Last week the Political Minute talked about the LIBOR scandal, which involved big banks understating interest rates. Most consumers were ho-hum about the news as they couldn’t really see how it hurt them directly.
But, now that a week has passed, the true victims are starting to surface.
And guess who they are? Why, you and me, of course!
Local governments rely on interest rates to determine the costs of providing services to the community. Things like hospitals, schools, fire departments, etc. To protect themselves from risk, they buy derivatives that go up in value with rising interest rates.
The problem is that the rates SHOULD have risen but didn’t and money was lost on these derivatives as a result.
When you add up the amount of money lost, we’re talking about potentially billions of dollars taken out of the pockets of hospitals, schools, fire departments, etc.. services that we all depend on and we use.
Once these local governments start suing the banks over their losses.. we’re talking about billions of dollars more in potential losses to these banks. But that’s still up in the air whether they will be able to prove these loses and recover them.
Barclays may have paid a fine of $450 million dollars, which is basically a slap on the wrist, and if all we do is fine companies for things like this, with nobody going to jail for committing fraud, these types of things will not stop happening.