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.
posted on 07/19/2012 4:25:05 PM PDT
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.
posted on 07/19/2012 4:32:25 PM PDT
(Fighting the good fight.)
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.
posted on 07/19/2012 4:53:38 PM PDT
(Conservatives believe what they see; Liberals see what they believe.)
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