Industry Veteran Closely Involved in the Libor Process Says that the Rate Has Been Manipulated for 15 Years

We’ve previously noted that Libor manipulation has been going on since at least 2005 …  and continued long after the manipulation was first reported.

The Financial Times started reporting on the manipulation in 2007, and the Wall Street Journal in 2008 (see this, this, this, this and this).

But as the Economist reports today, the manipulation probably goes back a lot further:

The FSA has identified price-rigging dating back to 2005, yet some current and former traders say that problems go back much further than that. “Fifteen years ago the word was that LIBOR was being rigged,” says one industry veteran closely involved in the LIBOR process. “It was one of those well kept secrets, but the regulator was asleep, the Bank of England didn’t care and…[the banks participating were] happy with the reference prices.” Says another: “Going back to the late 1980s, when I was a trader, you saw some pretty odd fixings…With traders, if you don’t actually nail it down, they’ll steal it.”

Given that homeowners, students, credit card holders, and other borrowers pay more when rates are higher, the banks appear to have fleeced consumers for 10 years during the entire bull run leading up to the financial crisis.

We predict that lawyers can prevail in huge class action lawsuits based on that theory alone.

As Yves Smith writes:

I expect the firms involved to face a locust swarm of litigation. Lawyers may accomplish what regulators and politicians refused to do: strip the banks of ill gotten gains and bring their preening CEOs and “producers” down a few notches. A day of reckoning may finally be coming.

Category: Bailouts, Credit, Legal, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Have Banks Been Manipulating Libor for DECADES?”

  1. Julia Chestnut says:

    I understand that the motion to dismiss the amended complaint in (the antitrust action in SDNY) is filed. This could be very interesting. . .remember that the standard at this point in the pleadings is that the allegations must be plausible, and with antitrust we are legally still trying to flesh out exactly what that level is. This question of what, exactly, must plaintiffs plead to satisfy Twombly and Iqbal is the front line of the battle at the moment in all of antitrust law.

    I will be interested to see how all of this news interacts with what is actually pled in the complaint. Very capable lawyers, very interesting theory. One to watch. . . .

  2. ConscienceofaConservative says:

    There are three ways one can make money on wall street, be quicker, be smarter or cheat. Seems Wall Street players prefer the last option all too often.

  3. ItalicBold says:

    class action seems a bit pointless against the banks, would just end up paying out taxpayer money, which = more austerity or tax increases. we need prosecution.

  4. mitchw says:

    What will happen to the swaps business if banksters have that fat thumb on the scale chopped off? Will their risk appetite suddenly be sated?

  5. 873450 says:

    “Lawyers may accomplish what regulators and politicians refused to do: strip the banks of ill gotten gains and bring their preening CEOs and “producers” down a few notches. A day of reckoning may finally be coming.”

    Who will do God’s work?

  6. Jim67545 says:

    For decades some banks established their own “prime rate”, largely supplanted by LIBOR or NY Prime. But, the individual bank “prime” and also “NY Prime” have been artificial numbers contrived to the benefit of the banks that issue them. So, why is everyone shocked that LIBOR has been similarly manipulated? It’s not based on some independent source such as Treasury rates. And, one could argue, Treasury rates have been gamed as well by the Fed. When all is said and done, what representations and warrantees concerning the purity of LIBOR have been violated?

    I wonder where that $430MM (?) settlement paid by Barclays went? Into government coffers? To beef up the budgets of the regulators?

  7. albnyc says:

    Italic, that is a nonsensical statement. First, the banks are British. Second, they are not nationalized or wards of the state. Let the raptors loose.

  8. Moss says:

    This may be the the smoking gun which proves to all the criminal intentions of the global banking cartel. The money changers may have met their maker. Could be a gift to Obama once the US banksters are implicated. Since corporations are people prosecute them as as such.

  9. Jim67545 says:

    OK. LIBOR has been manipulated. But, what exactly has been violated?

    Business entities from OPEC to the pharmaceutical industry, to your local bar association attempt (successfully) to establish “standard” pricing to their advantage. Is this any different? (Not endorsing these.)

    Is this an anti-trust or RICO matter? Could be. Just asking.

  10. Orange14 says:

    What has been lost in blizzard of news is that Barclays were low balling the interbank interest rate to keep themselves propped up. If other banks were doing the same this is a net plus for anyone whose loans are pegged to LIBOR since the nominal interest rate will be lower than it should be. We don’t know at this point in time whether there was a conspiracy to high ball LIBOR rates which would be grounds for consumer’s complaints. If it’s just low balling then I don’t see how there can be any kind of action against the banks for giving away money at less than prevailing market rates.

  11. A says:

    This is one of the ongoing problems: instead of ‘bringing the CEO’s down a few notches’, lets start to incarcerate them. Until then, the corruption will continue. Bernie Madoff is lonely and needs some familiar company.

  12. obsvr-1 says:

    @Moss … Could be a gift to Obama …


    Are you kidding !! Obamas DOJ has done nothing, NOTHING to prosecute the banksters — er Fraudsters

  13. Mike in Nola says:

    @albnyc: Italic’s argument about the taxpayers ultimately footing the bill is, no doubt, a variation of the Republican one used against holding large companies responsible for their criminality: it will just raise prices for everyone. Fox News used it against punishing BP for destroying the Gulf of Mexico because it would only raise oil prices.

  14. Mike in Nola says:

    I’m sure the corporate structures will be a roadblock to class actions. There are holding companies and subsidiaries. Are the ones under the jurisdiction of US courts the ones who are guilty? Are there British banks involved that aren’t amenable to US jurisdiction? British courts may not allow class actions.

    Then you have to prove what the damages were, which is a real can of worms, e.g. what was the rate supposed to be? I imagine the records will be claimed confidential.

    And then, will the arbitration agreements written into almost every financial deal cause a problem? They shouldn’t, since the agreements only apply to the parties to the transaction, but Scalia likes them; you don’t want to give commoners access to the court system, do you?

    I suspect this will be the usual where things drag on until few care and then whatever puppet is in power gets some law passed to give immunity to the evildoers in exchange for a pittance.

  15. Francois says:

    @Mike in Nola,

    If the “corporate structures” prove to be once again, an impediment to justice by normal means, some will find and implement abnormal means to carry justice.

    In the Ancient Times, jesters and poets were ahead of the curve in anticipating probable social changes. Now, it is the gamers. (Hopefully they’re wrong)

    This should give a hint to elites and banksters, so they can realize how close the tipping point could be.

  16. T7 says:

    I second Jim67545′s comment: exactly what is wrong with any of this?

  17. [...] “Fifteen years ago, the word was that LIBOR was being rigged,” a financial industry veteran involved in the Libor process told the Economist. “It was one of those well kept secrets, but the regulator was asleep, the Bank of England didn’t care, and…[the banks involved were] happy with the reference prices.” (Hat tip: Barry Ritholtz.) [...]