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Making Sense Of The LIBOR Mess, A Free Market Perspective
Forbes ^ | 07/18/2012 | Bill Flax

Posted on 07/19/2012 3:57:29 PM PDT by billflax

America has a serious problem. The integrity of interest rates has been compromised. Free enterprise requires fidelity and trust. A banking cabal regularly conspires to rig rates benefiting large banks and their political allies. These actions almost certainly harm others.

Collusion and market manipulation are reprehensible, but enough about Ben Bernanke and his merry price fixing elves at the Federal Reserve, let’s delve into the LIBOR scandal.

For disclosure, I’m a bank underwriter. My employer has not been implicated (and almost certainly won’t be) and my department doesn’t use LIBOR. Nonetheless, note, the following observations are mine alone.

We can see the chattering class has no qualms regarding scare tactics. Commentators who had never before heard of LIBOR (and still don’t get it) bandy about numbers in the hundreds of trillions to shock audiences. Free market’s foes gladly exploit this controversy to discredit capitalism.

Barclays, the British banking behemoth, was caught undercutting (and sometimes overstating) LIBOR to boost profits and bolster perceptions of financial stability. It recently paid record fines and its CEO, Bob Diamond, was fired in disgrace. Lawyers are giddy over prospects for massive lawsuits while opportunistic politicians salivate.

But stay calm. Back away from the cliff. Or, at least stop chucking bankers over the edge. This is overblown.

(Excerpt) Read more at forbes.com ...


TOPICS: Business/Economy; Constitution/Conservatism; Editorial; Government; News/Current Events
KEYWORDS: banking; banks; capitalism; corruption; federalreserve; fraud; libor; mediabias
This is bad, empowering further regulation would be worse.
1 posted on 07/19/2012 3:57:35 PM PDT by billflax
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To: billflax

Sorry, but this is just another reason to mistrust those in charge. We have a manipulated stock market, a manipulated banking system and we are just suppose to sit back and watch what happens? This is what happens when government and business become intertwined (ie. government run by lobbyists).


2 posted on 07/19/2012 4:07:07 PM PDT by Deagle
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To: billflax

Require courses in ethics in all Business Admin Universities and departments, put those who broke the law in jail and work to immediately reinstate the Glass-Steagall Act.


3 posted on 07/19/2012 4:07:08 PM PDT by Yollopoliuhqui
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To: billflax

A simpler reform would be reinstating Glass-Steagall.


4 posted on 07/19/2012 4:09:51 PM PDT by 1010RD (First, Do No Harm)
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To: Deagle

Exactly, free markets are the answer, not collusion. Thanks


5 posted on 07/19/2012 4:11:26 PM PDT by billflax (Fighting the good fight.)
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To: billflax

It’s really just an excuse for greenmail. Borrowers don’t pay LIBOR anyway. What they pay is a negotiated rate that is determined by reference to LIBOR. But you can calculate a negotiated rate relative to anything. It’s still a negotiated rate, and will reflect the market even if you use a completely arbitrary base rate.


6 posted on 07/19/2012 4:25:05 PM PDT by Brilliant
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To: Brilliant
Yes, and basically spot on, but the issue is a corrupted price mechanism, not whether one big trader rips off another big trader. When the price signals are corrupted, capital is misallocated, ala the subprime mortgage mess. LIBOR being a corrupted price signal is important, but relative to central bank manipulation, LIBOR is minuscule.
7 posted on 07/19/2012 4:32:25 PM PDT by billflax (Fighting the good fight.)
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To: Deagle

There are more than a few “smart voices” that say the same thing has happened to the oil and gas markets in the past four years. Economy down but the prices of these porducts UP. Just ain’t right


8 posted on 07/19/2012 4:37:26 PM PDT by q_an_a (the more laws the less justice)
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To: q_an_a

Have to agree! I’d bet that collusion is happening in not only the oil and gas market but several others as well. The chances of oversight (actually correcting the problems by government) are minimal since probably most are involved.

Really depressing isn’t it?


9 posted on 07/19/2012 4:44:13 PM PDT by Deagle
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To: Brilliant
LIBOR is used as a floor to interest rate prices. If LIBOR is manipulated up, that sets the price of interest higher across a broad swath of the global economy.
10 posted on 07/19/2012 4:53:38 PM PDT by uncommonsense (Conservatives believe what they see; Liberals see what they believe.)
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To: Deagle; q_an_a

Keep in mind a big part of the volatility in oil prices pertains to volatility in the dollar. When the dollar’s value changes, the first place that will appear is in international commodities such as oil.


11 posted on 07/19/2012 4:56:24 PM PDT by billflax (Fighting the good fight.)
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To: billflax

Actually, yes I not only know that but deplore the continue depression of the dollar by the Fed!

This is just another thing that I am beginning to hate about this Administration!! They are not only driving us into massive inflation (regardless of what they are reporting - just look at food prices) but they lie about it also.

I expect as most do that most prices will increase with oil prices - they just keep pretending that it is not a problem.


12 posted on 07/19/2012 4:59:15 PM PDT by Deagle
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To: billflax

There’s more to your story, billfax.

The foreign press is reporting that Citigroup and UBS tried to manipulate the yen with Libor. JP MorganChase and HSBC may also be involved in the Libor manipulation.

The Post is reporting that Treasury Secretary Tim Geithner knew of the Libor scandal while he was smoking big cigars at the New York Fed back in 2007. When he learned of the scandal, he messaged the London regulators and told them to “discourage Barclays from misreporting.”

There’s dirt all over the big banks. Allowing Chairman Marcus Agius and Chief Executive Robert Diamond to walk away is not sufficient. The losses to homeowners and investors by the Libor fraud hasn’t been calculated yet, but it will probably be in the hundreds of billions.

I’m seeing a criminal class of bankers that are raping the world. I agree, though, that we don’t need more regulations. We need public hangings.

I can hardly wait to see which banks hire which scumbag PR firms to start feeding lies and bilge to the sycophant, traitorous business press.


13 posted on 07/19/2012 5:03:20 PM PDT by sergeantdave (Public unions exist to protect the unions from the taxpaying public)
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To: uncommonsense

“If LIBOR is manipulated up, that sets the price of interest higher across a broad swath of the global economy.”

No, if LIBOR is manipulated up, then borrowers will just negotiate a narrower margin. If, for example, market rates are 9%, and LIBOR is 6%, then the margin is 3%. If market rates are 9%, and the Bank manipulates LIBOR so that it’s 7%, then the borrowers will say, “I can get 9% at the bank down the street, so I’m only going to pay you LIBOR plus 2%.”


14 posted on 07/19/2012 5:03:45 PM PDT by Brilliant
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To: billflax

that arguement is a red herring put out by the trading industry.


15 posted on 07/19/2012 5:22:47 PM PDT by q_an_a (the more laws the less justice)
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To: Deagle

LIBOR schebor, Geithner, the big financial firms here & abroad, the government treasury heads here & abroad have been fixing the markets and financial paper for many years. We little guys are the sheep to shear, we end up paying more even when the big guys go bust as they never lose.

Forget the lawsuits against the cheater banks as it will just add to our burden and buy some more personal jets for the lawyer guys. Our revenge has to be voting in a bunch of less greedy politicians or another 1776 revolution. If big government is no longer humping the markets, maybe businesses will try to make profits with good products sold at reasonable prices - crazy idea?


16 posted on 07/19/2012 5:52:55 PM PDT by RicocheT (Eat the rich only if you're certain it's your last meal)
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To: RicocheT

And they wonder why the retail investor has dropped out of the market! Of course, you are right but few really realize it yet - and please no lawsuits, we can’t stand anymore losses by the public.


17 posted on 07/19/2012 5:56:26 PM PDT by Deagle
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To: Brilliant
From The Spread Between PRIME and LIBOR

"LIBOR is an acronym for the Londer InterBank Offered Rate, and is also known as Eurodollar deposits. It is the average interest rate paid on deposits of US dollars in the London market. It is the interest rate at which lenders can borrow money from other banks. As such, it measures the cost of capital for a bank."

So, LIBOR drives a lot more than just mortgages, it's the basis for interbank lending, business loans, securitization, government lending and more...

"Competitive pressure will increasingly lead to long-term stability in the spread between PRIME and LIBOR. The cost of capital for most major lenders is similar, leading to similar consumer interest rates. Since most lenders publish the interest rates they charge, there is little reason for one major lender to undercut the others on price, since they know that the others will quickly match rates. Any advantage will be short-lived."


18 posted on 07/19/2012 5:58:43 PM PDT by uncommonsense (Conservatives believe what they see; Liberals see what they believe.)
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To: uncommonsense

It’s all just a part of the crooked markets! The sad part of it is that this happen with the acquiescence of the government who should be protecting the public. This seems to be a recent phenomenon due to computer controlled markets.

How in the world can the individual investor survive when major monetary agents are controlling it with computer controlled buy/sale orders? I see no chance for the individual investor in anything! They say our benefits lie in keeping investments for years for retirement - Well, good luck with that! I’ve seen what that does these days - it seems to be a crap shoot for us but a great benefit for the big money folks and their computerized market controls.
They continue to drain the money from the small investor and I see no changes for the future.

Yes, you can get lucky on some stocks, but you better be just that “lucky” because in the end, only the big money investors will survive.

Damn, I hate what the stock market has become. It used to be a safe haven for the little people, now it is a means of taking money from the small investors by the large corporations. They do well, the markets go up, and the rest of us lose...


19 posted on 07/19/2012 6:10:27 PM PDT by Deagle
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To: uncommonsense

That is true, but I doubt you’ll find a bank that complains it’s been cheated. They know what the deal is.


20 posted on 07/19/2012 6:20:07 PM PDT by Brilliant
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To: Yollopoliuhqui

Ethics? I had that course in law school. Later, as a trial attorney, ethics was not knocking down & robbing the client at the initial interview as there was plenty of time for that later. Being a lawyer, officer of the court, or judge meant all of us were in the scam as a tag team. The only way one lost a law license was failure to pay yearly dues to the bar/lawyer organization.


21 posted on 07/19/2012 6:28:21 PM PDT by RicocheT (Eat the rich only if you're certain it's your last meal)
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To: Brilliant
We'll see. There are some really large numbers involved. Just saw this on Bloomberg

Libor Woes Threaten to Turn Companies Off Syndicated Loans

"Banks are accused of massaging down submissions for the benchmark for $360 trillion of global securities during the financial crisis and artificially increasing them before it.”


22 posted on 07/19/2012 7:06:41 PM PDT by uncommonsense (Conservatives believe what they see; Liberals see what they believe.)
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To: Deagle
"How in the world can the individual investor survive when major monetary agents are controlling it with computer controlled buy/sale orders? I see no chance for the individual investor in anything!"

Investing is dead, long live the traitor (er, I mean trader).

23 posted on 07/19/2012 7:09:58 PM PDT by uncommonsense (Conservatives believe what they see; Liberals see what they believe.)
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To: Deagle
Sorry, but this is just another reason to mistrust those in charge. We have a manipulated stock market, a manipulated banking system and we are just suppose to sit back and watch what happens? This is what happens when government and business become intertwined (ie. government run by lobbyists).

Dead on right. Game, Set, Match. Well done.

24 posted on 07/19/2012 7:12:52 PM PDT by usconservative (When The Ballot Box No Longer Counts, The Ammunition Box Does. (What's In Your Ammo Box?))
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To: Brilliant

Can’t negotiate on an ARM mortgage note. It is my understanding from what I read elsewhere that the banks manipulated the Libor downward when they were borrowing from each other (to make their financials look strong) and then manipulated it up in order to increase mortgage payments, car payments to beef up profits.

I have an ARM mortgage My note explains in detail the libor rate in relation to how my payments would increase but it was not disclosed to me by the other party that they could and would manipulate the libor to their advantage.

I would not have signed the note if I had known that the rate could/would be manipulated to the other party’s advantage. Collusion+misreprsentation=fraud and note is voidable


25 posted on 12/20/2012 9:29:01 AM PST by GYPSY286 (Politicians must USE their heads or Americans will LOSE their heads.)
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