2. Lower LIBOR squeezed pension yields. Along with other retirees, Grandma has lost out when the pension she expected to receive ended up with lower returns. Her pension’s viability depends upon the yield of her pension fund’s investments. Lower LIBOR translates to lower rates of return on the floating rate bonds the pension funds hold.
With LIBOR manipulated downward, corporations benefit from being able to borrow at lower rates. But their benefit is retirees’ loss. Either Grandma’s pension benefits must be reduced or the pension plan, public or private, must come up with more money to replace the shortfall from inadequate investment returns. That money has to come from somewhere, perhaps as in the case of public pensions, from higher taxes, or layoffs of teachers, police and firefighters —or any combination of these.
So, in the case of pension investments, the net result of lower LIBOR is a significant wealth transfer – from Grandma, who loses when interest rates decline, to corporations and the banks who’ve benefited from lowering LIBOR.
3. Finagling LIBOR is securities fraud, which ultimately spanks bank profits and harms shareholders. Finagling LIBOR to windowdress banks’ health is textbook securities fraud, for which banks and their employees should expect to pay civil and even criminal penalties. Banks are also open to considerable civil legal liability, including treble damages available under antitrust statutes, if it can be proven that they colluded in fixing LIBOR. These damages will reduce bank profits, and may depress share prices.
Grandma will be hurt by lowered bank profits, if she owns bank shares, either directly, or indirectly. Bank shares frequently pay dividends, and have therefore in the past been attractive investments for those living on fixed incomes. Grandma didn’t need to own shares outright to be exposed to bank share price declines. Three LIBOR reference banks— Bank of America, Citigroup and JP Morgan Chase – are companies included in the S&P 500. Grandma or any pension fund that invested in index funds has a stake in their success.
4. Artificially low LIBOR prevented bank problems from being nipped in the bud. By underreporting LIBOR starting in 2007 when signs of the current credit crisis were becoming apparent, banks sent a message that they were in less trouble than they later proved to be.
If banks had reported LIBOR accurately, shareholders, regulators and Congress may have more quickly addressed weaknesses in the banking sector in a measured and orderly fashion. Instead, regulators were forced to undertake a massive bailout of banks. The bailout had large budget consequences for the U.S., consuming resources that may have otherwise been available for other purposes, such as programs for the elderly. The bailout hasn’t succeeded, and the banking crisis has imposed continuing, unresolved costs on the broader economy.
5. Low LIBOR helped foreclosure rates to skyrocket for the elderly. Fixing LIBOR low resulted in less money coming in for a fiscally prudent Grandma. Unfortunately, her living costs didn’t fall to match her declining income. Instead, fuel prices have been volatile, property taxes have risen and food prices are up (and recently rising, as a result of scorching weather in the Midwest).
One of the worst ways Grandma has been slammed concerns what’s probably her single biggest asset: home sweet home. Conventional wisdom says that the elderly are better insulated from housing market price trends because at least they own their own homes. If worst comes to worst, they can just stay where they are. And even if they don’t own their own homes outright, doesn’t lower LIBOR help reduce their mortgages, and therefore keep them
These monsters, and make no mistake, they are monsters. They need to be punished to the fullest extent of the law. They need to do jail time and they need to be broken up so that they are no longer to big to fail. It’s unjust and immoral for these people to financially harm so many and get a slap on the wrist while someone who steals $100 can end up going to jail for 10 years. The law needs to be applied equally to everyone or the law has no meaning and the people lose faith and respect for the system of law and justice.