LIBOR Scandal Explained

Source: Accounting

This post originally appeared at The Big Picture and is posted with permission.

14 Responses to "LIBOR Scandal Explained"

  1. Kyle   July 11, 2012 at 12:14 pm

    Mother****ers! I say burn 'em Inquisition style.

  2. Faryan Amir-Ghassemi   July 11, 2012 at 2:49 pm

    I'm no proponent of what happened, but I think there is some hyperbole being used here, especially with the Taibbi quote. He is attempting to pinpoint the winners and losers of a fluctuation in LIBOR, which i think is naieve at best, or at worst, a typical Taibbi trope to attack banking institutions in any way possible. The fact is that the manipulation is a terrible black eye for the industry because it undermines any shred of trust in financial institutions, not because it was an overarching greed move (a la subprime MBS) to steal from consumers. Remember, this was holding rates LOWER which means that your mortgage was not reseting higher, to use one of many examples…

  3. aeiou   July 11, 2012 at 11:31 pm

    "Remember, this was holding rates LOWER which means that your mortgage was not reseting higher, to use one of many examples."

    Yah…which also means people were getting less on their pension investments and savings. And it wasn't always rigging a lower rate. Sometimes it was a higher rate.

    • kay causeey   July 20, 2012 at 4:58 pm

      yes, this was holding rates lower so that the corresponding banks could charge a hugely increased margin—–and the bonds of cities and muncipalities ended up having to pay huge amounts on their bonds. IT IS THEFT, PURE AND SIMPLE. THE BANKS HAD HUGE UPFRONT FEES and penalities the cities and muncipalities had to pay just to get out of these bonds which they could no longer pay the high rates on. Do you know how many jobs the millions paid just to get out of these straight jacket rates translate into? Millions of jobs.
      wake up—-because what does the city do? they stop fire, garbage, never of course fire all the bureaucrats responsible for this rapeage. But the poor citizen has to pay with garbage piling up, homes burning and so forth.

      • Del Rae   August 9, 2012 at 4:06 pm

        How does the City come into your scenario… seems to me, they are as phased by this as their citizens are. They aren't the groups that regulate banks, nor are the ones that would mandate how they are regulated.

  4. DiranM   July 12, 2012 at 1:49 am

    OK Fine! Banks robbing savers with understated interest on loans, but what about the FED and governments robbing savers with financial repression and very low interest rates? Is not that really the same thing with the difference that Governments and Politicos can openly steal and get away with murder, but banks do not have full immunity unless they in collusion like the Eurozone scams.

  5. Tom   July 12, 2012 at 12:54 pm

    Very weak explanation, IMO.

    The first part of the Libor scandal is micromanipulation of Libor rates by reporting banks on behalf of their in-house derivatives traders. To the masses of people paying or receiving Libor-linked interest rates, these were short, tiny movements that made as much difference as a pea under 17 mattresses. They burned other players in those derivatives' markets. The scale of this "rent" and who ultimately paid is hard to work out. Experts will need more information. This was going on for decades.

    The other is collective suppression of Libor, because each reporting bank is hiding its true health, and perhaps also feeling political pressure to keep Libor down. This has been going on since 2007. As a result people earning Libor-linked rates are losing and people paying Libor-linked rates are winning, although arguably those who agreed to accept Libor-linked interest at a time when the rate was already suppressed haven't suffered.

  6. Michael Moran   July 12, 2012 at 2:25 pm

    Hey Barry – great graphic – buy your artist misspelled Reuters.
    – Moran

  7. Douglas   July 17, 2012 at 8:13 am

    Assuming banks did in fact collude and that the rate fixing doesn´t rule out such behavior, it begs a more fundamental question, where the industry banking watchdogs were for so many years? how come nothing was done to ensure collusion couldn´t take place? After all, nobody here can´t claim naivety as precedent has it that US and UK corporate history is rife with "choir practice" meetings.

  8. Charles   July 17, 2012 at 4:13 pm

    Colluding to keep the LIBOR and other interest rates artificially lower or higher than they should be is terribly bad policy because in either case risks and assets are mispriced, which is one of the major reasons why we ended up in this financial crisis.

  9. PDR Vet   July 25, 2012 at 1:10 pm

    Exactly where are those savers everyone seems so concerned about? Definitely not in the U.S. which has been a net borrower since the 1980s. So I guess its Germans and the Chinese that you're so concerned about? The fact is that this was a consumer friendly scandal. That doesn't make it OK and there are many problems with how financial services are provided (i.e., they don't provide any real economic value added as Volker pointed out) but Libor is not a populist cause. Enough with the hyperbolic populist outrage. And if you've paid any attention to Krugman, excess savings is the problem not the solution with the current mess (which is different from the long-term).

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  11. SusanHolmes   October 10, 2013 at 1:10 pm

    it;s still pretty confusing no wonder they got away with it for so long.