Decoding the Shift from U.K. and European Control of U.S. Finance

In Episode #213 of the Gold, Goats and Guns Podcast (April 17, 2025), Tom Luongo and Caitlin Long discussed something barely anyone talks about: America is finally breaking free from financial control by London and European banks. This battle has been going on for decades, but most people don’t even know it exists.

That’s changing now. And fast.

The Invisible System That Ran America

For the past 70 years, London banks set the most important interest rate in the world. Eighteen banks in the City of London—just one of which represented American interests—decided the London Inter-Bank Offered Rate (LIBOR). This rate determined prices for mortgages, corporate debt, derivatives, and trillions in offshore dollar deposits known as eurodollars.

“The LIBOR rate is an unsecured rate decided upon by 18 City of London banks, only one of which represents American interests,” Caitlin explained. That meant London, not New York, controlled how much American borrowers paid for everything from home loans to corporate debt.

Here’s the kicker: LIBOR was unsecured. Banks didn’t need collateral to trade these contracts. They just passed them around and “rehypothecated” them—basically creating infinite copies of the same asset. You could take a security, pledge it as collateral, and then the person holding that contract could pledge 100 percent of its value against another contract. Then write another swap. Another insurance contract. Another derivative. All built on the same pile of money, but there’s an infinite tower of financial instruments stacked on top.

As long as everybody could pay, it worked. But when someone couldn’t, the whole daisy chain collapsed. This is how you get shadow banking, massive leverage, and eventually a massive financial crises like 2008.

“The London banks set the most important interest rate in U.S. dollar markets,” Tom said. “And U.S. dollar markets are the most important markets in the world.”

LIBOR touched everything. It was the rate hedge funds targeted their returns against. It was the floating rate for corporate debt. It drove the massive interest rate swap market. It determined mortgage prices. At the core of the huge fixed income markets—far bigger than the stock market in the United States—was an interest rate set by a cabal of London banks. There was even a LIBOR pricing scandal where they were caught fixing the rate. And America had zero control over it.

A Plan That Sat on a Shelf for a Decade

After 2008 collapsed everything, the Federal Reserve drafted a solution: replace LIBOR with a new system called SOFR (Secured Overnight Financing Rate). The catch? It required collateral. Real collateral. This made leverage finite and controlled.

But the plan sat untouched through the Obama administration. Nobody in the Obama years was interested in building this new system. It would have threatened the London banking establishment and the offshore dollar system that kept European banks profitable.

In 2017, Trump took office and nominated Jerome Powell as Fed chair. Powell immediately brought in John Williams, moving him from the Atlanta Fed to the New York Fed—the most important bank in the Federal Reserve system. Williams had been the champion of SOFR from the beginning. He was the one who’d written the white paper on it back after 2008.

The transition started as a pilot project in 2017 and rolled out in stages. By January 1, 2022, all new U.S. debt—credit cards, car loans, mortgages, Treasury bonds, everything—had to be priced using SOFR instead of LIBOR.

On March 31, 2025, the final step completed. The six-month synthetic LIBOR contracts that had been extending legacy agreements finally matured. America’s interest rates were now fully under American control for the first time!

Tom noticed something important about that timing: “I think Trump decided that his Liberation Day would be April 2nd for a reason.” Trump announced his tariff-heavy “Liberation Day” trade actions just two days later. The symbolism is hard to miss. LIBOR dies on March 31. Liberation Day arrives on April 2. Whether intentional or coincidental, the messaging is clear: America is taking back control of its own monetary policy from the Europeans.

When Europe Tried to Break Everything and Failed

In early April 2025, something fascinating happened. European central banks—the European Central Bank, Bank of England, and others—started dumping U.S. Treasury bonds. Lots of them.

They’d been gorging themselves on long-dated American debt during Powell’s rate increases. Over a trillion dollars, in fact—all in longer-term bonds like 5-year, 7-year, 10-year, and 30-year Treasuries. When Powell started raising rates in 2022, these long bonds got hammered. They were sitting on massive unrealized losses. Now they wanted out.

Here’s what Caitlin noticed when she looked at the markets:

“I’m looking at the market on Wednesday morning of last week… the U.S. bond market is off twenty basis points, the German market is flat, and the euro is up five percent, the Canadian dollars up five percent, the British pound is up five percent. I’m like, oh, well, clearly what’s happening here is that the selling is not coming out of China. It’s coming out of Europe.”

The pattern was unmistakable. They sell U.S. Treasuries, buy dollars, then sell those dollars to buy their local currencies so they could prop up their own bond markets. It’s a cascade designed to push up the long end of the U.S. yield curve and trigger a panic.

They were attacking at different times—the Sydney open, the London open, the New York open—trying to create panic at different market hours. One hour, SOFR futures moved 20 to 30 basis points. That’s a twelve-sigma event. Statistically, something like that should never happen. If you see a three-sigma day, that’s already significant. A twelve-sigma day suggests either the markets are fundamentally broken or someone is deliberately attacking them.

But the market didn’t crack.

“We had a stellar ten year auction that day. We had a stellar thirty year auction the next day, and by the way, we had a stellar twenty year auction on Monday,” Caitlin said.

The financial media screamed apocalypse. Reuters, Bloomberg, CNBC—they all ran stories saying the Treasury market was collapsing, that Trump was breaking the world, that we were headed for financial chaos. The stock market wobbled. But the Treasury market—the thing Europe was actually attacking—held solid. The auctions filled without a hitch. Investors kept buying.

“The real story… is that the US had no problem with the ten year bond auction, which tells you there really wasn’t underlying chaos in the market,” Tom said.

This is what a difference a system makes. Under LIBOR, unsecured and loosely regulated, this kind of shock would have triggered cascading defaults. Banks would have panicked. The Fed would have been forced to bail everyone out. Instead, SOFR’s collateral requirements kept everything stable.

For the first time, Europe couldn’t break American financial markets. The old system—the eurodollar system controlled from London—wouldn’t have survived this test. The new one did.

The Supplemental Leverage Ratio: Quietly Unleashing Capital

While everyone was focused on the market drama, something else was quietly moving. Treasury Secretary Scott Bessent and Federal Reserve officials announced that they were about to relax the supplemental leverage ratio (SLR)—a capital requirement that forced banks to hold capital against U.S. Treasury holdings.

This is huge, and here’s why: During the pandemic, the Fed flooded the financial system with money. Regional banks took that money and bought long-term Treasuries. They figured the Fed had their back, so they’d clip the coupons and make easy money. Then Powell raised rates and those bonds got crushed. Now regional and medium-sized banks are sitting on about $300 billion in unrealized losses on their Treasury portfolios.

The problem: they were being forced to hold capital against these “risk-free” assets. Caitlin’s perspective is that this never made sense in the first place. A Treasury isn’t credit risk—it’s a dollar that pays interest. The Fed can always print more dollars, so it can’t default. Forcing banks to hold capital against Treasuries was like forcing banks to hold capital against cash. It was backwards.

“I started a bank, and I come from investment banking and capital markets background,” Caitlin explained. “To me, it has never made sense that the banks had to hold capital against what is deemed to be in this current financial system, the risk free asset.”

When the SLR gets relaxed, banks suddenly have huge amounts of new balance sheet capacity. And where will they deploy that capital? Into Treasuries. This creates a new, massive buyer for the Treasury market—one that’s been artificially constrained.

“This is one of the tools that Scott Bessent has to support the U.S. treasury market,” Caitlin explained. “How he sequences this… is huge. If he does it all at once, there’s just going to be this rush to treasuries.”

It’s another piece of the puzzle. The Fed has control over the timing. They can use this as a tool to support the market whenever they need to. And Bessent clearly wants yields lower—especially on longer-term bonds—to put money back in people’s pockets on Main Street, not Wall Street.

Stablecoins: The Quiet Revolution

Now here’s where it gets interesting. While all this was happening, stablecoins like Tether were quietly building something remarkable. Tether now serves 400 million unbanked users globally. That’s bigger than the entire population of the United States.

Think about that. Tether is now one of the biggest financial companies in the world, and most people have never heard of it.

“Tether is a company that, for all the allegations around it related to money laundering, et cetera, et cetera, the Biden administration did not shut it down,” Caitlin noted. “I think there’s a foreign policy reason why Tether exists offshore.”

The U.S. government could have shut Tether down. When it was disclosed that Tether held its reserves at Cantor Fitzgerald, one of the 24 primary dealers of the U.S. Treasury market, that gave the U.S. clear jurisdiction and leverage. The Biden administration chose not to act. Why? Because Tether is doing something the traditional banking system can’t do: it’s pushing the U.S. dollar into communities that banks can’t reach profitably.

Tether is building kiosks in Africa where people don’t have reliable electricity. They’re creating distribution networks in communities that traditional banks have written off as unprofitable. And they’re recycling all of those flows back into the U.S. Treasury market. These are 400 million new users who would much rather hold U.S. dollars than their own local currency.

“They’re not going to be panic sellers,” Caitlin said. “This is increasing the resilience of the U.S. treasury market.”

But Congress is about to change the rules in a way that could reshape everything. A new stablecoin bill is creating different regulatory tiers. Banks have to follow strict know-your-customer rules and hold significant capital. FinTechs face lighter requirements. But offshore stablecoin issuers? Even lighter than that.

For the first time, there will be an official two-tier dollar system: one controlled from New York (stricter), one controlled offshore (looser).

“This is creating an incentive for stablecoin issuers to leave the United States and to go offshore,” Caitlin warned.

Europe, meanwhile, killed its own stablecoin market through regulation. The Bank of England banned euro stablecoins from earning interest. That made them economically pointless—why hold a stablecoin that pays nothing when you could hold cash? Tether packed up and left Europe entirely. They’re not even trying to comply with European regulations anymore.

This forced stablecoin innovation away from Europe and toward the U.S. and other countries that would embrace it. Tom and Caitlin see this as a strategic blunder.

“They shot themselves in the foot,” Tom said. “The Iranians, the Russians—they’re going to have their own systems now. Europe destroyed their own stablecoin market, and now they’re watching the dollar—backed by American stablecoins—take over globally. They shot themselves in the foot on this piece too.”

In other words, Europe tried to regulate stablecoins out of existence within their borders. Instead, they just pushed the innovation somewhere else—somewhere that benefits America.

The Real Game

What’s happening is geopolitical chess disguised as technical finance jargon.

The Trump administration, through Treasury Secretary Scott Bessent and Federal Reserve Chair Jerome Powell, appears to be shifting financial power from London to New York. Tom and Caitlin argue this represents a deliberate strategy to move away from centralized banking controlled by European institutions.

Bessent and Powell have lunch every Monday, we’ve learned recently. “They’re clearly talking and coordinating,” Tom observed. “That’s very different from Powell and Yellen, where they were at each other’s throat.”

Under the Obama-Biden years, the Treasury and Fed were in open conflict. Janet Yellen and others were doing quantitative easing and yield curve control, suppressing the short end and supporting the long end. The treasury was spending money like “a drunken sailor,” Caitlin noted, and the Fed was enabling it. It was a disaster of policy coordination.

Now there’s alignment. Powell and Bessent are on the same page. The goal is clear: restructure American finance and take back control from London. Most Americans would find it shocking that this is taking place and that for decades the Europeans were actually controlling U.S. monetary policy.

Caitlin sees the bigger picture: “What I’ve been positing for a while is that in order to finish, they have a plan to recapitalize the United States, and I think they want to create a domestic dollar that is backed differently than the offshore dollar.”

This isn’t theoretical. It’s happening now. The supplemental leverage ratio is being relaxed, which will flood money into Treasury markets. New central clearing rules will push Treasury trading toward New York, not London. Stablecoins will distribute dollars globally without central bank permission. SOFR futures are now what determines the global cost of dollars, not LIBOR set by London banks.

Europe is watching its financial influence evaporate and their language is becoming more and more shrill. Their sanctions on Russia destroyed the “petro-euro” just as it was building. From 2021 onwards, as Europe bought Russian oil and gas, the euro was gaining ground as a reserve currency. Trade settlement in euros was climbing to about 35 percent of non-eurozone transactions. Then sanctions hit. That collapsed to 13 percent almost overnight. The U.S. dollar captured the entire market share.

Their negative interest rates pushed savers toward alternatives. Their refusal to regulate stablecoins handed the market to America. Their overvaluation of long-term Treasuries during the pandemic set them up for huge losses when rates rose.

Tom puts it bluntly: “If you’re Europe, if you’re the Rothschilds, if you’re the old colonial banks of Europe that have been moving markets for five hundred years… and you’re staring at Trump remaking the entire global financial system… would you not set off every financial nuclear weapon to try and stop that?”

But they tried. They failed. The markets held.

What Comes Next?

Both Tom and Caitlin caution that real stress could show up in three to six months. History suggests financial shocks echo. What happens in September or October might trace back to April.

Caitlin pointed to the pattern from 2007-2008: a repo crisis in September, then scaling problems through the fall, then Bear Stearns imploding in March, then Lehman Brothers collapsing six months after that. In 2019, they had another repo crisis in September. Six months later, in March 2020, the Treasury market went bidless and the Fed had to step in aggressively.

“We have defined who the real enemies are,” Caitlin said. “If this is the inciting incident, and if history repeats and rhymes, are we going to have a bigger one three to six months from now?”

But this time might be different. Under the old LIBOR system, a shock like the April 9 attack would have triggered cascading defaults and panic. Banks would have failed. The Fed would have been forced to bail everyone out. That happened in 2008 and again in 2020.

This time? Nothing. The market held. The collateral requirements worked. The system was stable.

“Something fundamental changed,” Tom said. “For the first time since the American Revolution, the United States has real control over its own financial markets. That matters.”

The system is stronger. The collateral requirements are real. American institutions are in control. The old system of infinite rehypothecation and London control is gone.

Whether Europe tries one last financial offensive remains to be seen. But on April 9, 2025, they threw their best punch. America’s markets didn’t flinch.

That’s the story nobody’s telling.