Tag Archives: Bank of America

How do judges reach conclusions in complex cases where the law is often open to interpretation, or where the laws are still changing in response to the times? Are judges influenced by cultural currents? Do politics sway their decisions? What role does their material interest play in shaping their rulings and legal reasoning?

Appellate Court Judges Fin Holdings 1

A network diagram of the 42 of California’s 105 Appellate Court judges who own at least $2,000 of stock or bonds in a financial company. The larger and darker colored nodes are financial companies. The node size is based on the number of judges who reported an ownership stake in the company. The larger the line connection two node (judges to their investments), the larger the investment in dollar terms.

I don’t claim to have answers to any of these questions. But in searching for some possible reasons for the outcomes of homeowner lawsuits against banks, mortgage lenders, and mortgage servicing companies in California, I thought it might be useful to compile information on the economic interests of the judges themselves. The advantage of focusing on the economic interest of judges, as opposed to other factors that shape their interpretations of law, like political ideology or culture, is that material economic interests are literally material, and therefore easily identified and measured.

Appellate Court Judges Fin Holdings 2

17 California Appeals Court judges reported owning at least $2,000 of stock or bonds in Bank of America, the most of any financial company. Bank of America is one of the largest mortgage lenders and servicers in the U.S., and has been frequently sued by California homeowners over alleged fraudulent and deceptive business practices, and wrongful foreclosure. Justice Elizabeth Grimes reported owning between $100,000 and $1 million of stock in Bank of America in 2012, the most of any judge. Altogether these 17 judges reported owning as much as $2.3 million of Bank of America securities.

Appellate Court Judges Fin Holdings 3

Citibank was the second most commonly held financial company investment by California’s Appeals Court judges. 10 justices reporting owning at least $2,000 in stock or bonds.

From 2008 to the present California’s courts have been swamped with lawsuits, many more than in prior years, contesting foreclosures. Most often the plaintiffs have been homeowners suing banks and mortgage servicers over the foreclosure process. The banks have also initiated lawsuits against each other, against businesses, and against homeowners.

I haven’t done the research that would allow me to discern whether or not the banks are winning more than borrowers, but what I’ve heard from plaintiffs’ lawyers is that they feel the justice system has been biased in the favor of large financial companies. Lawyers and homeowners say that the courts favor the interests of creditors over consumers. Has anyone compiled comprehensive statistics on the outcomes of lawsuits between banks and borrowers through the financial crisis? I’d love to see that data set.

Appellate Court Judges Fin Holdings 8

Judge Donald Franson of the 5th District Appellate Court reported owning stocks or bonds worth significant amounts in multiple banks as well as in the Och-Ziff hedge fund (which was briefly financing a foreclosure to rental business), the credit card powerhouse VISA, and Warren Buffet’s conglomerate Berkshire Hathaway (which owns a bank, a real estate firm, and other real estate and financial sector companies).

One theory to explain what homeowners and their lawyers perceive as judgements biased in favor of financial companies involves the material interests of the judges. In the most direct sense, many judges own stocks and bonds in mortgage lending and servicing companies, and so these judges might be biased in favor these same companies when they are sued by borrowers. Judges should recuse themselves from cases in which they have a financial interests in the profitability of one of the parties before them, but they sometimes don’t. Recusal is meant to avoid any actual biased options stemming from conflicted interests on the part of the justices, but it’s also supposed to prevent even the perception of a conflict of interest. Perception that justice system is fair is as big a deal it seems as the actual fairness of outcomes, however you might measure the latter.

Appellate Court Judges Fin Holdings 9

Justice Arthur Gilbert of the 2nd Appellate District Court disclosed owning stock in three of the largest national banks that dominate the mortgage lending market, as well as having owned a financial stake in Lender Processing Services, a small specialized financial company that describes itself as “a leading provider of mortgage and consumer loan processing services, mortgage settlement services, default solutions and loan performance analytics.” Gilbert has sat on appellate panels hearing foreclosure lawsuits pitting banks and mortgage servicers against homeowners.

A more nuanced version of this conflict of interest theory has it that judges are ideologically influenced by their class position as high income earners, and holders of considerable wealth, a lot of which is invested in the securities of the major banks, and the mortgage lending and servicing companies. Quite a few of California’s Appeals Court judges are millionaires and they vest their wealth in stocks and bonds of large blue chip companies, often ones that pay hefty dividends. The financial sector is a major investment target for judges, and its biggest banking and mortgage lending companies pay them hefty dividends. Under this theory, even if a judge doesn’t hold stock directly in a financial corporation that argues a case in their court, judges are believed to be influenced by their general interest in the banking and mortgage lending sectors of the economy. Judges are said to exhibit bias in favor of the banks, and to respond to borrowers’ legal arguments with a weary skepticism as rulings in favor of borrowers could upset the appreciation of stocks and the yields on bonds of the entire financial sector.

Lastly it should be noted that financial companies are probably not the largest targets of investment by California’s Appeals Court judges. If ranked by the upper end of the disclosed range of investment, finance and banking falls after tech, energy (mostly oil and gas), consumer products, industrial manufacturing, and diversified funds (including private equity, mutual funds, bond funds, etc.) as a sector of the economy where judges like to seed their wealth.

California Appellate Court Judges Ownership of Securities, by Sector of the Economy, Reported as of 2012.
Sector Low Est. High Est.
Technology $3,214,000 $31,620,000
Energy $3,902,000 $27,560,000
Consumer Products $2,474,000 $24,270,000
Industrial $3,272,000 $22,960,000
Funds $3,984,000 $21,770,000
Finance, Banking $4,034,000 $21,270,000
Retail Stores $914,000 $8,820,000
Pharma & Biotech $804,000 $7,770,000
Telecom $752,000 $7,260,000
Real Estate $1,586,000 $6,780,000
Healthcare $386,000 $3,680,000
Entertainment & Hospitality $550,000 $3,400,000
Utilities $328,000 $3,240,000
Government Bonds $240,000 $2,400,000
Misc $226,000 $2,230,000
Consulting $166,000 $1,630,000
Agricultural $142,000 $1,410,000
Insurance $114,000 $1,070,000
Mining $96,000 $930,000
Media $68,000 $640,000
Logistics $64,000 $570,000
Transportation $34,000 $320,000
$27,360,000 $201,700,000



Bay Area Council CEO Jim Wunderman, BART director Grace Crunican, and MTC representative Tom Bulger in the Capitol with Rep. Nancy Pelosi in 2011.

On October 3 a business lobbying organization released a poll claiming that Bay Area residents are in “overwhelming agreement” that BART workers should accept the current contract proposal offered by the transit system’s management in order to avoid another strike. That offer would actually amount to a pay cut for most BART employees, but it was described in the poll as a “raise of 10 percent.” The survey’s overall design seems geared to elicit a result favoring BART management. No doubt this is because the business lobby that paid for and helped engineer the poll has an interest in driving down labor costs and freeing up BART’s revenue for system expansion.

The lobbying group that paid for the poll is the Bay Area Council, or BAC. The BAC was formed in 1944 as a coordinating committee of the region’s biggest banks, construction companies, manufacturers, oil giants, and real estate corporations, most of them headquartered in downtown San Francisco. The impetus to create the BAC stemmed from the frustrations of elite corporate executives who, during World War II, worried that the Bay Area’s fragmented geography and multitude of county and city governments would prevent the creation of grand transit and industrial projects. The war time boom minted huge fortunes for these tycoons, but they feared northern California’s auto-driven sprawl would diminish real estate values in their cherished urban core, San Francisco, and further that it would drive up operating costs for their companies as their white collar employees, and some of their peer companies, dispersed to the suburbs.

“These prospects were greeted with exaggerated gloom in San Francisco,” wrote Melvin Webber in a 1976 study of BART. Webber was the founder of Berkeley’s Transportation Center, and an influential author of an early analysis of BART’s impact on the region. Webber found the origins of BART in both the financial and political interest of San Francisco’s wealthy elite:

“Surely, no other American city is as proud and narcissistic-no civic leaders elsewhere so obsessed by their sense of responsibility for protecting and nurturing their priceless charge. The idea that San Francisco might go the way of Newark or St. Louis was utterly abhorrent. And so it was, as the San Francisco Chamber of Commerce proudly reported in a multi-page advertisement in Fortune, that the civic leaders of San Francisco and their neighboring kin initiated a major effort to keep the Bay Area from going the way that cities of lesser breed were headed. The campaign was masterful in both conception and execution.”

Alan Browne, a senior vice president at Bank of America who participated in this masterful campaign to establish BART said the problem was, “essentially just a breakdown on the movement of people,” from the hinterlands to the urban core.

Joining Browne was Adrian Falk, the president of S&W Foods. Falk helped raise funds and coordinate the 1962 ballot campaign to launch BART. S&W Foods, today known as Del Monte, the $3.8 billion corporate agribusiness giant, is still headquartered three blocks from BART’s Embarcadero Station. After helping wage the successful public relations campaign for BART’s creation, S&W’s Falk became the first president of BART’s board of directors.

Falk told the local newspapers quite frankly that the main purpose of BART was to create the necessary people moving infrastructure to benefit the wealthy downtown corporations already located in San Francisco. “Certain financial, banking, and industrial companies want to be centralized, want to have everyone near each other,” said Falk. “They don’t want to have to go one day to Oakland, the next day to San Jose, the next day to San Francisco.” (For a lengthy discussion of BART see John Dickey’s Metropolitan Transportation Planning, 2nd Edition, 1983, p. 378).

BART’s first general manager was a former executive with the Western States Oil and Gas Association, John Pierce. The oil industry’s dominant West Coast driller and refiner, Standard Oil of California, was at the time headquartered two blocks from BART’s planned Montgomery Street Station. Support from oil companies was just one sign that BART was never meant to reduce freeway traffic and reliance on oil. The Bay Area’s freeways were still planned to expand in size by multiples. (Years later Standard of California, broken off the larger oil monopoly and renamed Chevron, moved to San Ramon, far off the BART line.)

Executives of Bank of America, Wells Fargo, and Crocker National Bank, all with their headquarters just blocks from BART’s planned stations running along Market Street, were instrumental in the campaign to create the transit system. For example, Bank of America CEO Carl Wente was the chair of the BAC’s rapid transit committee and chairman of the fundraising effort for the ballot measure that funded BART.

More than a few of the BAC’s corporate members made fortunes off the construction of BART.

No sooner had BART collected its first pot of sales tax revenue in 1958 then the District’s leadership paid Bechtel and Tutor to design the railway. Bechtel’s offices were again both located just blocks from where the planned funnel of BART trains would dump workers along Market Street. Bechtel, the giant engineering and construction company then busy building petroleum and nuclear plants around the world, later landed the contract to build BART’s tunnels and tubes. More recently Tutor was paid over $600 million by BART to build the SFO extension, and millions more to build the South San Francisco and San Bruno stations. The S.D. Bechtel, Jr. Foundation to this day funds the Bay Area Council.

Bay Area banks underwrote the bonds for BART, skimming millions off the discount fees and interest payments secured ultimately by regressive bridge tolls and sales taxes.

Again, Bank of America’s Alan Browne provides a candid description of how BART’s lucrative financial and construction contracts were divvied up between San Francisco’s business lobby. “As it worked out,” said Brown in a 1988 interview, “Bechtel saw a chance to do the engineering work, and Kaiser was also involved in the idea of selling concrete and steel and engineering. PG&E could sell power; Chevron, if they took cars off the freeways, they’d be replaced with other cars. So that was another factor, and they all could see that they were going to benefit.”

As for Bank of America, Browne understated the benefit the San Francisco financial behemoth reaped from BART’s construction and operations:

“We were pretty good at investing. We weren’t as successful in bidding for the securities [BART bonds], and I used to be amused because all of our competitors in the banking world had no part at all in the growth and development of the BART concept. But when the bonds were finally approved and were being offered for sale, they were in there with both feet. So they were trying to prove something. All that we were able to obtain out of the spoils of victory were being made the trustee and fiscal paying agent. Which was not a big item, but it was one thing.”

That one thing was profitable enough for Bank of America. Other financial institutions made millions over the years financing BART, and Wells Fargo and Crocker National (merged into Wells Fargo in 1986) saw their downtown San Francisco fortunes boom.

The foundations established by these banks currently funnel dollars to support the Bay Area Council’s activities, including the recent poll it paid for about BART. Bank of America Foundation, US Bank, and the Wells Fargo Foundation all channel money to BAC.

Is it any surprise then that the Bay Area Council, a big business lobbying group, with its origins in the campaign to create BART and finance it with regressive sales taxes and passenger fares, would sponsor a poll today pressuring BART’s workers to accept pay cuts?

Today the Bay Area Council continues to to be the mouthpiece for some of the same mega-corporations that built and benefited the most from BART, including Wells Fargo, Bechtel, Clorox, Bank of America, and the hospital giant Kaiser that was spun off the industrial conglomerate of the same name years ago.

More than a few of the current members of the Bay Area Council have a strong financial interests in cutting the compensation of BART employees in order to free up more revenue for costly system expansions.

The Orrick Herrington & Suffcliffe law firm was paid a pretty penny in 2010 bond as counsel to BART on a $129 million sales tax bond flotation. Orrick law is a member of the BAC. Last year Orrick earned another pot of money on BART’s $240 million sales tax bonds. BART is a big client for Orrick. Every time the transit district needs to borrow money it’s likely that Orrick will be paid to help structure a deal.

The trustee on most of BART’s bonds is US Bank, a member of the BAC, which basically inherited the business from Bank of America.

In 2009 BART’s board of directors fed at least two $15 million dollar contracts to URS Corporation, another member of the BAC, for various engineering and construction work related to the system’s expansion. In 2007 URS won a $10 million contract from BART to manage construction upgrades of BART’s elevated train lines. URS makes a lot of money from BART’s capital budget, having helped build three BART stations. A vice president of “corporate strategic planning” with URS currently sits on the Bay Area Council’s board of directors.

The real estate developer TMG Partners has multiple projects that will be affected by BART’s investments of public funds. Just earlier this year the San Francisco Business Times straightforwardly published an article about TMG entitled, “Landlords snap up sites near BART, Muni stops.” On its web site TMG says its vision is to “take advantage of [an] under-construction BART station,” by building an 1,100 unit apartment complex with a hotel in San Bruno where real estate values are poised to climb thanks to BART. TMG’s chairman and CEO Michael Covarrubias is a board member of the Bay Area Council, and his company is a corporate member.

Another member of the BAC, the engineering company CH2M Hill, was awarded a $25 million contract earlier this year to advise BART on vehicle maintenance and refurbishment. CH2M Hill’s prime contract includes multiple subcontractors like BAC members URS and Arup North America.

The Pillsbury Winthrop Shaw Pittman law firm is another Bay Area Council member with deep financial links to BART. Pillsbury has been paid millions by BART to lobby for the transit agency in Sacramento for many years. A Pillsbury partner Robert James has represented BART in real estate deals around planned stations. Robert James is a board member of the BAC.

Bay Area Council member Citibank has underwritten multiple BART bonds in prior years. Citibank has also sold BART complex financial derivatives like the 2004 interest rate cap that cost BART $245,000. Citibank’s Rebecca Macieira-Kaufmann is a BAC board member.

And of course joining all these CEOs whose companies do multi-million dollar business with BART on the board of the Bay Area Council is BART’s general manager Grace Crunican.

Oakland’s leaders are currently investigating how the conspiracy of a few global financial companies to rig the London Inter-Bank Offered Rate affected the city’s finances. Sources in City Hall say that the theft may amount to more than $300,000.

Oakland’s losses are due most likely to interest rate swaps the city agreed to with several banks in the mid-2000s. In 2004 Oakland sold $117 million in variable rate bonds. The underwriters of these bonds, Bank of America and UBS attached interest rate swaps to these variable rate bonds. The swap payments involved a two way flow of funds between the city and the banks that was intended to convert the variable rates on the bond debt into a “synthetic” fixed rate.

Under the terms of the two deals with Bank of America and UBS, Oakland paid the banks 3.533 percent, and in return the banks paid 58 percent of the 1-Month LIBOR rate, plus a “spread” of 350 basis points (0.350 percent). The LIBOR-linked rates the banks paid Oakland were intended to mimic the variable rates on the bonds, thus passing through Oakland to service the bond debt, leaving Oakland paying the fixed rate of 3.533 percent (thus the “synthetic” label).

However, because UBS, Bank of America, and other banks that were part of the panel that set the different LIBOR rates, rigged LIBOR downward over various years, Oakland ended up paying more than it should have. It was theft, plain and simple, even though it occurred through a complex financial architecture invisible to most.

The terms of Oakland’s interest rate swap agreements with UBS and Bank of America can be viewed online here.

To assess just how much money was stolen from Oakland by UBS and Bank of America we must determine when, and by how much the banks manipulated the rates, and in what direction. Financial analysts employed by many local governments and public agencies are currently doing this tedious work, including inside Oakland’s finance and legal offices.

To help the public understand how the conspiracy worked, and just how much it may have affected Oakland, I’ve calculated the following guesstimate.

Let’s assume that since 2004 the banks rigged the LIBOR rate downward by an average of 50 basis points at any given time. This is a really sloppy and imprecise assumption as the banks might have rigged the rate upwards and downwards over time depending on what rates would have benefitted them in the ever-shifting world of finance. Rigged rates could have been jacked up a lot during some periods, while only a little bit during other periods, or downward by big and small margins. For the sake of simplicity let’s just assume the average impact of the LIBOR rigging conspiracy over the terms of Oakland’s swaps with UBS and Bank of America was negative 50 basis points, or -0.05%.

The following table shows what Oakland probably actually paid between 2004 when the swaps were signed, and 2008 when the city terminated the swaps (they were originally intended to run to 2026). Assuming the LIBOR rate wasn’t rigged would mean that after netting out Oakland’s fixed rate against the bank’s LIBOR-linked variable rate, Oakland paid the banks approximately $7.7 million.


If LIBOR during this period was skewed on average by negative 50 basis points by the banks, it would mean that the variable rates paid by the banks to Oakland were lower. Under this scenario the net flow of payments would have been even further in the favor of the banks. The following table adds fifty basis points back to LIBOR, simulating what the banks should have paid in the absence of the conspiracy. Under this hypothetical scenario the banks should have only received $7.45 million from Oakland.


The difference of a quarter million here is the amount that the banks might have stolen from Oakland.

Then there’s the termination payment that would have been made in the Spring or Summer of 2008 by Oakland to close out the swaps. These termination fees are calculated using the “fair value” of the swap. The swap’s value depends on where LIBOR is at, and where it’s trending. Thus if the banks had been rigging LIBOR downward over time, and pressing down very aggressively during the financial crisis, Oakland’s termination payments would also have been skewed in the favor of the banks. So an estimate of $300,000 seems to be a reasonable, if conservative, estimate of how much was stolen from Oakland by UBS and Bank of America.


The City of London, the world’s most central financial hub and site of the biggest Eurodollar money market which LIBOR was created to govern.

The importance of uncovering the complete truth about the LIBOR rigging conspiracy cannot be overstated for local communities across the United States, especially here in California.

It’s been five years since a few academics and journalists began to dig up evidence that something was wrong with the London Inter-Bank Offered Rate, or LIBOR (pronounced appropriately as “lie-bore.”) The data that curious researchers were compiling couldn’t be explained using the prevailing definition of what LIBOR supposedly was: a trustworthy interest rate that accurately gauged the market price of borrowed US dollars held overseas by the world’s biggest banks. Instead, their findings pointed toward something other than an idealized neoliberal market, influenced only by impersonal supply and demand forces. Many began to realize that the data could easily be explained if the banks were rigging the LIBOR rate in their favor. Strange discrepancies in LIBOR’s correlation to other rates, and to the economic fundamentals of the bank companies responsible for formulating the rate, showed something seriously amiss, but it made sense if the banks were cheating.

The motives of the banks have been clear from the beginning. A few banks that dominate the marketplace for derivatives stand to make billions if LIBOR moves in their favor on particular days when contractual payments between them and their customers come due. They therefore suppressed the rates in order to skim billions of dollars off derivatives and investments. Later these same banks suppressed LIBOR rates to create the illusion that their balance sheets were robust during the financial crisis. This also allowed them further rounds of money-siphoning from their unwitting derivatives customers.

Barclays-logoUntil recently LIBOR rates have been set by a panel of banks that are members of the British Bankers Association (BBA). The BBA is a private industry group established almost 100 years ago to lobby for the financial industry in one of its global hubs, London. The BBA really came into power in the mid-1980s with the creation of LIBOR. LIBOR was created to further integrate the giant global money market in US dollars held in overseas banks or holding companies, and therefore unregulated by the US Federal Reserve. Called “Eurodollars,” because they originally were dollar savings accumulated in European banks, especially banks in London, these funds quickly became a de facto global currency. LIBOR began as a way for the banks to standardize investment products for these vast pools of American dollars flowing through Europe, and later Japan, the Middle East, and Latin America. By the 1990s LIBOR had become such an important set of interest rates, and US dollars held overseas had becomes such an important source of credit for US consumers, that LIBOR became the key global interest rate around which many financial products were pegged. As LIBOR became more and more important to the globalization of finance, it accrued a sort of official, trusty gloss; nearly everyone assumed that LIBOR was a market rate reflecting competition. Instead, LIBOR has probably all along been a fudged rate, determined less by vast market forces and invisible hands, and more by the vulgar self-interest and power of the elite banks that set LIBOR rates.

citiLast year government investigations into this globe-spanning crime —rightly called the biggest financial scam in all of history— led to multi-billion dollar fines against Barclays, the Royal Bank of Scotland, and UBS, the 7th, 8th, and 20th largest banks in the world, respectively. Criminal investigations spearheaded by US, UK, Japanese, Canadian, Swiss, and Singaporean authorities are ongoing and aimed at other banks such as Citigroup, JP Morgan, Bank of America, and other “too big to fail” institutions. More details of the crime will be forthcoming as e-mails, internal documents, phone tapes, text messages, and other evidence, is made public, and as the banks are forced to pay significant fines, and sign plea agreements.

While this scandal might seem worlds away, concerning complex financial concepts and obscure money market instruments dealt by bankers out of skyscraper offices in the City of London, the importance of uncovering the complete truth about the LIBOR rigging conspiracy cannot be overstated for local communities across the United States, especially here in California.

ubsWhy? First, LIBOR has been used since the 1990s to determine cash flows on interest rate swaps that local governments have purchased from banks to insure themselves against wild swings in variable interest rates owed on billions of municipal debt. Messing with LIBOR messes with the payments due on these instruments.

Second, LIBOR has also been used as a main interest rate of reference for an array of investment products that yield a variable return, dipping and rising in concert with LIBOR. Local and state governments have used these investment products, called “municipal derivatives reinvestment products” to temporarily park public funds, while pension systems and government enterprises like utilities use them make investments. Governments and public agencies earn LIBOR rate returns on their dollars invested in numerous kinds of municipal derivatives, so if LIBOR is illegally fixed downward, they earn less income.

jp_morgan_chase_logo_2723Through both of these forms of exposure, local governments have potentially been harmed by LIBOR-fixing perpetrated by the banks, often times the very same banks that have sold them swaps or municipal derivatives investment products.

California is fast emerging as a center of investigation and litigation into the LIBOR-fixing conspiracy. California is the largest single municipal debt market in the United States, and one of the largest in the world. Last year alone the state of California and its cities, counties, school districts, and other public entities issued $65.7 billion in total public debt. Because of California’s regressive tax structure and chronic budget crises, the state’s multitude of governments have been among the most aggressive in issuing variable rate debt hedged with interest rate swaps.

The Golden State’s local governments have also been the largest purchasers of municipal derivatives contracts from banks because streams of tax and fee revenues often don’t match up with the dates that payments to public employees and contractors come due. Collusive suppression of LIBOR rates by the 16-member panel who were trusted to provide accurate quotes could mean that California local governments have paid untold millions to their interest rate swap counterparties (the banks) that should otherwise have remained in budgets and used to fund school construction, bus lines, street paving, water and sewerage services, etc.

In the 1990s and 2000s local governments across California increasingly issued bonds with variable rates. Investment bank underwriters and municipal debt advisers from the private sector encouraged variable rate bond financing because it promised lower interest rates for California’s cash-strapped municipalities. To hedge against the risk that variable rates might explode, as they did in the 1980s, the banks sold interest rate swaps to local governments. The swaps effectively converted floating rate debt into a fixed rate. Under a typical swap contract the bank seller agrees to pay a floating rate designed to mimic the variable rate interest on the bond debt, and in return the local government agrees to pay a fixed rate. I’ve written elsewhere about how this deal blew up and created a financial injustice when variable interest rates plummeted during and after the Financial Crisis, but the LIBOR rigging conspiracy adds to these harms. The US government bailed out the banks and assisted them in taking “toxic” derivatives assets off their hands, but stood idly by while cities, counties, and public agencies suffered without aid during the Financial Crisis, allowing derivatives instruments on the public’s books to blow up and drain budgets. At this very moment the banks perpetrated an illegal scam to suck even more money from the public via further depression of LIBOR.

Barclays, RBS, UBS, and other banks worked together to suppress LIBOR below even the depths to which it sank after 2008. A number of lawsuits filed by various cities, counties, and public agencies in California asserts the banks did this to skim off an unknown, but very large, amount of money from their public victims, and also to bolster their own balance sheets during the crisis. By suppressing LIBOR the banks ensured that the net difference between the variable rates they owed, and the fixed rates the public was paying on swaps, was wider than it would otherwise have been. This net difference meant that the public owed the banks higher amounts when the interest rate swap payments came due (usually twice a year).

For San Francisco this could mean that millions have been stolen from the capital budget of its Airport. SFO currently has seven interest rate swaps it has purchased to convert variable rate bond debt into synthetic fixed rates. The airport’s counterparties on its swaps included JP Morgan Chase, Merrill Lynch (owned by Bank of America), and Goldman Sachs. Each of these banks likely benefited from conspiratorial suppression of LIBOR, even if it was by just a few basis points (hundredths of a percent). JP Morgan Chase and Merrill’s parent Bank of America are both members of the panel that sets LIBOR, and are both believed to have played a role in the conspiracy.

San Francisco’s pension system may have also been raided by the banks through its speculative investments in swaps. According to the most recent audit of the San Francisco Retirement System’s portfolio, the city’s pension system holds two interest rate swaps on its books with a notional value of $15 million. In prior years, SFERs held other swaps. In 2010, the Retirement System’s audit showed three interest rate swaps with a total notional value of $41 million. Over the last two years these swaps drained $5.3 million from the pension system, and some of these losses might have been due to the downward manipulation of LIBOR. Also on the Retirement System’s books are other investments in bank loans, options, and other securities that might have been impacted by the LIBOR fraud.

San Francisco’s LIBOR damages are probably small in comparison to other local governments and public agencies. The East Bay Municipal Utility District has already filed a lawsuit in federal court alleging damages from bank rigging of LIBOR. The water district’s complaint, filed in January of 2013, alleges that LIBOR suppression drained potentially millions, again from interest rate swap agreements with some of the very banks that sit on the LIBOR-panel: Citibank, JP Morgan Chase, and Bank of America. East Bay MUD lists nine interest rate swaps potentially affected by LIBOR rigging in its lawsuit.

East Bay MUD’s swaps had a total notional amount of $481 million in 2012, according to the utility’s most recent financial report. Downward manipulation of LIBOR by just 10 to 50 basis points (1/10th to 1/2 of a percent) could have drained between $481,000 to $2,400,000 through East Bay MUD’s swap payments every six months. Over a few years, say the conspiracy’s 2007-2010 time-frame alleged in EBMUD’s lawsuit, this would add up to millions of dollars stolen by the banks.


The cities of Richmond, San Diego, and Riverside, and the County of San Mateo, are other California governments that have now filed lawsuits against the banks responsible for setting LIBOR. All of these lawsuits have been consolidated into a larger class action case currently being heard in the U.S. District Court, Southern District of New York, before Judge Naomi Buchwald. There are now about two dozen LIBOR manipulation lawsuits that have been filed and consolidated in New York. The lead case is the City of Baltimore and the New Britain Firefighters’ and Police Benefit Fund lawsuit against the 16-bank LIBOR panel, filed in April of 2012.

More California cities, counties, and public agencies are expected to file their own lawsuits soon, however. CalPERS, which has numerous investments that fluctuate in value and yield with LIBOR, is also said to be investigating its own exposure to rate rigging.