Class Action Goes After 10 Banks on Interest Rate Swap Fixing

Bank collusion has been a theme in the world of banking malfeasance news for some time. We know they've been caught colluding on currency exchange rates. We know that twelve banks settled a lawsuit in September admitting to credit default swap fixing. But a class action lawsuit filed Wednesday by The Public School Teachers' Pension and Retirement Fund of Chicago contends that ten of Wall Street's largest banks have "extract[ed] billions of dollars in monopoly rents, year after year . . ." and in doing so, wrecked Chicago teachers' retirement accounts.

From Reuters:

The class action lawsuit, filed in U.S. District Court in Manhattan, accuses Goldman Sachs Group (GS.N), Bank of America Merrill Lynch (BAC.N), JPMorgan Chase(JPM.N), Citigroup(C.N), Credit Suisse Group (CSGN.VX), Barclays Plc (BARC.L), BNP Paribas SA (BNPP.PA), UBS (UBSG.VX), Deutsche Bank AG (DBKGn.DE), and the Royal Bank of Scotland (RBS.L) of colluding to prevent the trading of interest rate swaps on electronic exchanges, like the ones on which stocks are traded.

jail-banksters-31.jpgIn the simplest terms: Interest rate swaps are agreements to exchange interest rate cash flows from fixed to floating rates. One party may have a bond that pays a fixed rate, say, five percent, while the other party has a bond with a variable rate. The party swapping out the fixed rate may want to take a chance on receiving higher payments. Likewise, the party with the variable rate may want the stability and predictability of the fixed rate. But when insiders collude to keep others from entering the trading market on fair terms, those other parties end up paying more for the swaps.

But if market managers secretly collude to keep the margins high, then most everyone else loses money. It's cheating, plain and simple. This is what allegedly happened in this scam--since at least 2007 the banks “have jointly threatened, boycotted, coerced, and otherwise eliminated any entity or practice that had the potential to bring exchange trading to buyside investors.”

It's rather outrageous, this serial bad behavior by the big banks. After continuous ruination, this arrogant flauting of law and derision of the public good has got to hit a breaking point sooner or later. Here's the analysis at Zero Hedge:

Time and time again over the last number of years the largest global banks have been found complicit in the manipulation of key rates, indices and markets. Now, a large and important pension fund has taken the largest of banks to task and filed a class action lawsuit alleging conspiracy to thwart competition and extract large fees and margins from the vast and critical interest rate swap market. The banks "have been able to extract billions of dollars in monopoly rents, year after year, from the class members in this case," the suit states.

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