Baltimore and the LIBOR Scandal: 'We Can't Leave Any Money
on the Table'

    The hard-hit city says it had no choice but to file
    a class action lawsuit, putting a human face on the
    far-reaching scandal

By Dominic Rushe

Guardian (UK)
July 19, 2012

http://www.guardian.co.uk/business/2012/jul/19/baltimore-libor-financial-crisis

New York

A little over two years ago, Stephanie Rawlings- Blake had
never heard of Libor. The mayor of Baltimore had plenty of
other things to keep herself occupied. Elected in 2010, she
was dealing with the aftermath of a financial crisis that
had left her city with the budget deficit of $120m and the
cost of cleaning up the worst two-day snowstorm in the
city's history. And then she found out the credit crunch had
come back to take another bite out of the city's finances.

Baltimore is lead plaintiff in a class action lawsuit that
alleges that banks including Barclays, Bank of America,
HSBC, JP Morgan and UBS conspired to fix a set of key
interest rates - the London Interbank Offered Rate, or Libor
- costing the city millions in the process. So far, the
Libor scandal has played out mostly under the radar in the
US. But now it is gaining traction in Washington, and
Baltimore's suit is putting a human face on a scandal legal
experts predict could end up being the most costly of the
credit crisis.

Firefighters, services for the elderly, school programmes -
all these and more are being cut as a direct result of the
actions of colluding bankers, Rawlings-Blake claims.

According to the court documents, Baltimore bought "tens of
millions of dollars worth of interest-rate swaps" during the
period when the alleged fixing took place. The suit, filed
with top Washington law firm Hausfeld, alleges that between
August 2007 and May 2010 the defendants conspired to
suppress Libor below the levels at which it would have been
set had they accurately reported their borrowing costs.
Those manipulations had "severe adverse consequences" for
Baltimore and others, according to the suit. Other cities
are watching carefully and a raft of litigation is expected
in the US.

The city had no choice but to fight, said Rawlings- Blake.
"We are faced with closing fire companies, closing
recreational centers . We have services that have been cut
year after year; services that people depend on.
Opportunities for young people, the cleanliness of the city:
everything is affected by the budget," she said.

"We can't afford to leave money on the table," she said.

Baltimore has a reputation for taking on the banks. Earlier
this month Wells Fargo settled a suit launched by the city
four years ago that alleged the bank discriminated against
black and Latino mortgage borrowers.

"It's certainly disappointing, and I understand why a lot of
people have lost a lot of trust and faith in the financial
institutions. They are pretty much playing fast and loose
with the people they are meant to protect," she said.

"We stand up for ourselves," she said. "One thing about
Baltimore is that we are not afraid of a fight. There are
too many needs we have in this city."

But this case looks set to put all others in the shade.
Policymakers around the world have called for an overhaul of
the system that underpins $500tn of contracts globally -
everything from home loans to arcane derivatives.

Stephen Bainbridge, a professor of law at UCLA, said the
case was "one of the worst examples of abuse of trust that I
can remember in 25 years of following corporate governance".
Given the scale of Libor's influence, Bainbridge said, this
could emerge as "the defining financial scandal of the
meltdown".

Bainbridge believes the justice department may build an
anti-trust case against those involved that could ultimately
lead to a settlement as large as that agreed in the US's
massive suit against the tobacco industry. Anti-trust laws
allow three times the damages for those convicted of
collusion.

But he believes a suit like Baltimore's may prove harder to
prove. The city's lawyers will have to prove direct "loss
causation" - in other words, that bankers allegedly fixing
rates in London directly hit Baltimore's bank balance.

"Proving that chain of events can be difficult," said
Bainbridge.

Baltimore city solicitor George Nilson said he was confident
there was a good case to answer. He pointed out that the
process of discovery - when the city gets hold of internal
emails and documents from the bank - had not even started
yet. Since the suit was filed he said he had "not heard
anything that makes me feel less enthusiastic about the
case."

Nilson said he had been taken aback by the massive level of
interest in the case, especially from the European press. He
said he expected that interest to grow as people in the US
became more aware of the scandal. "What it says to the
defendants is Libor is no longer something tucked away in a
dark corner of the room."

He said that his one fear was that just as some banks were
too big to fail, this could be a case that was "too big to
try".

[Dominic Rushe is the US business correspondent for the
Guardian.]

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