FDIC legal action to punish banks for flying under (and over) the LIBOR Radar

FuelBank LIBOR rates: FDIC punishes banks for reinventing laws of thermodynamics, flying economic plane without fuel

If the Federal Deposit Insurance Corp. (FDIC) wins its London interbank offered rate (LIBOR) lawsuit against a number of big banks, then the big banks have a moral responsibility to refund least two thousand dollars to every person on earth, at least.

The first law of thermodynamics explains why FDIC is looking to punish the large banks for allegedly fixing the LIBOR.

According to the first law of thermodynamics energy cannot be created within a system. Energy can be transformed from one form to the next but it cannot be created. In physics you can’t fudge that but in commerce, is seems the banks have found a way to thumb their nose at physics.

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Airline pilots understand not to disrespect the laws of physics. Those that forget these rules pay dearly.  If the banks were airplanes their alleged manipulation of the LIBOR would have driven them to fly into the ground.

Remember Air Transat Flight 236?

On August 24, 2001 Air Transat Flight 236 was a commercial flight bound for Lisbon, Portugal from Toronto, Canada that lost all power while flying over the Atlantic Ocean. The Airbus A330-243 suffered a complete power loss due to a fuel leak caused by improper maintenance and pilot errors. The pilots flew the plane to a successful emergency landing in the Azores saving all 306 people (293 passengers and 13 crew) on board.  But the pilots had overlooked the first law of thermodynamics: energy (like money) couldn’t be created.

The problem started with a maintenance error a technician installed the wrong hose in an engine.  During flight the engine began losing fuel.  In turn the pilots, ignoring the rate at which fuel was being used pumped fuel from the uncompromised engine to the leaky engines.  Instead they should have realized their fuel consumption rate was too high. They should have turned back, landed in Halifax and gotten the plane fixed while enjoying lobster dinners. Instead they ignored physics to run out of fuel over the Atlantic Ocean and crash landed into the Azores.

The same realization happened to the global economy after the subprime mortgage crisis:  we had a whole lot less fuel than we thought because there was a leak that was overlooked, presumably by conspiracy among banks.

LIBOR should have gone up when loans defaulted as in the case of subprime mortgage loans (fuel is being pumped to backfill the leak). In this case, the banks found (allegedly) that it was convenient to ignore the leaks. With the LIBOR still low, there was no indication that we were running out of fuel — and so the economy crashed.

But you can also over-evaluate the LIBOR. What happens if you overestimate the fuel consumption? The airline will charge a premium to travelers.

LIBOR is a lending rate that is the basis for hundreds of trillions of dollars worth of consumer loans and savings rates around the world. It’s a number, calculated and released daily by banks in London, that is supposed to show the rate at which they are lending money to each other for short-term loans. It’s seen as a broad proxy for the strength of their finances, which is itself an indicator for the global economy.

The LIBOR affects $800 trillion worth of financial products, including adjustable rate mortgages, credit cards, and auto loans.That’s because banks use LIBOR to set interest rates for these products, usually charging a point or two above LIBOR, which is usually 1/10th of a point above the Fed Funds rate. Since LIBOR went as high a full point above the Fed Funds rate as a result of the subprime mortgage crisis, it created an additional $8.0 trillion in additional interest that could be charged to borrowers.  Under the right terms this is all profit to the banks. Do the math:  there are 7.2 billion people on earth.This means a little over a thousand dollars a head. And this is only the easiest of the measures we can use to assess the rate.  What about the bailouts?  Double that amount to a conservative two thousand dollars a head.


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Dr. Luc Duchesne

About Dr. Luc Duchesne

Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published 85 scientific papers, and has recently published his first novel, "The Moose Motel: A Tale of Golden Revenge". The Founder and CEO for GSN DreamWorks Inc. based in Ottawa, Luc is a regular columnist for InvestorIntel.
  1. This is one fantastic article for one hell of a story Dr. Duchesne. Thanks for this … sharing with my friends who bank with RBC ;)

  2. Q. Was the float on the Libor exchange rate manipulated?
    A. Yes, some of the Banksters have admitted to that.

    Q. Will FDIC win the law suit?
    A. Probably … the settlement funds will then become fungible

    Q. Will this hurt the Banks Involved?
    A. It will be stated as such
    However, they made trillions and will probably settle
    for billions … nice ROI.
    They will be laughing …aaah… all the way to the Bank :)

    Q. Why did the US adjustable rate mortgage indexes gravitate
    away from Federal Home Bank Loan Indexes … such as the
    11th District Cost of Funds.
    A. Easier to manipulate… what is a basis point here or there… eh!

    Q. What was the etiological agent that metastasized throughout
    the mortgage underwriting Industry in the US.
    A. Political pressure to originate loans for unqualified recipients.

    Q. Is the FDIC ethics questionable?
    A. Yes, they cannot cover 250k per depositor as stated.
    This was a misspoke by the US President.

    Q. Can we expect more Bank “bail outs” in the future.
    A. Probably not as the Banks next strategy will be “bail in”.
    Cyprus was the test country.

    As you are writing from Ottawa — check out what the CDIC
    will actually cover in the event of defaults. (do not keep funds
    in USD).
    Then keep monitoring the legislation in Canada and see
    if there are upcoming changes.
    Read the fine print. Is there an attempt to change the classification
    of “depositor” to “investor” or some other wordage. This would
    mean the depositor/investor would participate in a bank default.
    (a bail in)

    Floating exchanges and indexes are difficult for the “rank and file”
    to monitor. So, I expect that this will be a source of ancillary income
    for years to come.

    As you have drawn some analogies toward the aviation industry.
    In the not too distant past some Airlines were fined and
    Air Cargo Executives were put into jail for manipulation of
    the fuel surcharge index. They were passing higher costs on to
    customers. You should take comfort in knowing that your flag
    carrier “Air Canada” was found faultless. They had the ethics
    to publish their fuel surcharge index and adhere to changes in
    price fluctuations.

    The International Banking Cartels and The International Swaps
    and Derivatives Association (ISDA) control the Global purse strings.
    Those that shake their cage do not fair so well.
    They can destroy the economy of a Country at whim.
    So everything else is just a big smoke screen to appease
    the plebeians.

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