The city of Oakland, California, is fighting back against Goldman Sachs by refusing to pay a penalty for getting out of an interest rate swap contract that is to Goldman’s advantage.
Isn’t that a hoot? Anyway, turns out that Goldman and the city of Oakland entered into a deal to protect variable interest rate bonds issued by the city in 1997. Oakland was given a fixed rate of under 6 per cent to protect against inflation on those bonds.
But if the interest rates declined, Oakland was on the hook to pay Goldman Sachs millions of dollars in tribute, as I call it, or almost as many millions of dollars to get out of the deal. With the LIBOR scandal pushing down lending rates and with the Fed depressing interest rates artificially, this is like stealing.
And I personally view this whole interest rate swap story just like I view the CDO story. It was a scam from the beginning. It was a scam even without LIBOR.
The scam was that the banks knew what the central banks were going to do with regard to interest rates. The handwriting of financial weakness was on the wall in 1997, when these contracts were set up. The banks knew which way the winds were blowing, and the governments were not privy to that information.
LIBOR and the UK financial system seems far away, but in fact, it is an integral part of the scam. Globalization was understood by these bankers, but not by government. Government remembered the 1970’s and inflation. But that was then and this is now.
If you think government was stupid, look at the gold bugs and Peter Schiff and all those who remain dumfounded about how banks can continually manipulate rates lower. These are not stupid people. But they are being defeated in their investments by folks who are much more in the know and are more powerful in their manipulation of markets.
So, based upon all we have learned, I would hope all local and county governments who are being pushed around by JP Morgan, Goldman Sachs and others just walk away.
These banks were bailed out in essence so they could continue to collect a tribute from government. This is not a union problem, not a budget problem. It is massive bank fraud upon governments.
Now with Libor, this can be seen as a continual scam that governments have no legal requirement to play. Interest rate swaps make up a larger portion of derivatives than do CDO’s and the CDSs that were based on the bogus CDOs.
The only conclusion I have is that these investment banks are the enemies of your local government. They are like a Trojan Horse of the world financial system. They are your enemies from within. They are eating at and rotting away local government. It isn’t the unions, it is the banks taking advantage of their knowledge of globalization. They didn’t protect the governments they were assisting, they were screwing them.
The government of the United States needs to declare amnesty against these interest swaps since the Fed is criminally allowing these interest rates to remain low so these banks can survive. This is like a giant tribute to Rome, only, in this case Rome is the world financial system.
I have a list of links that go into these issues in more depth and I recommend them all. Of course, reading Matt Taibi never hurts as well. Here are the links for further study of this issue and a conclusion follows:
While I agree with those, who, like Peter Schiff, hate market manipulation, it is time to regulate the banks so that these predatory activities are not part of the landscape anymore. While Schiff does not support regulation, I have supported regulation. Mish Shedlock supports a return of Glass-Steagall. Max Keiser believes in regulation.The SEIU believes in regulation. Occupy Wall Street believes in regulation.
If capitalism is to be saved it must be regulated so that governments and borrowers are not forced to bet in order to survive. Betting when the house already knows the outcome of the bet is not really much of a bet is it? It is a swindle. And that is exactly what the banks have been doing to governments throughout the world, in my opinion.