Finally!! Someone acts against the scam that tipped Detroit into bankruptcy!

[EastsideAl]

http://www.nytimes.com/reuters/2014/...r.html?hp&_r=0

I really wish we could send all the people responsible for this cynical scam that hurt so many towns and people to jail for a good long time, like they deserve - after paying back everything they've "earned." That's sure as hell what we do if they were street hustlers or selling a little dope. But swindlers in ties who manipulate markets and bankrupt whole cites with their 'heads we win, tails you lose' deals are given full immunity by race and class privilege. So they will just pay a 'pocket change' fine, promise to be good little boys [[until the next opportunity to fraud their way into billions comes up), and walk quietly away with their riches intact.

Still, it's nice that somebody is doing something, even if it's only really for the record.

[Gistok]

OK... they deserve to go to jail... and caused a lot of financial misery for a lot of institutions. BUT... this was not some single act that drove Detroit into bankruptcy. That took 30+ years to do.... so there was really no "tipping" involved... just another problem in a long line of problems....

[Wesley Mouch]

Eastside... do you think that Detroit would have avoided bankruptcy but for the financial crisis or LIBOR scandal?

This seems like denial of a lot of what went down in Detroit.

To me, Detroit [[government) was like a drunk just about ready to fall down into the gutter. Wall Street certainly did push us over -- maybe earlier than otherwise.

Do you think Detroit prior 2008 was the sort of place we could be proud of? I think the services being delivered to citizens was embarrassing. And I'm glad that we're getting help and that the citizens are engaged in creating a new city with new possibilities.

[[But let me join you in celebrating jail for Wall Streeters.)

[MikeyinBrooklyn]

EastsideAl, surely you realize that Detroit has spent massively more money than it brought in through tax revenues for decades. That is not in dispute, and that is why Detroit is in bankruptcy. Of course there may have been unethical bankers, and if they broke the law they should be punished. But that activity was just icing on an already enormous cake. And don't forget that any lending to Detroit was A) voluntary on Detroit's part and B) done to cover our immediate inability to pay our bills. If you hand me a cookie, and I weigh 250 pounds [[which I do), you didn't make me fat. Blaming persons and organizations that are not Detroit voters and politicians is neither helpful [[we learn the wrong lesson) nor fully honest [[histories of Detroit's bankruptcy should point out the major reasons for bankruptcy, overspending and over-borrowing). A fiscally responsible Detroit would not even have needed to do much borrowing, and would have attracted a better class of lenders. Other people might be jerks or even criminals, but we are responsible for our bankruptcy. We need to own our failure to prevent it from happening again.

[Mikeg]

The LIBOR rigging had nothing to do with tipping Detroit into bankruptcy.

As I noted on this thread back on Nov. 4, 2011, Mayor Cockrel and the City Council agreed in April 2009 to pledge the city's casino wagering revenues as collateral to avoid paying a crippling $400 million termination payment for having violated their interest rate swap agreement. The city violated the agreement when Detroit's debt was downgraded by the ratings agencies. The downgrade was the result of the Kilpatrick administration's habitually late audits.

Therefore, like the proverbial butterfly whose beating wings created air currents that evolved into a hurricane, the late audits started a cascade of events that resulted in the inability of the City Council to use casino revenue as collateral for short term tax anticipation notes as they normally have done in the past, since it was already pledged to solve the interest rate swap problem. This further exacerbated the city's cash flow crunch, hastening the downward spiral into bankruptcy.

[EastsideAl]

The LIBOR rigging had nothing to do with tipping Detroit into bankruptcy.

As I noted on this thread back on Nov. 4, 2011, Mayor Cockrel and the City Council agreed in April 2009 to pledge the city's casino wagering revenues as collateral to avoid paying a crippling $400 million termination payment for having violated their interest rate swap agreement. The city violated the agreement when Detroit's debt was downgraded by the ratings agencies. The downgrade was the result of the Kilpatrick administration's habitually late audits.

Therefore, like the proverbial butterfly whose beating wings created air currents that evolved into a hurricane, the late audits started a cascade of events that resulted in the inability of the City Council to use casino revenue as collateral for short term tax anticipation notes as they normally have done in the past, since it was already pledged to solve the interest rate swap problem. This further exacerbated the city's cash flow crunch, hastening the downward spiral into bankruptcy.

Well, I believe some of the "facts" you state are in dispute. But even if everything you say is true, it still seems sort of beside the point. I am told by people involved in the bankruptcy proceedings that these interest rate swaps were given a "hard sell" by the banks to many municipal governments in trouble, including Detroit, as a potential panacea for their cash flow problems. And the reason for this hard sell treatment was that they were manifestly fraudulent products, based on a rate that the banks could always manipulate in their favor. So, even if the city had done everything they were supposed to do - no late audits, no rating reduction - they still stood to lose hundreds of millions of dollars on this deal in the end, and there was no possible way that they could ever have realized any of the potential benefits that were part of the sales pitch to them by UBS and BOA. The game was completely rigged from the start.

[MikeyinBrooklyn]

EastsideAl, you do know, I assume, that when the city [[or any other person or organization) enters into an agreement about borrowing or financing, they get a typed document with the specific terms and variables to consider, right? It is NEVER, EVER someone else's fault that you entered into a bad contract, provided you had the opportunity to read it [[and, in the city's case, have legal and financial staff to analyze it). Every bad agreement the city entered into [[and let's be honest, they are legion) was the city's fault. If you blow your life savings at the casino, it is not the casino's fault.

[Mikeg]

Well, I believe some of the "facts" you state are in dispute. But even if everything you say is true, it still seems sort of beside the point. I am told by people involved in the bankruptcy proceedings that these interest rate swaps were given a "hard sell" by the banks to many municipal governments in trouble, including Detroit, as a potential panacea for their cash flow problems. And the reason for this hard sell treatment was that they were manifestly fraudulent products, based on a rate that the banks could always manipulate in their favor. So, even if the city had done everything they were supposed to do - no late audits, no rating reduction - they still stood to lose hundreds of millions of dollars on this deal in the end, and there was no possible way that they could ever have realized any of the potential benefits that were part of the sales pitch to them by UBS and BOA. The game was completely rigged from the start.

Here's links to support what I wrote.

Swaps deal will save Detroit from insolvency: Mayor

City of Detroit's Cash Flow Challenges

If you think they are in dispute, perhaps you can provide evidence to the contrary instead of casually dismissing them with "scare quotes".

Yes, the interest rate swap agreements were a risky proposition, but they were made even riskier when the city signed them knowing full well that they were in deep financial trouble and that the probability of a credit ratings downgrade was close to 100% over the life of the agreements and thus much more likely to happen than a change in the LIBOR interest rate, rigged or otherwise.

Yes, the council was probably subjected to a "hard sell", but did those wicked bankers hold a gun to the head of the city council to make them sign the interest rate swap agreements?

The council irresponsibly agreed to the swaps because they figured that by the time the city's finances cratered, it would be on someone else's watch.

[EastsideAl]

If you blow your life savings at the casino, it is not the casino's fault.

It is if the games are fixed.

Did the contracts say "oh, and we have control over the LIBOR rate"? If they didn't [[and they most certainly didn't) then it was a scam, plain and simple. And now they are finally being called to account, at least somewhat, by the FDIC.

[Dan Wesson]

It is if the games are fixed.

Did the contracts say "oh, and we have control over the LIBOR rate"? If they didn't [[and they most certainly didn't) then it was a scam, plain and simple. And now they are finally being called to account, at least somewhat, by the FDIC.

The scale of Libor rate manipulation was both massive and miniscule at the same time.

On one hand, the primary reason to do what they did was to make things between the banks look better than what they were. It was a rate that banks would use when they lent to each other for short term loans.

On the other, the Libor was used in the other markets such as derivatives. Here it became a form of skimming. If the the Libor rate moved a minuscule fraction one way or another smart minds found a way to take advantage of the arbitrage using swaps. But when done so the massive amounts came from the sheer size of the markets and bets made world wide.

It was here that the FIRE economy soaked the the rest of the world economy.

Did the rigging of Libor rates effect Detroit triggering an event? Probably not considering the cumulative financial problems Detroit faced. But one cannot discount Al's position on the matter either cause it did add to the cost of unwinding losing bets.


Those manipulations were in an amount finance refers to as "Basis Points". A basis point is 1/100th of 1%.