If you think Libor fraud is a victimless crime, the muni-bond market has 6 billion reasons it begs to differ.

States, cities and other municipal borrowers have lost at least $6 billion as a result of banks manipulating Libor, the short-term lending rate that affects borrowing costs and $800 trillion or so in derivatives contracts around the world, according to a study by Peter Shapiro, managing director of Swap Financial Group in South Orange, New Jersey. The study was first reported on Tuesday by Bloomberg.

This $6 billion in losses would come on top of the $4 billion that muni borrowers have already paid big banks to close out derivatives trades that went bad, partly because of Libor manipulation, according to Shapiro.

As Bloomberg notes, state and local governments can hardly afford to throw away $10 billion:

The Libor investigations have implications for states and cities that are still contending with the fiscal legacy of the recession, which left them grappling with falling tax revenue and rising costs. States have had to deal with combined deficits of more than $500 billion since fiscal 2009, according to the Washington-based Center on Budget & Policy Priorities.

The losses came not because Libor manipulation affected borrowing costs, but because these bond issuers entered some $500 billion in interest-rate swaps with banks, according to some estimates. These swaps were a type of derivative, essentially an insurance policy the muni-bond issuers bought to protect themselves against interest rates rising. When interest rates -- Libor specifically -- fell instead, the muni-bond issuers lost a boatload of money on the swaps.

And Libor did not fall all by its lonesome. Increasingly, it looks like banks manipulated Libor to lower it before, during and after the financial crisis in order to make their own borrowing costs look lower and therefore to make themselves look less like they were about to go belly-up.

In other words, in the eyes of the muni-bond issuers, these banks tricked them into betting that interest rates were going to rise and then cheated to make interest rates lower, costing them -- according to Shapiro's estimate -- at least $6 billion.

States and cities have been lawyering up for months, preparing to sue the banks over Libor manipulation, lawsuits that could ultimately cost the banks billions of dollars. The city of Baltimore has already sued a dozen banks involved in setting Libor.

One of the banks Baltimore sued was Barclays Capital, which earlier this year agreed to pay regulators about $450 million to settle Libor-manipulation charges. Other banks are lining up for similar settlements, but the real cost to them -- estimated recently at $88 billion to $176 billion -- will likely come as a result of such lawsuits. Others with motivation to sue the banks include derivatives traders who were on the other side of bets with banks manipulating Libor both higher and lower as their trades required.

The banks could possibly defend themselves by pointing out that interest rates throughout the economy were falling already, meaning their manipulation of Libor may not add up to much. Lower rates across the board, including lower Libor rates, may have also saved municipal borrowers billions of dollars.

It looks like they're going to get a lot of chances to make that argument in court.

Also on HuffPost:

Loading Slideshow...
  • Barclays Begins Manipulating Libor Rate

    Barclays allegedly began manipulating the Libor rate in 2005 and allegedly stopped manipulating Libor in 2009, <a href="http://www.businessweek.com/news/2012-07-11/barclays-u-dot-s-dot-say-libor-probe-doesn-t-affect-2010-case" target="_hplink">according to <em>Businessweek</em>.</a> But other reports indicate that <a href="http://www.huffingtonpost.com/2012/07/09/libor-scandal-manipulation-spanned-decades_n_1658696.html" target="_hplink">Libor fixing may have spanned decades.</a>

  • Barclays Employee Admits Libor Is Being Rigged

    A Barclays employee told an analyst from the New York Fed's Markets Group that Barclays was indeed using false information to set the interest rate on April 11, 2008, according to <a href="http://www.huffingtonpost.com/2012/07/13/geithner-libor_n_1671211.html" target="_hplink">recently released Federal Reserve documents</a>. "We know that we're not posting, um, an honest LIBOR," the Barclays employee told the New York Fed's Fabiola Ravazzolo, according to a <a href="http://www.newyorkfed.org/newsevents/news/markets/2012/libor/April_11_2008_transcript.pdf" target="_hplink">transcript of the phone conversation.</a>

  • Geithner Privately Expresses Concern Over Libor's Integrity

    In June 2008, then-president of the New York Federal Reserve Timothy Geithner sent a memo to British banking authorities expressing concern over the "integrity and transparency" of the key interest rate. Geithner did not inform British regulators that a Barclays employee admitted that Libor was being rigged, <a href="http://in.reuters.com/article/2012/07/25/geithner-libor-idINL4E8IP17720120725" target="_hplink">according to Reuters.</a>

  • Banks Ripped Off The Government During Bailout

    During the 2008 Financial Crisis, the U.S. government lent money to cash strapped banks and AIG using Libor to determine interest, <a href="http://www.huffingtonpost.com/mark-gongloff/timothy-geithner-libor_b_1701904.html" target="_hplink">Treasury Secretary Tim Geithner told Congress on July 25, 2012.</a> The artificially low rate saved the banks and AIG billions, while costing tax payers the same amount.

  • Peter Mandelson: Barclays CEO The "Unacceptable Face Of Banking"

    In April 2010, then-UK Business Secretary Peter Mandelson told the<em>Times of London</em> that then-CEO of Barclays, Robert Diamond, was "the unacceptable face of banking" after the bank announced that its CEO would receive a bonus of 63 million pounds, <a href="http://news.sky.com/story/771318/mandelson-attacks-bank-boss-for-63m-salary" target="_hplink">Sky News reports.</a> Mandelson also told <em>the Times</em> that banking bosses were expected to act with "a bit more modesty, a bit more humility" than Diamond's behavior.

  • Barclays Fined $450 Million

    On June 27, Barclays disclosed to its shareholders that it would be fined $450 million by U.S. and U.K. regulators for conspiring to manipulate the Libor rate between 2005 and 2009, <a href="http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9374118/Barclays-libor-fixing-scandal-timeline.html" target="_hplink"><em>The Telegraph</em> reports</a>.

  • Barclays Chairman Resigns

    On July 2, <a href="http://group.barclays.com/news/news-article/1329925915887/navigation-1330349038798" target="_hplink">Barclays announced</a> that it's Chairman, Marcus Agius, would be resigning in the wake of the Libor rigging scandal. In the official resignation letter, Mr. Agius stated that the Libor rigging constituted "unacceptable standards of behaviour within the bank." He went on to say: <blockquote>As Chairman, I am the ultimate guardian of the bank's reputation. Accordingly, the buck stops with me and I must acknowledge responsibility by standing aside."</blockquote>

  • Robert Diamond Resigns As Barclays CEO

    On July 3, Robert Diamond resigned as Barclays CEO, <a href="http://www.washingtonpost.com/business/barclays-boss-diamond-quits-with-immediate-effect-latest-scalp-of-price-fixing-scandal/2012/07/03/gJQAFeDxJW_story.html" target="_hplink"><em>The Washington Post</em> reports.</a>

  • Marcus Agius Re-Appointed As Barclays Chairman

    On July 3, <a href="http://www.newsroom.barclays.com/Press-releases/Board-changes-907.aspx" target="_hplink">Barclays announced</a> that Marcus Agius would be reappointed as the bank's full-time Chairman following the resignation of Robert Diamond.

  • Did The Bank of England Encourage Barclays?

    On July 3, Barclays released phone records between CEO Robert Diamond and the Deputy Governor of the Bank of England, Paul Tucker, that indicate that the BoE executive encouraged Barclays to manipulate the Libor rate, <a href="http://online.wsj.com/article/SB10001424052702304141204577506602345146644.html" target="_hplink"><em>The Wall Street Journal </em>reported.</a>

  • Diamond Goes Before Parliament

    On July 4, Bob Diamond told a U.K. parliamentary panel that he believes other major banks were involved in Libor rigging, <a href="http://online.wsj.com/article/SB10001424052702304141204577506602345146644.html" target="_hplink"><em>The Wall Street Journal</em> reports.</a> He also stated that fear of being nationalized during the 2008 Financial Crisis contributed to its actions.

  • Bob Diamond Loses His $31 Million Bonus

    Barclays CEO Bob Diamond agreed to forgo an extra $31 million bonus, the bank announced on July 10, according to the <a href="http://online.wsj.com/article/SB10001424052702303343404577518263465180508.html" target="_hplink">reports <em> Wall Street Journal</em>.</a> Diamond will still net his salary and pension for a year, which is worth about 2 million pounds.

  • At Least 16 Banks Under Investigation

    At least 16 banks were reportedly under investigation for Libor rigging as of July 11, <a href="http://www.huffingtonpost.com/2012/07/11/libor-rate-scandal_n_1664737.html#slide=1212066" target="_hplink">according to Reuters.</a> In an internal bank memo circulated on July 13, Barclays executive committee told employees that, "As other banks settle with authorities, and their details become public, and various governments' inquiries shed more light, our situation will eventually be put in perspective," <a href="http://business.time.com/2012/07/16/libor-rigging-what-the-regulators-saw-but-didnt-shut-down/" target="_hplink"><em>TIME Magazine</em> reports.</a>

  • EU Weighs Criminalizing Rate Rigging

    On July 25, <a href="http://www.huffingtonpost.com/2012/07/25/eu-criminalizing-rate-rigging_n_1701248.html?utm_hp_ref=business" target="_hplink">the European Union proposed making the rigging of international interest rates a criminal offense.</a>