SO FAR twelve global banks have been publicly linked to the Libor rate-rigging scandal, and face as much as $22 billion in combined regulatory penalties and damages to investors and counterparties, Morgan Stanley has estimated.
The rate is the benchmark for $360tn in derivatives, loans and mortgages, and current calculations exclude the fallout from ongoing US and European Union cartel investigations, which could result in multibillion-dollar fines.
Meanwhile, the biggest banks are visibly foundering. JPMorgan Chase & Co, the biggest US bank, has reported a massive loss in its derivatives trade in its London offices.
Its derivatives portfolio lost $4.4billion before taxes for the period, up from the $2bn disclosed in May.
As well, the costly activities of the European Central Bank, in seeking to prevent a Spanish collapse and a major 450bn euro bailout, emerged yesterday.
ECB loans to Spain’s banks reached a record high of 337.2 billion euros in June, says the Bank of Spain.
The ECB’s loans to Spain’s smashed banks shot up 17.2%, from May’s record loans of 287.8bn euros. This, in itself, was a huge leap from the low point in April 2011 of 42.2bn euros.
Last December and February, the ECB lent 1.1 trillion euros at low rates to the EU’s banks, to try and avert the looming credit crunch and create a situation where the banks would lend cheaply to businesses and households, something that they have refused to do.
ECB data suggest that the banks took the money and avoided making loans like the plague, putting the cash into what were said to be safe institutions.
On the debt market, investors are now demanding yields of more than 6.7% for Spanish 10-year government bonds, an unsustainable rate over the long term.
To add salt to the wounds of capital, Moody’s yesterday cut Italy’s credit rating.
It said in its statement that Italy was now ‘more likely to experience a further sharp increase in its funding costs or the loss of market access’ for borrowing to service its budget.
It added: ‘The risk of a Greek exit from the euro has risen, the Spanish banking system will experience greater credit losses than anticipated, and Spain’s own funding challenges are greater than previously recognised.
‘Italy’s near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets.
‘Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding,’ Moody’s said.
A sudden stop in market funding equals a complete paralysis and collapse of the European and world economy.
Moody’s further observed about the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) that ‘there is a limit to the extent to which these support mechanisms can be used to backstop such a large, systemically important sovereign’ debtor such as Italy.
Italy is the eurozone’s third biggest economy after Germany and France!
It is now crystal clear that capitalism is in its death agony and that the mountains of debt can only be tackled by a ferocious civil war against the working class of the world.
The international working class is now being driven into revolutionary struggle that requires revolutionary leadership internationally. This means that sections of the International Committee of the Fourth International must be built in every country to lead the victory of the world socialist revolution.