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Source: Accounting


Category: Credit, Digital Media, 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.

29 Responses to “LIBOR Scandal Explained”

  1. ConscienceofaConservative says:

    Great piece.
    So far (and maybe due to mis-information put out by some of the networks) this scandal has not resonated with the American public. Perhaps the reason is that the spin is since Americans borrow off libor they benefit from this crime. Forgotten is that municalities, insurance companies, pensions may be engaged in various contracts such as swaps where they get actually lost money on the fraud, deception and collusion which impacts a cities ability to deliver services, may result in increased taxes or on a pension fund not being able to deliver its returns.
    This scandal represents fraud and collusion. If that’s not prosecutable, then nothing is.

  2. Expat says:

    Still just a a few bad apples in banking and finance? Or is the market 99% bent?

  3. PeterR says:

    The Seeds of Revolution continue to germinate.

  4. WFTA says:

    And they pay a fine that could have hired lawyers through infinity, give back last year’s $30 millions bonus, and nobody, but nobody gets prosecuted. I think I smell Goldman-Sachs.

    And the copper says, “Move along. Show’s over. Nothing to see here.”

  5. DarthBeta says:

    Fair enough display for one side of the equation.
    The proverbial you (above) as a borrow would have benefited from lower LIBOR- mortgage rates for example

  6. CDOcasualty says:

    So, Matt Taibbi thinks lowering interest rates hurts the little guy. Interesting. Perhaps he refinanced his mortgage at 15% per year and really liked that. Give me a break, Barclays should be given a medal for what they did.

    Almost all of the entities mentioned above has more debt than assets – meaning they all BENEFITTED from lower rates. Tiabbi’s a sensationalist and doesn’t present a balanced picture. All journalism has become editorial.

    Let’s run interest rates through the roof and bankrupt every municipality, pension plan and consumer borrower. Yep – that would be a great idea.


    BR: Many many people cannot qualify to redo their mortgages at low rates — so all they get is the bad side, not the cheap money. Plus anyone on a fixed income gets hurt.

    Your comment “run interest rates through the roof” is bizarre — the options are not zero and 20% but the full spectrum

  7. AHodge says:

    know you are just reposting… but well really
    “ the history of markets?
    this guy needs to get out there, and dig in
    he has no idea of the magnitudes worse stuff out there
    its useful for the full pants down emails-and a morality and legality indicator.
    where there is smoke confirms the general bigbank cesspool zeitgeist

  8. howardoark says:

    Weren’t there vast fortunes to be made in the derivatives market based on knowing where LIBOR was going in advance of the market – especially if LIBOR was going in a direction that didn’t make sense given the financial condition of the banks? Some people inevitably got rich off this.

    Though, I bet there were closed door meetings where the bankers told the regulators that if word got out that they were having to pay 8% on overnight loans it would result in a bank run and the ruination of the Treasury and an inevitable depression (look what’s happening in Spain when their borrowing cost got to 7%). One more reason to limit banks to some reasonable size (say no bigger than $25 billion in assets).

  9. [...] LIBOR Scandal Explained | The Big Picture [...]

  10. harrierpark says:

    So, when banks artificially lower interest rates it is bad because it hurts savers.
    When the Fed artificially lowers rates it is ????

  11. jock says:

    Might this all be because RUEters did the KalKulations?

  12. CDOcasualty says:

    People on a fixed income get hurt by an inflation rate which outpaces increases in their income stream. On balance, what Barclays and the other banks did on LIBOR had to be done. Bank funding costs get passed on to all borrowers or, even worse, the banks can’t fund themselves and we are all asking for our deposits back.

    I see when I engage in hyperbole to make a point it is “bizarre”, but when Tiabbi does it it is just reporting.


    BR: On the contrary, bizarre was being polite. Your claim that “what Barclays and the other banks did on LIBOR had to be done” reveals you as fucktarded.

    Go sell batshit crazy somewhere else.

  13. opensourcecurrency says:

    “Bank funding costs get passed on”, eh? So I guess you admit that there is no effective competition in banking, just a cartel. We might as well beg Bob Diamond to keep his $20 million payoff for enabling the cheating.

    Obviously anyone stuck in Madoff’s game wants him to keep selling the scam to new suckers….

  14. opensourcecurrency says:

    “People on a fixed income get hurt by an inflation rate ….”

    But CDOcasualty doesn’t see a connection between printing credit at 0.1% and inflation. Maybe he sells CDO/casualty insurance– or some other bullshit paper in the $800 trillion game.

    Up or down, you don’t need much imagination to get rich off manipulating a few basis points in one direction when are hundreds of trillions in side bets.

  15. PeterR says:

    Ditto to BR on his reply to CDOcasualty.

    “fucktarded” indeed. Hopefully CDO was just posting a joke or tease.

  16. louiswi says:

    The incident is referred to as a “Scandal”. Scandals don’t sound that serious a description at least for me.

    The real questions that should be addressed are:

    Was a crime(s) committed?
    Who are the alledged criminals?
    Who the victims are seems irrelevant.
    Who has the authority to prosecute the alledged criminals?
    Is this being done, or about to be done, or is it not?

  17. Bob A says:

    “give them a medal” … great idea. as long as we can post it on the door to their cell.

  18. Frilton Miedman says:

    H/T to the BR “Fucktard” comment.

    It’s on the same line as “The banks were forced by the government to sell garbage loans as triple A assets”

  19. boveri says:

    This infographic does not do an adequate job of explaining the harm of the LIBOR scandal. Period

  20. blackjaquekerouac says:

    i do agree those pay packages are pretty fat. and indeed “Bernie Madoff did rob the world.” I have no doubt he would LOVE to “advise and extend his remarks” as well given the what and who he knows. As it is “it’s another game of chess with Raj Rajaratnam” as they laugh out loud about “how little the American people are being told.” I would laugh if states and municipalities actually DO SUE the banks myself!
    who i ask? WHO???!!!!

  21. Patrick Neid says:

    There’s always a vig, one way or another.

  22. AnnaLee says:

    BR, I come about my “tardness” honestly without copulation. I just don’t understand how the banks/bank employees profit from this. Where does the extra money come from? If the rate is lower, doesn’t everyone on the profit sharing side end up poorer? Could you explain to me where the resources for a money transfer originate?

  23. opensourcecurrency says:

    Banks make money by borrowing money and lending it out for a few points more. Let’s say they lend long (up to 30 years) at 4%. Then they pay a big round of bonuses. Then credit tightens, and some borrowers default. The bank must keep borrowing to keep its operation going, but now it must pay4.1% to a nervous “market”. It only takes a few days (maybe minutes) for the bank to go bust, given all the leverage. So rates must be manipulated down (or emergency bail out welfare granted), or no more bonuses.

  24. this..

    opensourcecurrency Says:
    July 12th, 2012 at 10:04 am

    Banks make money by borrowing money and lending it out for a few points more. Let’s say they lend long (up to 30 years) at 4%. Then they pay a big round of bonuses. Then credit tightens, and some borrowers default. The bank must keep borrowing to keep its operation going, but now it must pay4.1% to a nervous “market”. It only takes a few days (maybe minutes) for the bank to go bust, given all the leverage. So rates must be manipulated down (or emergency bail out welfare granted), or no more bonuses.

    Should be, Actively, Questioned..

    see some of..

    for a much more accurate portrayal of ‘Banks’..

    dude, above (opensourcecurrency), is, rather, describing the activities of “Finance Companies”, not ‘Banks’..

  25. Jim67545 says:

    AnnaLee: For every borrower there is a lender. If a borrower gets a 0.125% better (lower) rate the lender gets a 0.125% poorer (lower) rate. The lender may be a bank or might be someone holding the paper such as a pension fund (as noted.) So, it is the lender whose ox is gored. If Barclays et al understated LIBOR in order to make themselves look more solvent it may hurt them to the extent that they hold debt pegged to LIBOR that is underpriced. However, there is FAR FAR more debt out there priced to LIBOR than the comparatively little held by Barclays et al and so lots more harmed.

    The reverse of this is the so-called New York Prime index (used mostly for HELOCs, credit cards and small business loans.) Over the years it has consistently been slow to drop in a declining rate environment and fast to rise in a rising rate environment. This has consistently been gamed by the banks but apparently this is not an issue (?)

  26. willid3 says:

    well its used to be how banks worked. but thats so old school.

  27. tap says:

    The description is an ultra simplified description of what is going on and is accurate enough for it’s audience. The truth is that sometimes the little guy gets hurt (lower rate of return on the savings account, which is based on LIBOR); sometimes the little guy benefits (lower mortgage rate, which is based on LIBOR). And you can’t just say it evens out because net savers and net borrowers are two different groups. Both are wrong/unfair. It is simply inaccurate to say there are more wealthy/poor people who are in one group or another. Even if one could make that argument, it is not 100% correct in every instance … but you can say that in every instance it is not fair. It is fraud and manipulation.

    The real story is complicated and will probably never be completely understood by even the most intelligent. The scandal continues, and will likely continue for some time. LIBOR is supposed to be the rate at which AA rated banks charge each other flat (meaning without a margin/spread). Ok, so there are not a lot of AA rated banks anymore…but just look at where a bank’s credit trades every single one these days will be LIBOR + a (significant) margin. I will let you slide for 1, 2, heck even 5bps – even on a couple trillion…but you will find they are all triple digits these days. Why are they all manipulating? (yes, ALL banks are still manipulating LIBOR). Each institution’s LIBOR rate is an indicator of financial health. Unfortunately, the financial system is less healthy than any of the banks want to admit. I liked the writer’s analogy – it is like lying about your salary.

  28. [...] LIBOR Scandal Graphically Explained (The Big Picture). “This dwarfs by orders of magnitude any financial scam in the history of markets” – Andrew [...]

  29. contraguy says:

    Is it just me, or does this LIBOR scandal have a lot in common with the rating agency fiasco? There too, we saw the ratings being massaged to make things look better than they were to keep the whole CDS game going, while all of the players profited handsomely – at least for a while.

    But Barry, isn’t part of the systemic problem the fact that the CFOs in city governments and other institutions don’t want to take any responsibility for deciding what a reasonable interest rate should be, or if a bond is safe enough to buy, and instead depend completely on Moody’s opinion or what LIBOR gets posted at? I do know some CFOs who didn’t get stung by buying crap because these securities didn’t pass the “smell test”, despite their AAA rating. Unfortunately, such independent thinking is rare.

    I’m not surprised that bond ratings or LIBOR gets manipulated, it’s patently obvious that there will always be a temptation to game these benchmarks for profit. What astonishes me is that educated professionals insist in treating these benchmarks like they were chiselled into stone and found on a mountain top.

    None of this excuses the nefarious behaviour of course, but after the rating agencies got off scott free for essentially taking bribes to put lipstick on a pig, it seems to me we are now in the territory of “Fool me once, shame on you, fool me twice, shame on me”.