Kucinich Explains Latest Developments in Libor Scandal

Statement

Congressman Dennis Kucinich (D-OH) today released a video explaining in easily understandable language the latest developments in the expanding Libor scandal.

Last week, Congressman Kucinich released another video explaining what the London Interbank Offered Rate (Libor) is, how it affects world markets, and why the Libor scandal is important.

"As millions of Americans struggle to make interest payments on car loans, student loans, and mortgages we are learning that a bedrock of the rates we pay on those loans was manipulated for private profit -- probably for years.

"Last week I explained that something called Libor, or the London Interbank Offered Rate, affects almost everyone because the interest rates we pay on just about everything are tied to Libor. Manipulating that rate for profit could send tremors throughout the financial system.

"Here is what we know so far; Barclays, a British multinational bank manipulated Libor. I have seen transcripts of phone calls and emails describing the manipulation. We are also seeing evidence that suggests that other financial institutions were involved.

"The Federal Reserve is a private entity that is tasked, in part, with protecting the monetary system. They are one of the agencies that are supposed to protect consumers from "too big to fail' and "systemic risk.' On Friday, we learned that in 2008, the New York Federal Reserve knew that Libor manipulation was happening. Instead of cracking down on the banks, the New York Fed simply suggested some changes to the way the Libor is set. This is an enormous problem, because Libor is essential to the $500-trillion worldwide derivatives market.

"When banks loan out money or make investments, they try to find a way to estimate the chances that money will be paid back, or the chances their investment will succeed. Even when they think they know how credit-worthy a borrower is or how solid an investment seems, they still often take out various kinds of insurance on the loan or the investment. The Libor underpins the cost of that insurance. Banks are in the business of one thing: making money. So if you run a bank, and you know that someone is manipulating Libor, that opens the possibility that your bank's major financial decisions may be based on faulty information and your entire operation is open to question.

"Over the weekend we also learned that the Department of Justice is pursuing a wide-ranging civil and criminal investigation of numerous financial institutions, including Barclays. The Commodity Futures Trading Commission, together with the Bank of England, forced Barclay's to pay a $450 million fine. The portion of that fine that Barclays paid to the CFTC is about the size of the CFTC's entire annual budget, but it's still pocket change for a bank of worth more than $30 billion.

"There may still be criminal charges filed against Barclays employees. This scandal is so far-reaching, one anonymous government official was quoted as saying, "it's hard to imagine a bigger case than Libor." When all is said and done, will we finally see real accountability? Will the people--not just the individual employees but also the bank executives and the regulators--who knew that a pillar of our financial system was built on lies and manipulation be held accountable?"

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