“Tim Geithner had evidence of a financial crime of epic proportion — so he wrote a memo,” quipped Charles Gasparino in the New York Post yesterday. This one-sentence observation of Geithner’s inaction in the face of concrete evidence of  Libor-rigging is perfect. It captures well how certain of the banking regulators continually enable fraud and abuse.

Libor, the London Interbank Offered Rate, is updated daily at 11 a.m. in London  (6 a.m. e.t ). It is actually a schedule of rates, calculated based upon the average interest rates banks report that they are charged to borrow from each other. The schedule includes rates for 10 different currencies and 15 different maturities (from overnight to 12 months), thus 150 total. Though an unfamiliar concept to most American consumers, Libor is quite significant, as it is a worldwide benchmark for about $10 trillion in loans, including many mortgages, student loans, car loans and credit cards, and more than $350 trillion in derivatives.

How does this affect American consumers? For example, according to the Cleveland Fed, more than 50 percent of prime adjustable rate mortgages and nearly all subprime mortgages  in the US in 2008 were tied to Libor. Though Barclays (and presumably others) were underreporting at one time, to appear more healthy, there is also a belief  that the rates were kept artificially too high at other times.

As early as December of 2007, the Federal Reserve Bank of New York learned that some banks might be falsely reporting what it cost them to borrow, thus manipulating Libor. According to phone call transcripts, a Barclay’s employee told  a New York Fed official in April of 2008:

We know that we’re not posting um, an honest LIBOR. And yet and yet we are doing it, because, um, if we didn’t do it it draws, um, unwanted attention on ourselves.

In response, Geithner wrote a memo to Mervyn King, the Governor of the Bank of England in June. In the memo he made suggestions for improving the Libor process. Those ideas were never adopted, and the rigging continued through at least 2009. The HuffingtonPost reported today that Geithner’s suggestions were not his own or even from his staff, but instead were formulated by the banks themselves.

What was Geithner thinking? As President of the New York Fed wasn’t there more he could have and should have done upon learning about the fraud? We  can be troubled by his inadequate response, but we should not be surprised. Remember, during his confirmation hearings to become Secretary of the Treasury, Geithner insisted, “I’ve never been a regulator.”  This was a jarring comment given that the job of the New York Fed includes supervision and regulation. Just take a look at the “what we do” page of the website which states:

In addition to responsibilities the New York Fed shares in common with the other Reserve Banks, the New York Fed has several unique responsibilities, including conducting open market operations, intervening in foreign exchange markets, and storing monetary gold for foreign central banks, governments and international agencies. Foremost among its functions is the implementation of monetary policy, one of the three missions of the New York Fed. The other two are supervision and regulation, and international operations. (bold type in the original).

So, to understand Geithner, if he was not a regulator, then was he admitting that he deliberately neglected one of the three missions?

Barclays recently paid a total of $453 million in civil settlements with the Justice Department, the CFTC and the British Financial Services Authority. Though there have been no criminal charges to date, reportedly, the criminal division of the Justice Department “is building cases against several financial institutions and their employees.” There are many more banks under investigation, including Bank of America, Citibank and JP Morgan Chase. This trio comprises the three US banks on the panel that submit interest rate information for inclusion in the Libor.

All eyes should now be on Attorney General Eric Holder. Even if Geithner forgot he was a regulator, perhaps Holder will remember that he is a prosecutor. Just to be sure, you can review the mission of the criminal division of Justice, as posted on the website:

The mission of the Criminal Division is to serve the public interest through the enforcement of criminal statutes in a vigorous, fair, and effective manner; and to exercise general supervision over the enforcement of all federal criminal laws, with the exception of those statutes specifically assigned to the Antitrust, Civil Rights, Environment and Natural Resources, or Tax Divisions.

Prosecuting Libor-rate-rigging seems to fit that mission.  Journalist James Stewart in the New York Times on Friday deemed the LIBOR fiasco a “textbook case of white collar financial crime — including a conspiracy that was flourishing at the height of the financial crisis.”  Hopefully, Holder will make an effort to bring criminal charges against the top personnel and firms who participated in this as well as other crimes associated with the financial meltdown of 2008 and beyond.

It would be a fine time to do so. As noted here, more than a year ago, “after the Savings and Loan Crisis of late 1980s, more than 1,000 bank officials were prosecuted and around 800 went to jail,” whereas so far not a single high-profile participant in the 2008 financial crisis has been prosecuted. The continued failure of this Administration to enforce the law vigorously, fairly and effectively is a great disappointment. Maybe that will change.  And while change is in the air, it’s time for Mr. Geithner to write another memo, this one to the President, tendering his resignation.

(This post also appeared on July 16, 2012 on The Pareto Commons website).