The first is that the bankers, traders, executives and others involved would so openly and, in some cases, gleefully collude to manipulate this key interest rate for their own benefit. With all the seedy bank behavior that has been exposed since the financial crisis, it’s stunning that there’s still dirty laundry left to be aired. We’ve had predatory subprime lending, fraudulent ratings, excessive risk-taking and even clients being taken advantage of in order to unload toxic mortgages.
Yet even with these precedents, the Libor scandal still manages to shock. Libor — that’s the London interbank offered rate — represents a series of interest rates at which banks make unsecured loans to each other. More important, it is a benchmark that many financial instruments are pegged to.
Mhmm yeah uh huh. Who cares, my 2 months of savings are covered by the FDIC.
The Commodity Futures Trading Commission, which doggedly pursued the wrongdoing and brought the scandal to light, estimatesthat some $350 trillion worth of derivatives and $10 trillion worth of loans are based on Libor.
How much is that again? How much were all of government bailouts in the US? They spent 1.6 trillion and committed 9 trillion. It would take something like 2.2 trillion to fix the US infrastructure from it’s D ranking.
Yet beginning in 2005, according to the C.F.T.C. and the Justice Department, derivative traders at Barclays, the too-big-to-fail British bank, with the active involvement of traders at other yet-unnamed banks, persuaded their fellow bank employees to submit Libor numbers that were shaded in ways that would help ensure their trades were profitable. Even Robert Diamond Jr., the former Barclays chief executive who lost his job over the scandal, said that reading the traders’ e-mails made him “physically ill.”
In 2007, as the financial crisis was gathering steam, banks also began submitting false Libor rates for a different reason. Libor, you may recall, was a measure that gave the outside world a sense of how much trouble the banks were in; the higher the rate required to borrow, the worse shape they were assumed to be in. So Barclays — with what appears to be the complicity of British bank regulators — started submitting rates that were lower than the reality. Its executives said the purpose was to keep Barclays from “sticking its head above the parapet.” Link
So they’ve rigged a highly leveraged system with more money than actually exists?
I don’t understand it either Piglet, how can someone rig the entire system? Wouldn’t most, if not all of the banks be complicit in the fraud? The same banks we bailed out went back to gambling with our money on rigged exchanges? Well I guess it’s not gambling if the game is rigged…
Libor rates are calculated for different currencies each day under the auspices of the British Bankers’ Association using quotes submitted by banks on a panel, based on the banks’ estimated borrowing costs. More than $800 trillion in securities and loans are linked to the Libor, including $350 trillion in swaps and $10 trillion in loans, including auto and home loans, according to the CFTC.
The CFTC also said Barclays traders in New York, London and Tokyo attempted to manipulate Libor to help their derivatives trading positions. Traders made unlawful requests to the bank’s rate submitters “routinely, and sometimes daily” from at least mid-2005 to at least the fall of 2007, the CFTC said. The requests were frequently accepted by the bank’s rate submitters, according to the CFTC. It quoted emails such as “always happy to help” and “Done…for you big boy.” Link
I don’t understand it either Mr. Rabbit, that’s the brilliance of it. The system we’ve created is too complex, interdependent and fragile to be left to the forces of the market, it has to be rigged or else we’ll face a global depression because of decades of financial fraud. It’s as if the world economy is at the mercy of gamblers and speculators.
Too much real life for one day.