Saturday, December 29, 2012


The Swiss based bank UBS is at it again ...

A few years back I wrote about UBS helping their U.S. clients avoid taxes by hiding their money in offshore accounts. Simply put, UBS helped their U.S. clients avoid the tax paying responsibility that comes with having access to the wealth making opportunities they find in America.

Rather than go to court with the U.S. government over hiding money in offshore accounts UBS settled and agreed to pay $780 million in fines.

I bring this up because just before Christmas UBS became the first global bank in more than two decades to have a subsidiary that will plead guilty to interest rate rigging. Specifically, they will be tagged with one count of wire fraud and pay a total of $1.5 billion in fines to U.S., U.K., and Swiss regulatory agencies. Charges are also scheduled to be filed against at least two former UBS traders.

This is really good news, especially since it was my belief five months ago that we probably weren't going to see any of the big financial players get into any serious trouble for fixing LIBOR rates (which affects mortgage and credit card rates). While UBS gets to keep their charter the fact that we're seeing an entire subsidiary of a major global bank take a hit like this is good news.

But let's not get too excited.

We want to keep in mind that UBS was a recipient of more than $70 billion in taxpayer backed low interest rate loans from the Federal Reserve between October 2008 and August 2009. These loans were all part of the Fed's larger $1 trillion-plus loan binge that I wrote about in 2008 (and again last year).

These loans were in addition to the many other financial aid programs made available to help keep UBS and other "too big to fail" banks afloat after 2008.

While getting a guilty plea and a $1.5 billion fine for interest rate rigging is good news we should all keep in mind that a $1.5 billion fine is the functional equivalent of a 2 percent fee on the $70 billion-plus loan noted above.

To put this in perspective, I paid far more than 2 percent (about 6 percent) in mandatory "fees" to get my student loans while in graduate school. I then paid much higher interest rates than the low, chump change, interest rates that UBS and other banks were charged for their Federal Reserve loans after 2008 (and, no, I didn't rig any of our financial markets to get my loans).

So, yeah, in many ways it's back to business as usual for the banks.

- Mark

UPDATE: In the FYI Department, Reuters has learned that U.S. fiancial firms Fannie Mae and Freddie Mac may have lost at least $3 billion because of the manipulation of interest rates.

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