall Act. Weill was so instrumental in the 1999 dismantling of Glass-Steagall that, as Kavoussi reports, “Weill’s office once had a wooden plaque with his portrait that read ‘The Shatterer Of Glass-Steagall.'” And with the end of Glass-Steagall, any commercial bank could do what Sandy had illegally done the year before, and could now engage in the very same behaviors as the Wall Street investment banks, just as they did in the 1920s.
Repealing Glass-Steagall was a grand slam for commercial banks; the law, instated after the crash of 1929, separated investment banking from commercial banking. With Glass-Steagall out of the way, Weill could now take our bank accounts right to the bookie. And in 2008, the bookie came to collect.
So now it seems Weill has gone rogue, or found some new way to make money. He said in the Wednesday morning interview with CNBC, “What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, and have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.” Odd words to come from the terminator of the very things he now professes to embrace.
But is Weill really batting for the 99 percent now? We’ll see.
When Weill went on to discuss his reasons for believing that banks should be taken in the exact opposite direction from that which he took Citigroup, he said, “I think that the earlier model was right for that time… I don’t think it’s right anymore… I think that this system is really immobilizing the banking system.”
Right for the time? Repealing Glass-Steagall was a major factor in getting us into the mess in which we now find ourselves. It’s like Weill is saying that it was a great idea until it wasn’t a great idea, and now it’s not a great idea. But this seems to be about as close to an apology or an admission of failure as we can expect to get from Banksters. Or as Marketwatch’s David Weidner writes today,”Former executives such as Weill, or his former lieutenant, Sally Krawcheck, or Dick Fuld of Lehman Brothers, or Maurice “Hank” Greenberg never get it. They try to reconcile their resumes with history for the sake of sounding honest and remorseful. But they also remind their audience that there were forces outside of their control too.”
Though we cannot say with certainty that he has become a proponent of re-regulation, his failure to acknowledge his role in all of this mess leaves one with a very skeptical view of Sandy the wily. But before we end, let us remind ourselves that not one of these guys has gone to jail or been forced by our government to give up their personal ill-gotten gains. So the corruption is pandemic, infecting our financial systems world-wide and the governments that are supposed to regulate and punish them when they behave badly. As David Cay Johnston, Pulitzer Prize winning investigative journalist says in Heist, “The purpose of rules is not to regulate saints, it is to regulate sinners.”
Sandy it is time to repent for thou art indeed a major league sinner. As for the rest of the Banksters, it is way past time to lock them up, and nationalize these bankrupt banks, for the good of the nation.