This story brought to mind the opening of “The Corrections” by Jonathan Franzen: “It was the alarm bell of anxiety…ringing for so many days that it simply blended into the background…the alarm bell had been ringing for years”. There’s more to it than that, but (as with the story below) the feeling is familiar – one day, the enormity comes into focus, and consciousness returns, bearing down like an iron clapper.
With that in mind, this article, written by members of the Spanish social justice collective OpEuribor and originally published in Spanish newspaper eldiario.es, offers a simple explanation for why the European Commission is planning economic sanctions against six European financial giants, and, most importantly, how we got here.
It all started in June 2011, in the afterglow of the 15 M encampments in Spain’s public squares. Back then, lawyer Juan Moreno Yagüe (@hackbogado) was feeling shaken up over a lawsuit in which he was defending a Sevillian hairdresser. Cajasol, the hairdresser’s bank, demanded a ludicrous amount of interest over a small debt he defaulted on through simple oversight. Juan told me told me he’d found something surprising whilst examining the charts published by the Bank of Spain concerning the Spanish Interbank Index (Índice interbancario español or MIBOR). MIBOR was the reference index for loans before being succeeded by Euribor.
In his investigation Juán discovered that, since the beginning of the subprime mortgage crisis, the MIBOR index showed up as blank on many days. This, according to the Bank of Spain, was due to the absence of interbank lending within the entities that comprised it. The next logical question was whether European banks had also stopped lending money among themselves, given that the European Central Bank’s interest rates were at an all-time low.
Why is interbank lending important? Because Spanish legislation, as evidenced by the Bank of Spain’s own circular notices (a form of legal regulation memorandum), defines the setting of variable interest rates by determining the average interest of the total yearly interbank deposits, initially by Spanish banks, but later expanding to members of the European Banking Federation. (Circular 5/1994 del 22 de Julio, BOE 3 de Agosto de 1994 del Banco de España, modificada por la 7/1999). The interbank exchange rate is employed to meet the following criteria:.
a) That interest rates should not solely depend on the actual lending institution drafting the contract, thus preventing rates from being susceptible to the entity’s influence by virtue of agreements, or parallel conscious practices, with other entities.
b) That the data the index is based on is aggregated following an objective mathematical procedure.
To ensure data objectivity and index neutrality, the standard also requires that there be a minimum of 12 entities performing transactions and data communication from a minimum of three different countries.
So, how were they calculating the index when there were no inter-bank operations? Based on supply predictions? Is Euribor no more than a survey? And if so, what data is the Commission using to determine the manipulation?
To solve these mysteries, we began asking questions about these darned procedures, starting with the commercial bank, Cajasol, who referred us to Thomson Reuters (the corporation responsible for the daily publishing of Euribor rates). Reuters, ultimately, demanded a judicial order before releasing any information. When somebody asks you for a judicial order just to answer a question, it’s because they’re hiding something. We started another round of questions, but this time in writing, to note on record the fact that no one knew or wanted to answer anything; not the banks, not the regulators, nor the European commission, to whom we wrote on numerous occasions alerting them of our findings.
All the documents derived from the investigation are freely available on our webpage, along with downloadable templates so anyone can ask the same questions of their bank. We then publicly launched our campaign: #OpEuribor, which was then echoed by the media.
Perhaps due to the enormity of the potential scam, or the ease with which we receive news of morally dubious practices by banks, we perceived quite a lot of skepticism, especially among banking experts and economists, their faith unshaken in self-regulation mechanisms, supervisors and the market itself. But all these doubts turned into certainty when it was discovered that Euribor’s “Anglo-American cousin” Libor had also been falsified and manipulated.
With these elements in place, the #OpEuribor team readied for the next assault: legal action. And, taking into account the sheer urgency of the foreclosure situation in Spain, we decided to share a template for opposing mortgage eviction proceedings with potential evictees. We called it the #OpOposición. Soon after, we widened our scope by including a new template, this time designed to declare the invalidity of any interest rate derived from Euribor, given that the legal requisites needed for its calculations and publication were not being met.
As we were launching these campaigns and templates, we continued corresponding with various organizations and institutions. Thomson Reuters assured us that they would share the required documents by May 2012, but they never did. The European Commission for Competition, under the supervision of Joaquin Almunia, seemed more concerned with understanding what we required than with facilitating any information, much less acting on it. Lastly, we asked the bank of Spain for the dossier that formed the basis for the above mentioned requirements. A public service worker was about to send us this dossier until, in his own words: he “was prevented from doing so from above”.
Today, after more than two years of investigation and twenty months since we went public, Brussels’ announcement of economic sanctions confirm the validity of our efforts. These sanctions constitute the first partial reaction from European Community authorities to what could well be the biggest financial scam in European history (in Spain alone it would affect 18 million contracts), but we fear that, like its Anglo-American equivalent, they will go no further. This is the reason why we continue providing legal tools to anyone and everyone who decides to confront their bank, given that the interest rate is an essential element of any loan contract. Any wrongdoing involving this rate should be considered as grounds for invalidity due to falsification, because with a sole contracting party responsible for the transaction, there would have been no safeguards for impartiality.
We’ve already seen some successes with our legal procedures, which are also starting to be used in the Libor case, but not by the affected citizens long –we assume that they don’t have the means or assistance offered in Spain by collectives such as PAH or #OpEuribor- but rather by large corporations who have also been cheated by banks.
Our thesis is simple, and goes much further than what the EU is currently contemplating. It’s not that Euribor has been manipulated; it’s that, according to our legal requirements, it never even existed.
Article translated by Stacco Troncoso and Jane Loes Lipton – Guerrilla Translation!