The Art of the Deal? President Trump joins President Obama in granting exemptions to Citigroup, JPMorgan, and Barclays, UBS, and Deutsche Bank.
“It takes a pillage.”
― Nomi Prins,
It is fitting timing that I was just finishing up re-reading Nomi Prin’s, “All Of The President’s Bankers”. How many more bail-outs, big shorts, and market riggings are we going to put up with? Do you think it is wise that we let the fed print money out of thin air and pick and choose what businesses sink or swim? The President just granted exemptions to some of the worlds biggest crony capitalists.
The Libor scandal was a series of fraudulent actions connected to the Libor (London Interbank Offered Rate) and also the resulting investigation and reaction. The Libor is an average interest rate calculated through submissions of interest rates by major banks across the world. The scandal arose when it was discovered that banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were. Libor underpins approximately $350 trillion in derivatives. Around 20 major banks have been named in investigations and court cases. Bank of America Corp., Citigroup Inc. UBS AG, Royal Bank of Scotland, HSBC, Deutsche Bank, JP Morgan Bank, and Citibank, as well as ICAP (Intercapital) are among the most prominent. Timothy Franz Geithnerthe, the 75th United States Secretary of the Treasury, presided over the AIG bonus scandal, the 2007-2008 bailouts, and the libor scandal. He now serves as president of Warburg Pincus.
In June 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions, leading to the scandal. Because Libor is used in US derivatives markets, an attempt to manipulate Libor is an attempt to manipulate US derivatives markets, and thus a violation of American law. Since mortgages, student loans, financial derivatives, and other financial products often rely on Libor as a reference rate, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide. The manipulated rates harmed state, municipal and local governments. Homeowners in the US filed a class action lawsuit in October 2012 against twelve of the largest banks which alleged that Libor manipulation made mortgage repayments more expensive than they should have been.The cost of litigation from the scandal may exceed that of asbestos lawsuits.
In 2012 the Financial Times published an article by a former trader which stated that Libor manipulation had been common since at least 1991. As of August 2015, UBS trader Tom Hayes was the only person convicted in connection with the Libor scandal. In the first quarter of 2009, Citigroup had interest rate swaps of notional value of $14.2 trillion, Bank of America had interest rate swaps of notional value of $49.7 trillion and JPMorgan Chase had interest rate swaps of notional value of $49.3 trillion. Given the large notional values, a small unhedged exposure to the Libor could generate large incentives to alter the overall Libor. In the first quarter of 2009, Citigroup for example reported that it would make that quarter $936 million in net interest revenue if interest rates would fall by .25 percentage points a quarter, and $1,935 million if they were to fall by 1 percentage point instantaneously. The New York Federal Reserve chose to take no action against them at that time.
US experts such as former Assistant Secretary of the Treasury Paul Craig Roberts have argued that the Libor Scandal completes the picture of public and private financial institutions manipulating interest rates to prop up the prices of bonds and other fixed income instruments, and that “the motives of the Fed, Bank of England, US and UK banks are aligned, their policies mutually reinforcing and beneficial. The Libor fixing is another indication of this collusion. In 2016, Libertarian Candidate for President, Gary Johnson, cited this as an example as to why a “profound change” was due, in regards to the Federal Reserve System. Former Citigroup chairman and CEO Sandy Weill, surprised financial analysts in Europe and North America by calling for splitting up the commercial banks from the investment banks. In effect, he said that we should, “Bring back the Glass-Steagall Act of 1933 which led to half a century, free of financial crises.” The Danish, Swedish, Canadian, Australian and New Zealand Libor rates have been terminated. Traders sought particular rate submissions to benefit their financial positions. Later, during the 2007–2012 global financial crisis, they artificially lowered rate submissions to make their bank seem healthy. At least three banks – JPMorgan, Citigroup, and Bank of America – are still under investigation for their involvement in the fraud.
During the week of Christmas, the Federal Register announced that the Trump Administration had issued waivers to Citigroup, JPMorgan, Barclays, UBS and Deutsche Bank—all megabanks facing charges of fraud and corruption. Deutsche Bank pled guilty to wire fraud in a U.S. court in 2015, and it went on to pay $3.5 billion for its role in the LIBOR scandal—more than any other bank involved—before it reached a $7.2 billion settlement with the Justice Department in early 2017. Then in June 2017, Deutsche Bank trader David Liew, who is based in Singapore, pleaded guilty to conspiring to spoof gold, silver, platinum and palladium futures in federal court in Chicago, confirming that the biggest banks in the world have conspired to rig precious metals markets.
In late 2016, the Obama administration extended temporary one-year waivers to five banks — Citigroup, JPMorgan, Barclays, UBS and Deutsche Bank. Late last month, the Trump administration issued new, longer waivers for those same banks, granting Citigroup, JPMorgan, and Barclays five-year exemptions. UBS and Deutsche Bank received three-year exemptions—revealing the real rulers in DC. Deutsche Bank — which is owed millions and millions by President Donald Trump and his business empire, has also been fined for its role in a Russian money laundering scheme. In the year leading up to the new waiver for Deustche Bank, Trump’s financial relationship with the firm has prompted allegations of a conflict of interest. The bank has not only sought the Labor Department waiver from the administration, it has also faced Justice Department scrutiny and five separate government-appointed independent monitors. Meanwhile, the New York Times recently reported that federal prosecutors subpoenaed Deutsche for “bank records about entities associated with the family company of Jared Kushner, President Trump’s son-in-law and senior adviser.” All of these interactions with the Trump administration and the federal government are transpiring as Deutsche serves as a key creditor for the president’s businesses.
Trump owes the German bank at least $130 million in loans, according to the president’s most recent financial disclosure form. Sources have told the Financial Times the total amount of money Trump owes Deutsche is likely around $300 million. The president’s relationship with the bank dates back to the late 1990s, when it was the one major Wall Street bank willing to extend him credit after a series of bankruptcies. In 2016, the Wall Street Journal reported Trump and his companies have received at least $2.5 billion in loans from Deutsche Bank and co-lenders since 1998. The relationship has had problems. After the financial crash, Trump defaulted on a $640 million loan from the bank. Deutsche brought Trump to court, and the famously litigious real estate mogul countersued for $3 billion in damages, claiming the financial crisis was a “force majeure” event that Deutsche Bank helped create. But the rift was short-lived: the parties settled, the loan was repaid, and Deutsche was soon lending to Trump again.
When will we elect leaders that will finally stand up to The Fed and Wall Street and demand that the most powerful banks be held accountable for criminal activity?
“Burke said that there were Three Estates in Parliament; but, in the Reporters’ Gallery yonder, there sat a Fourth Estate, more important far than they all.“ Thomas Carlyle
Marco Battaglia writes for the Iowa Free Press and is a proud member of The Fourth Estate