Sen. ChuckGrassley (R-Iowa), ranking member of the Senate JudiciaryCommittee, and Senator Mark Kirk (R-Ill.) took Treasury Secretary Timothy Geithner to the woodshed over lack of action regardingthe LIBOR manipulation scandal in a letter Tuesday.

The senators claim in 2008, the Federal Reserve Bank of NewYork, where Geithner was serving as president, raised concernsabout LIBOR (London Interbank Offer Rate) but did nothing to solvethe problem of the rate's dominance in U.S. financial markets, nordid he alert the American public to potential fraud.

That decision “has contributed to emerging litigation thatthreatens to clog our courts with multi-billion dollar class actionlawsuits and losses on interest rate swaps by local, municipal andstate governments, which may also lead to more lawsuits,” the twoMidwestern senators wrote in the Oct. 2 letter. The two called theflood of lawsuits expected over LIBOR manipulation “the newasbestos.”

Geithner's lack of response to the problem, and resulting lossesfor state and local governments, will force Americans to either payhigher taxes or experience a reduction in services, Grassley andKirk claim. Additionally, continued lack of action and the threatof future LIBOR scandals place U.S. investors and governments atrisk.

The two request the Treasury Department answer questions thatwould “help prevent another crisis,” including an estimation of theincreased debt burden state and local governments face as a resultof LIBOR price rigging, why Geithner didn't consider the burdenwhen choosing not to take action on suspected price fixing, and whythe Treasury Secretary didn't anticipate litigation risk as aconsequence.

Lawmakers and regulators in England are debating how to repairLIBOR's tarnished image. The conservative Labour Party at itsannual conference Tuesday called for an economic-crime law to helpprevent future financial scandals.

Last week, Financial Services Authority Managing Director MartinWheatley said the U.K.'s financial regulator should oversee LIBORto prevent future fraud and rebuild confidence in the index.