Libor Lie – A Black Swan?
By Greg Hunter’s USAWatchdog.com
The Libor interest rate rigging scandal is being called the biggest financial fraud in history. Libor is a key interest rate that is used globally to set as much as $800 trillion in transactions. It is used to set interest rates for things such as credit cards, student loans, mortgages, corporate bonds and hundreds of trillions of dollars in derivatives. Libor stands for the London Inter-Bank Offered Rate. It is supposed to be an estimate of what it would cost for some of the biggest banks in the world to borrow money from one another. Sixteen global banks are involved in setting the rate, three of which are in the U.S. (JP Morgan, B of A, and Citi.) It was recently revealed by Barclays Bank (in the UK) that this key interest rate quoted by most of these banks was nothing more than a gigantic rate rigging scheme.
In a financial system reeling from one fraud after another, this is the mother of all rip-offs by the banksters. Karl Denninger of Market-ticker.org calls this, “the largest organized theft ever committed in human history.” This has already brought out lawsuits by the dozens from investors and institutions who say they were cheated by Libor rate rigging. Who’s suing the big banks? A better question might be who’s not suing? Let’s start with investors both big and small. CNN reported last week, “With Libor’s alleged suppression, Charles Schwab says, it was deprived of the higher interest payments it deserved. In another complaint, individual investor Ellen Gelboim claims she purchased corporate bonds that paid variable interest based on Libor, and suffered lower returns as the banks held the rate down.” (Click here for the complete CNN story.) These lawsuits and others have been combined into one in federal court in New York, but avalanches of new cases are coming.
Several state AG’s are also suing, right alongside municipalities and cities around the country, and that is just in the U.S. Remember, this scandal is global. Hedge funds trading in derivatives are going to line up to sue the big banks if they were on the losing end of a trade. Libor affects $550 trillion in derivative contracts. Some investors got hurt when Libor was manipulated up, and some took losses when Libor was manipulated down. There is something for everyone, and that equates to very big exposure to the banks involved in the alleged rate rigging. If the banks are responsible for just 1/10 of one percent of the $800 trillion in Libor transactions, it would represent $800 billion in liability to the banks. I’ll bet the total cost will be much higher, and some banks will go under as a result of litigation and loss of reputation. Ron Hera of Hera Research told me last week, “Truth is, if you take back more than 1% of what the banks have stolen, they’re busted.”
On top of that, there are going to be big fees paid to lawyers to defend lawsuits against the big banks. There are going to be fines and penalties paid by the banks. (Barclays paid more than $450 million in the UK to settle rate rigging charges.) There will also be loss of business to the banks involved in the scheme. There will surely be derivative contracts voided because rates were rigged and were not the honest interbank lending rates those contracts were based on. The big banks are already allowed to lie about the value of the assets they hold on their books to look solvent. I’m talking about underwater real estate and “toxic” mortgage-backed securities. (FASB 2009 “mark to myth” instead of “mark to market” as the IRS requires.)
The cheap Libor rates also made the big banks look more solvent than reality because they were understating their funding costs by rigging low rates. Reggie Middleton of BoomBustBlog.com told me Libor was, “A lie perpetrated in broad daylight,” and regulators should have “looked for fraud” long ago. How solvent will the big banks appear when rates are no longer manipulated downward?
Another unintended consequence of the exposure of the Libor rate rigging scandal may have an effect on the value on the almighty U.S. dollar. Rob Kirby wrote a great piece you can read at Goldseek.com that said, “Libor . . . is one of the lynch pins in setting [rigging] global U.S. Dollar interest rates. This is why a larger discussion needs to be had about the Libor rigging – it is not a London or Barclay’s centric story. It has EVERYTHING to do with making the American Dollar look viable as the world’s reserve currency.” (Click here for the complete post.) How are the U.S. dollar and Treasuries going to fare when the manipulation of Libor stops cold?
Maybe everything is rigged, and there are no free markets anymore. That’s a point the Business-Standard.com brought up last week when it said, “. . . investigations have started to discover other examples of rate-fixing in multiple countries. These enquiries are likely to cover a wide range of indices that have hitherto been believed to be set by “the market”. These indices include ones that set the worldwide prices for natural gas, crude oil, metals, wheat and many, many other commodities, all of which are set by clubs similar to the one that sets Libor.” (Click here for the complete story.)
The banks are surrounded legally on Libor rate rigging. Some are already saying the financial damage is going to be so hard to calculate that the banks involved won’t be on the hook for much money. I say, this is going to drag the banks down like an oversized boat anchor in a thousand feet of deep blue sea. The damage may not be felt immediately, but it’s there, and it will drag on for years or until the next financial collapse. Yesterday, one visitor to the site asked, “Do you think that these bankers will be indicted for the LIBOR scandal?” I replied, “Not only are the big banks “too big to fail,” but the banksters are “too big to jail!” That does not mean there will not be big consequences for this sort of fraudulent criminal activity. Unfortunately, we will all take a big hit.”
The Libor scandal is another in a long line of lies that are undermining the confidence in the financial system. MF Global, PFGBest, foreclosure fraud, Lehman Brothers collapse, EU debt crisis, toxic assets, TARP and JP Morgan’s London Whale trading scandal are just a few of the things that are causing people to lose faith. The economy cannot thrive, let alone recover, in an environment of fraud and corruption. Both debt and criminals need to be flushed from the global economy. The Libor rate rigging scandal is coming at a time when the Federal Reserve is worrying about a sinking economy, fiscal cliffs and a crushing EU debt crisis. Is the Libor lie the black swan that finally sinks the system?
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About the Author
Greg Hunter
Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.
Great explanation. I have been reading about this alot and the way you explain it makes sense. I think it may very well be the black swan that will cause the imminent collapse.
The whole thing is confusing though on how it might effect the little guy. My primary variable rate mortgage loan started in 2005, right in the middle of this and is based on 0.875% above LIBOR. It was through Countrywide but was sold or transeferred to BofA. So what does this mean for people like me. Can I expect the rate to be going up substantially now? I hate to ask, but could it null and void my entire mortgage? I would hate to keep paying off my mortgage and then when it comes to a final pay-out, I find out I owe another 2-3% of accrued interest payments from the years of 2005-2012? It is difficult to see how this might effect people on the micro scale.
What you state on a macro scale makes alot of sense. thanks
Rich,
Who knows what will happen but it ain’t good. Thank you for your comment.
Greg
Exactly Greg. Alan Grayson questions the Inspector General of the FED.
http://dailybail.com/home/there-are-no-words-to-describe-the-following-part-ii.html
Gee, you really think it might be possible that all these numbers we have been hearing about are PFA (pulled from air) figures?
Will anything come of it? Not much if anything. We will continue to march toward the New World Order Jimmy Carter and George Bush Sr. repeatedly talked about which is now termed Globalization no matter what the cost.
Greg.
Maybe everything is rigged, and there are no free markets anymore.
Statement of the last 100 yrs. The table the shell game is played on has fallen.
We must end the fed reserve banks world wide,and restart free markets.
At what point are these evil doers punished. Yes, I know the “Golden Rule”; He who has the gold, rules. Where is a Statesman to kick a$$ and take names? I see the middleclass pummeled by all while the poor are bribe to vote Democrat. Obama does not speak for the middle class. I am not sure what Romney will do but I know that Romney has a better idea than Obama. Obama says if you had a business, you didn’t build it, someone else did. I didn’t have any help when I was in business, not even from my wife.
Thank you George Too.
Greg
Like crooked politicians, not one bankster will be punished when the dust settles….not one. Their insurance policy is lining the pockets of the politicians, who in turn line the pockets of the banks…with our money.
I would love to start a business, but obama’s policies (taxes, healthcare, etc.) make it impossible. That and the fact that my wife won’t help me either… 😉
PS I like the videos, it is like having Greg TV but I miss hard hitting articles like this one 😉
Will it really matter? Since the bankruptcy laws regarding hypothecation and rehypothecation have been changed to where the physical holder of the asset gets to take immediate possession of the property?
The banks are prepared because they moved their exposure to the FDIC…
I can’t wait for the banks to try to collect on all of the derivatives through FDIC …. oh, I mean inter-bank mortgage swaps …
this is going to be ugly
Amen Mitch.
Greg
BOHICA.
Greg: great post, but I fear that the criminals will never be prosecuted; the Rule of Law has been so thoroughly abrogated, at least for those currently in power. It’s a national scandal that Corzine is not already in prison or at least indicted; this fact says it all. Now add the softballs lobbed at Dimon in his recent congressional appearance and the stench of corruption is so pervasive as to preclude any effective reform.
Thank Andy B and Mike.
Greg
I am not and I will never be surprised and shocked regarding the behavior of the banks and/or bankers. These Institutions and their employees have never had nor ever will have any respect for anyone other than themselves. Thank you.
“The economy cannot thrive, let alone recover, in an environment of fraud and corruption. Both debt and criminals need to be flushed from the global economy.” Greg – no truer words spoken. A British press is not so obviously complicit with the disdainful politicians across the pond as MSM press here in America is with our local breed of inept and corrupt representatives. Here the press covers for our elected officials and their irresponsible lack of oversight of the banking regulatory process which use to govern the financial world. Not so in the British world. The press there, in the end, knows who is ultimately responsible for financial system breakdown and duly points the finger at not only the guilty bankers, but the politicians now slinking and slithering from the spotlight like snakes fleeing from a grass fire. The press over there will show no mercy to all guilty parties regarding LIBOR and perhaps some public prosecution will be called for. The outrages from this issue could very well lead to a further and much more out of control chaotic western banking system. This spinning out of control could very well disrupt the free flow of money, leading to a very ugly situation of plugging up and bring to a halt the whole western commerce system because of disruption in the flow of money. Societal breakdown is not a pretty picture….Yep, both the guilty politicians and the guilty bankers would make a pretty picture swinging from the yardarms of old fashion justice to this new world corrupt disorder!….gotta go….Greg, great story today.
Stacking Fraud Like Cordwood.
The scandals and disasters within the financial sectors are starting to stack up like cordwood and the so-called regulators continue turn a blind eye to blatant criminal activity. One political side screams for more regulation while the other side screams for less. What difference does it make when nobody is enforcing the regulation already in place? Is anyone really surprised when the regulators come from the very banks and institutions that are committing the fraud in the first place?
The bankers profited hugely from the housing bubble and then when it burst they dumped their huge losses onto the taxpayer at par while the continued to collect their massive yearend bonuses.
Former Goldman Sachs chairman and US Senator and Governor of New Jersey, quite literally oversees the theft of $1.6 Billion out of supposedly segregated customer accounts as his MF Global operation goes bankrupt. And yet he remains free and walking the streets for no other reason than because he is connected to the Obama campaign and the banks that own it.
PFG Financial implodes in the wake of its President and sole owner failing on an attempted suicide. Another $220 Million of supposedly segregated customer accounts goes poof. What was the CFTC doing while PFG was filing forged paper reports while the law required that the reports to the CFTC were to be electronic copies of the original bank statements. This apparently went on for over two years while “former” Goldman Sachs employee and CHTC Chairman Gary Gensler apparently sat on his hands.
The banksters commit fraud after fraud after fraud and when they get caught they do nothing but pay a fine of only a fraction of what they gained from the fraud. No individuals are prosecuted for the crimes, so they then just move on to the next fraud. These criminals don’t consider the fines to be anything more than a cost of doing business. And why should they when as I said before the politicians and regulator in charge of enforcement are their “former” employees.
And now we have a new scandal, LIBOR (London Interbank Offered Rate) interest rate fixing. They have for years been putting out a published rate lower than what they were actually charging. By doing so they have lowered the cash margins they are required to put up for their trillions in derivatives and futures positions and cheated other investors who hold instruments who’s rates of return are based upon the published LIBOR number out of their fair return on investment. The class action lawyers are lining up in droves and the litigation costs alone may well expose these banks for the corrupt and insolvent institutions that they are for once and for all.
Looming on the horizon is yet another scandal. One that may be at the base of all the others, namely the manipulation and suppression of bullion spot prices and the theft of allocated customer bullion deposits as a means of doing it. Just as futures traders like MFG and PFG are supposed to treat customer cash accounts as in viable, so are the bullion banks supposed to treat customer allocated bullion deposits. In fact an allocated deposit certificate list not just the amount of the deposit, but the specific serial numbers of the bars on deposit as well. For this the customers pay the banks a monthly fee for the secure storage of their property. This is as opposed to an unallocated account which is merely a promise to deliver X amount of bullion on demand, not specific bars and carries no storage fees. The problem that has come up is that holders of allocated accounts are asking for delivery and receiving bars who serial numbers don’t match their deposit certificates and in some cases are receiving bars that were not produced until after they had made their deposits. This logically raises the question of where did the original bars go? Did the banks lease them or sell them into the market to cover their naked short positions based on their alleged unallocated account deposits? Are the banks replacing allocated bars with paper gold certificates in order to maintain reported account balances? If they actually have adequate unallocated deposits to cover their shorts why are allocated bars disappearing?
As word of this spreads among allocated deposit holders, and if they suspect any of this speculation is true they could start a run on the bullion banks. This could force the bankers into the physical market to try and replace bars they may have illegally sold or leased to try and cover their crimes.
When, not if this happens, gold and silver prices will explode and it will be game over for the likes of JP Morgan and HSBC and any other banks caught up in their web of deception. Their collapse will in turn pull down the rest of the banks and possibly the dollar itself. The only question then will be one of who goes to jail and when and for how long.
HI Greg,
This story feels very heavy at this point in the game. It reminds me of the saying that you expect different results, but keep doing the same action over and over again–some old mental thinking that keeps us in denial–just an old habit, nothing more. Keeping our lives as separate from the banking world as possible is sensible. I imagine that most folks require a checking account, but maintaining one with a minimum amount of cash will work. We all need to take care of ourselves and our families. Thanks for looking after our interests with your writing and excellent investigative reporting.
🙂 Diane
Diane Carol Mark,
It’s been awhile, welcome back!! Thanks for the comment.
Greg
So we can assume that there will NOT be QE3. Instead we will get QLPE1. Quantitative Libor Penalty Easing 1 will just flush away the bank losses and the American consumer loses again.
Entropy says ..it runs downhill.
Hi!, Patrons Of USAWatchdog Et Al:
Doesn’t anyone remember to refer to Allan Maestro Greenspan who told us when he was still Fed. Chief that his system could pint up any needed amounts of fiat purchasing media, in order to conduct any kinds of bailouts immagined or encountered? Didn’t Helicopter Ben backstop the Maestro, when he proclaimed that he has a new technology called a printing press? We have too many historical preceedants folks to refer to don’t we, to beleve that those two guys weren’t serious about their business plans to bail out whatever they deem necessary to stop a system collapse? Look at Zimbawe’s or Germany’s monetary infusions that must have been “discussed’ in their haydays and stop thinking there’s any immanent black swans yet. We haven’t even experienced the beginings of hyperinflation yet & so stand by for lift off whenever it comes as it has to eventually inevitably in my opinion.
RUSS SMITH, CALIFORNIA
[email protected]
yo, greg, in re yours above “Is the Libor lie the black swan that finally sinks the system?” ———– i am gonna tell obma you said that, no kidding, he will exploit this issue to death do us part….
no no no dont publish this, obma might get the point, and if so then he will make a biggie out of it, a nothing…… ho hum
Obama’s in bed with these guys (at least until after the election). I don’t think he’s going to do anything to upset the applecart. Crashing the system appears to be intentional on his part…unless he’s even more inept that I thought he was.
Of course, it’s his intent, he’s a Marxist. The banks will play either side, just like JPMorgan did during WW1. The banks would much rather operate in a closed market, assuring them monopoly power.
greg, i have to ask where you learned to write expository so well?
regardless of content i enjoy your critique as written
—if you answer pls send copy to me at my email address, danke
This is the perfect time to let bankruptcy do its thing. The “too big to fails” should have been bankrupted in ’08 when Paulson pulled his scam. Then the dems did their slight of hand after the election. And since ’08 the fed (neither Federal nor a Reserve) created $28.2 TRILLION out of thin air and gave it to American and foreign banks, and a few favored corporations. This is outrageous. I know the House and Senate are “bought and paid for” but if the republic is to make a come back, the American people must demand that the Big 6 go bankrupt, their assets be picked up by regional and local well run banks, and the fed be abolished, and a constitutional monetary system be reintroduced. If not now, it will only get worse, and the great middle class that made America will surely be serfs!
Yes Bob I agree. If you believe in capitalism then you must embrace bankruptcy. The opposite has been happening. Thank you for the comment.
Greg
Jim Willie’s missives have connected Libor and the US dollar/Fed efforts, well worth searching out.
Canudigit,
I’ve been trying to get him on but our shchedules have not matchjed up. He’s committed to do an interview I just don’t know when.
Greg
Correction, -“the largest organized theft ever committed in human history” is the FED.
BN,
I can’t argue with you on that one.
Greg
The wicked West has long ago thrown off it’s moral compass and lost it’s solid foundation. That is why there are so many unrestrained crooks steering the rusted ship into the rocks.
It all crumbles down to hell because the little gods thought they could replace the only One.
The wicked shall be turned into hell, And all the nations that forget God.
Psalm 9:17
The whole system is near the collapse. Either the Libor or another major bankruptcy on the financial sector will give the final push.
The landing will be chaotic and it will have a major impact on our lives for several decades. My only doubt is whether this will mean a full reset to the system or if the system will be always bugged after the inevitable crash ………
Greg,
Short and sweet– The voters will know who is on the “take” with the banksters very soon when they vote on Ron Paul’s audit the FED bill.
Unfortunately the MSM may not choose to tell it like most other important votes. And – still – the ignorance of the American public is yet again without equal.
Greg,
The Senate Banking Committee will be grilling the Li-More Twins, the Fed Chairman & Treasurty Secretary. They will explain it all away so the Banking Committee can officially sweep all this under the rug in the Senate Chambers.
Disgusting, but that’s the way government works for the TBTF banks.
The Senate might want to sweep it under the rug but the litigants will not let it stand. This is very big money and they are mad as hell! Thank you for your comments.
Greg
WE do as we wish.
Every time I read these articles it just makes me sick to my stomach to know that everything we believe in (financially) is nothing more than a giant pile of lies. I say it is time to wipe the financial global slate clean and start over. If banks and financial institutes aren’t made to pay what they owe why should the average joe be held to a higher standard of behavior. This whole ponzi scheme is nothing more than blantant greed made to make the have’s rivher and the have not’s poorer.
Greg, awesome reporting. I have a question for you? Did some one start your business for you? I know the answer, but the ‘O’ thinks some one else did it for you! If only politicians could tell the truth we would not be in this economic nightmare that is going to shake the world to the core!
Will we get any real Justice from the worse AJ the Republic has ever had? NYC, the courts system that sides with the gov & lets the crooks walk free. The old wild west had better justice served & it did not cost the tax payers a arm & leg to achieve it! A rope went a long way!!
Thanks again for your reporting the real truth!
Mickey S.
Thank you Mickey for making your first comment here. May there be many more!
Greg
I understand that this is a bad, fraudulent thing for the big banks to be doing, artificially setting the interest rate lower than it really is. My question is, so why is it ok when the Fed and other central banks do it? Is it like counterfeiting–ok when the guys in DC, London, et al. do it, but try it yourself and go to jail?
Good point. Thank you for making it here.
Greg
Hi Greg,
I think its going to be tough for many plantiffs to show they were directly hurt by the LIBOR scandal. Some people actually benefitted from lower rates. I’m not condoning the behavior I just don’t see many successes in court. However, court costs could be very crippling to some of these banks.
On a side note; its great to see your getting so many interviews with others out there in the non-MSM; Chris D, Reggie M, Max, etc. Its nice to see that all of you are linking together ane preaching the message that all is not fine, all is not well, and that we don’t have a free market in any way.
Shawn in San Jose,
All the evidence suggest that a tremendous crime has been committed against people (investors) with big money. These folks are not going to just walk away after being completely ripped off by criminals. Yes it is not only court costs but in the discovery process much will be disclosed that can and will destroy the reputation of the bank. What happens to a fractional reserve entity when all confidence is lost? This will be very ugly and it is just beginning. Thank you for your comment and above all your continued support!!
Greg
Well I, at least, am not a bit shocked that they were fixing LIBOR. I admit, though, I have been rather astonished that so many people do purport to be shocked. Am I to assume they truly are, or that they’re doing impersonations of Captain Renault? Whatever the case, this is a most amusing spectacle.
The best thing, methinks, that can come out of this is a widespread realization that interest rates ought not be fixed. When the masses agree that is so, and they threaten to withhold their votes from any of the slime-balls “representing” them who think otherwise, we can go about exterminating a certain creature that has been proudly fixing rates in the broad light of day since, having slouched away from Jekyll Island, it settled on the banks of the Potomac in 1913.
To laugh, as I do, at the hubbub this “scandal” has stirred up is not to laugh off the possibility that an apparently impending hurricane of litigation could make quite the mess.
Good stuff EC Steve. Thank you for the comment and analysis of the big picture.
Greg
Nice Greg…100% agree …in fact I called this on July 7,2012…”LIBOR as we now know, has been rigged (watch this space…this could be the black swan for 2012)” on another blog page. No one took any notice….how sad.
Slowly but surely the world wakes up to the incestuous games that the banking elitists play. What have we done about it, what lessons have we learned…why didnt we take any notice of the men who did know…ME Rothschild, FDR, Theodore Roosevelt, Thomas Jefferson, Andrew Jackson , Abraham Lincoln, Napolean, Karl Marx, Tolstoy, Henry Ford. Their warnings are stark and unfortunately hidden from mainstream.
It does inevitably lead to chaos…..the whole fabrication of society is built not with solid foundation, but with lies,corruption and paper. Only those who know the game can play, while the rest meander through life struggling to eak out an existence and yet blinded by the realities of the world.
When the masses rise..as they will…they will want revenge. Society crumbles because what is there that remains free from the pollution that the central planners and banksters have released into the system that every living person relies on. Every corner of the globe is touched by these parasites. Justice will need to prevail.
Amen Liquid Motion!
Greg
Blaming the bankers is easy. I think we all loved the easy money. The government and money changers just gave the public what they ask for. LET THE GOOD TIMES ROLL.
You don’t get elected a second time telling the people to put a sweater on, ask Jimmy.
Most people can’t grow a potato ,but they talk about freedom. PEACE LOL
Bob,
Yes you can blame the bankers and their lobbyists how brides the politicians. All can be blamed. This was rate rigging fraud was paid for by unsuspecting investors. They have money to hire lawyers and they are pretty pissed off to find out they have been ripped off. Thank you for weighing in though Bob. Always like your thoughts and comments. Your point is well made and well taken.
Greg
Why do I have this feeling my credit card won’t work much longer? Better max it out now——————-
It is my understanding that it was not only the LIBOR but also the EURIBOR and the TIBOR (“T” is for “Tokyo”) rates that were manipulated and that this has been going on for years, maybe decades.
Now, I agree that this is fraud and it should prosecuted – but why “we will all take a big hit”? The rate was manipulated DOWN, not up. If it weren’t, a whole lot of people like you and me would have been paying more for our mortgages. (Well, figuratively speaking. I don’t have a mortgage.) The ones who have “taken the hit” are the big financial institutions like like Charles Swab, who are complaining because they didn’t get paid as much as they otherwise would have been.
Vess,
That was paid for by by folks like bond investors in corporates and MBS who got lower rates of interest. It was also paid for by the investors on the losing end of derivative trades. Rates will no longer be able to be held down at the expense of investors. By the way, this is criminal fraud and when this is unwound rates will rise and lawsuits will impair the banks that we will undoubtedly have to bailout again with printed money. This is all very destabilizing to the system but it was stabilized with rate rigging fraud. So fraud is good as long as the majority benefits from it?
Greg
Has anyone else noticed: Some people are screaming because the LIBOR rigging caused them to pay too MUCH interest. Others are screaming because they were paid too LITTLE interest. So which is it?
dejayajay,
It’s both and thats why the lawsuits against the banks are going to come from all corners.
Greg
bring back the OTTOMAN EMPIRE
It’s the LIBOR truth that will sink the system. It’s the lie that has been propping it up all these decades!
Hegemoneycricket,
You are correct sir!!
Greg
Greg, I must be a slow learner – please help me out.
If I go to a bank and they tell me their loans are a bargain at xx% and I won’t get a better rate anywhere, is it their fault if I actually believe them? Caveat Emptor, no? So I don’t understand the fuss at all. Why blame the businessman banker? Aren’t they supposed to maximize profit?
So as I see it, the problem is not dishonest banksters (what else do we expect), but corrupt (de)regulators / law-unmakers plus the whole question of who is supposed to be making our money. Didn’t Nathan R. once say something like ‘give me control of a nation’s money and I care not who makes its laws’? So, didn’t we get exactly what we voted for?
Let the tempest in a teapot go. Fix the friggin system. Push the 1933 reset button! Yes??
Bob
This was fraud and criminal activiity on a global scale. The low rigged rate came at the expense of investors and savers. Our leaders over did deregulation and there is really no pain free way to solve the problem. We are just putting it off and making things much worse for the common man. Sure, let’s hit the reset button because it is going to reset sooner or later anyway.
Thank you for your comment.
Greg
Nice piece, Greg. Libor should henceforth be renamed Liebor. Th “e” stands for egregious. And how is that no one is in jail for a fraud that has been perpetrated since 2005? Are the regulators asleep at the wheels?
Kent,
They were not asleep. They knew and wanted it to go on to drive down interest rates and make the banks look way more solvent than reality. I love your LIE-bor definition.
Greg
How’s this different than our artificially depressed interest rate? So if LIBOR rigging is a crime, then what about the Fed’s interfering with US’s interest rate? Both schemes are punishing the savers and depriving funds that many boomers are depending from their saving for their retirement.
Phillip,
The difference is everybody knows the Fed is rigging interest rates lower-it is a stated policy. Libor is supposed to an honest appraisal of what it cost banks to borrow from one another. They didn’t come out and say “Hey this is a rigged rate.” They have been passing this off as as bona fide when in fact it is not. That’s the difference it’s criminal fraud on a global scale. $800 trillion of transactions are based off from Libor.
Greg
Why didn’t you put up my original comment.
Don,
I don’t know what it is. I have an aggressive spam filter and it may have been caught up in that. Post it again.
Greg
Greg,
I will try a shortened version to see if it can get past the spam filter. I said that an artifically low Libor did not benefit the bankers because banks work on the spread like all trading businesses. Higher Libor demands a Higher Loan interest rate which can result in a Higher savings interest rate if the bank is profitable or in need of deposits (one must not leave out the lending rate linking step). Those who benefited are the borrowers because a Lower Libor = Lower Lending rate.
Don Jones,
You are correct. It was the bond holders, savers and folks on the losing end of interest derivative trades who paid for the low rates. These folks are mad as hell and are going to sue en mass.
Greg
I pulled this off wikipedia for those like me that never heard of libor.
For other uses, see Libor (disambiguation).
The Libor gets its name from the City of London, one of the largest financial centers in the world.
The London Interbank Offered Rate is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks.[1] It is usually abbreviated to Libor ( /ˈlaɪbɔr/) or LIBOR, or more officially to BBA Libor (for British Bankers’ Association Libor) or the trademark bbalibor. It is the primary benchmark, along with the Euribor, for short term interest rates around the world.[2][3]
Libor rates are calculated for ten different currencies and 15 borrowing periods ranging from overnight to one year and are published daily at 11:30 am (London time) by Thomson Reuters.[4][5] Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to it. At least $350 trillion in derivatives and other financial products are tied to the Libor.[6]
In June of 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions, leading to the Libor scandal.[7][8][9]
Yesterday 07:43 AM
Incremental Risk Charge: An analysis: Going forward how much will the Libor scandal cost Barclays Bank and who will be chosen to lead its affairs.
Answer: See No.5 below.
In the aftermath of the Barclays Bank Libor scandal (financial Hiroshima) and their greed and subsequent cover up tactics, we studied the future impact on the bank and its franchise in the next 6-8 months using the ## Monte Carlo method and the capital asset pricing model. This has been developed using variable analysis on a common measure of the volatility of its ongoing business, i.e. its beta–which is determined using linear regression. These have been applied to the latest audited Barclays Bank balance sheet, their Libor rate rigging scenario and inferences drawn with 95% accuracy. The result highlights the following 5 points:
1. In the next 12 months, as its market standing and franchise has suffered, the Barclays Bank group will have to make a loan loss provision of USD 5.75 billion.
2. Their combined exposure (including paper transactions) is USD 1.35 trillion which they need to unwind at the earliest and reconcile their financials/book of accounts within 24 months. Overall loan losses to be written off could be around USD 3.5 billion and thus their paid up capital will be affected.
3. Their International trade, LC and LC confirmation business, correspondent banking business will reduce by about 40 % in the next 12 months as their price/rate quotation/covenants/IM will be seen with suspect.
4. As a result of (3) above, their overseas operations will reduce (some businesses will have to close down) by at least 30 % globally. This will open up a new avenue wherein, in the next 24 months, their overseas business will very likely be acquired by 2 Chinese and 1 Australian banking consortium.
5. The above points indicate that they will definitely need UK Government bailout well within a year. The UK government is already planning to nationalize the bank and make it a pure local British deposit taking bank going forward with an Australian as its head. Deposits/customers will come back to the bank only if the banks’ Investment Banking activities is completely spinoff. The Americans will make this happen.
## Methodology: I also used the Levy distribution – a continuous probability distribution which is unbounded below and above. The normal distribution is a special case of this with the parameter being one half of the variance. The Levy distribution, or Pareto Levy distribution, is increasingly popular in finance because it matches data well, and has suitable fat tails. The tail of the distribution decays like . Mean = and Variance = .
Thank you for the analysis abc!! I guess you can use this formula for all the banks in the rigging scandal?
Greg