Lost Money Equals Closed Services
And the banks that set the rate are now the subject of a class-action suit by multiple plaintiffs, led by the City of Baltimore, an urban center that has been struggling to make ends meet. For the past three fiscal cycles — including the one that began on July 1 — the city has grappled with multimillion-dollar deficits.
The city’s fiscal managers have been forced to take extreme measures, from forcing city employees to take unpaid furloughs to making drastic changes in the city’s public-employee pension system to cutting off funds for the historic Poe House, the family home of Edgar Allan Poe.
In the face of budgetary strife, Mayor Stephanie Rawlings-Blake has taken a fighting stance. “We cannot stand by when we feel that we are being cheated,” she told CBS-TV. “You’re talking about $1 or $2 million. You know, that’s a fire company, that’s recreation centers. That’s services that our city needs, and we’re going to fight for that.”
Baltimore invested hundreds of millions in “interest-rate swaps,” which were devalued by rate-setting banks. Between 2006 and 2009, those “swaps” allegedly kept LIBOR artificially low. The scheme was ordered by bank managers to suggest that their banks were, during a time of economic troubles, more liquid than they actually were, say attorneys for the plaintiffs.
The result was that Baltimore and a large class of cities, states, pension funds and mutual funds received less than they should have in interest payments from banks. According to one estimate, about three out of four major American cities [http://huff.to/S7d5T8] hold bonds linked to the Libor rate.
Baltimore has not given estimates of its potential losses. “Our basic approach about it is that the question [of damages] is likely to be the subject of discovery in the litigation,” said Baltimore City Solicitor George Nilson.