Making Sense Of The LIBOR Mess, A Free Market Perspective

Forbes ^ | 07/18/2012 | Bill Flax

[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.

[RicocheT]

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.

[uncommonsense]

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.”

[uncommonsense]

"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).

[usconservative]

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.

[GYPSY286]

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