Five different states are conducting investigations into manipulations of the Libor rate. Attorneys general in each of the states have been looking into the matter for about six months. Each state’s investigation is at a different stage in development. The focus of the investigations is designed to discover losses each state might have experienced because of the rate manipulation.
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Declines in interest rates have become very costly for municipalities, making it impossible to unwind swaps that were sold with variable rates because of the high penalties associated with them. Many have stayed invested in the swaps because of the high cost of unwinding their positions.
Public pension issues are causing some municipalities to declare bankruptcy. The investigations may lead to states seeking damages because interest rates were propped up, then the swaps lost value
when interest rates fell. Interest rate swaps are just some of the securities that used the Libor rate to set their yields.