American cities hurt by Barclays LIBOR mess
(CBS News) BALTIMORE - The American financial industry has been brought low by corruption, from mortgage fraud that led to the Great Recession to Ponzi schemes. Now there's a scandal on a key interest rate that is tied to many people's mortgages, credit cards and student loans.
It's called the LIBOR rate. Barclays bank admitted last month it was part of a scheme to rig the LIBOR rate to increase the bank's profits. Thursday, several U.S. senators called for an investigation. Some U.S. cities claim that taxpayers were also ripped off by this scheme.
Stephanie Rawlings-Blake, the Mayor of Baltimore, said the LIBOR rate manipulation hurt most American cities at the worst possible time -- the height of the recession. As the city balanced a budget deficit by closing fire stations, recreational centers and schools, the mayor says the banks added to the deficit with artificially low interest rates that underpaid the city on investments. Officials estimated the loss at up to several million dollars.
Rawlings-Blake said that there was no doubt in her mind that Barclay's and other banks hurt Baltimore.
"We cannot stand by when we feel that we are being cheated," she said.
She added that the banks only piled on to a $64-68 million deficit.
"You're talking about one or two million dollars," she said. "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."
In downtown Baltimore, the head of the firefighters union, Michael Campbell, said the closing of some fire stations slowed down the response to fires.
"Say they're closed today an nobody's there," he said. "It's going to take a longer time for the next truck company to get here. So yes, it's a dramatic impact on safety."
Mayor Rawlings-Blake said the bank's actions affect the public's trust in financial institutions across the board. "When people manipulate things to a benefit, and people are hurt, you lose trust," she said.
The big banks accused of manipulating interest rates have not commented, but denied in court there was ever a conspiracy to drive rates down.
Dozens of states and cities are now deciding if they should join Baltimore in a growing class lawsuit against the banks. If conspiracy is ever proved, America's largest banks would face triple damages and fines that some estimate in the tens of billions of dollars.
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