Read This Libor Story

With a tweet like that, how could you not pay attention to this Bloomberg feature on the Libor scandal?

For years, traders at Deutsche Bank AG, UBS AG, Barclays, RBS and other banks colluded with colleagues responsible for setting the benchmark and their counterparts at other firms to rig the price of money, according to documents obtained by Bloomberg and interviews with two dozen current and former traders, lawyers and regulators. UBS traders went as far as offering bribes to brokers to persuade others to make favorable submissions on their behalf, regulatory filings show.

Members of the close-knit group of traders knew each other from working at the same firms or going on trips organized by interdealer brokers, which line up buyers and sellers of securities, to French ski resort Chamonix and the Monaco Grand Prix. The manipulation flourished for years, even after bank supervisors were made aware of the system’s flaws.

“We will never know the amounts of money involved, but it has to be the biggest financial fraud of all time,” says Adrian Blundell-Wignall, a special adviser to the secretary-general of the Organization for Economic Cooperation and Development in Paris. “Libor is the basis for calculating practically every derivative known to man.”

It’s the biggest financial fraud of all time, yet the general public finds it it too boring? complex? to really give it the attention it deserves. So let’s put this story on our reading lists today.

Update: Heidi’s newest column is about how nobody cares about Libor:

…there is literally no one in the United States who has ever pounded a dinner table in outrage over government complacency, yelling, “But if we’re so tough on financial crime, why haven’t we thrown those obscure Asian bureaucrats of a foreign bank into the slammer for fixing a London-based interest rate?!”

No. What US consumers wanted was the prosecution of American banks, for American crimes. Insider trading. Mortgage fraud. Foreclosure abuses. Unjust, overdone compensation for executives and managers who failed to uphold ethical business standards.

---
---
---
---
---
---

4 Comments / Post A Comment

r&rkd (#1,657)

I actually care a ton about this because I have a large balance in variable-interest loans indexed to LIBOR. Soooooo, can we just go back to fraudulently depressing it please?

@r&rkd Ding ding, I think you’ve hit on why people don’t care. If they had been artificially RAISING it, that might be another story. A story in which everyone got outraged for like a month and still nothing happened.

r&rkd (#1,657)

@stuffisthings
Well, I wish I could agree that people are smart enough to consider this story and ascertain where their interests lie. In fact, a lot of people are hurt, including taxpayers of municipalities that had deals with banks where the banks paid an interest rate indexed to LIBOR. Those people should be upset, but they aren’t as far as I’ve seen. In fact, they probably don’t even know whether their municipalities had LIBOR-indexed investments. The article mentions Baltimore as one such municipality, but not only can I not tell you whether the municipalities I pay taxes to have LIBOR-indexed investments, I can’t even tell you where to look to find out if they do or even be sure that I’m aware of every municipality I pay taxes to. So I think really it’s partly that people can’t be bothered to care about something that they have no control over and that affects their lives at most through a series of indirect effects, and partly that people seek facts that can quickly fit their pre-existing ideologies while ignoring other facts.

Also here is a great Dealbreaker article on the scandal. I really wish I cared more about finance so I could have the justification to read that blog more often.

‘One fun way to think about Liborgate is to imagine the financial system, in theory a machine to intelligently use price mechanisms to intermediate the movement of money from savers to productive uses, as actually a machine to haphazardly use an imaginary-price mechanism to intermediate the movement of money from arbitrary Libor losers to arbitrary Libor winners. Barclays seems to have engineered the world so that Nassau County sales taxes were used to subsidize adjustable-rate mortgage borrowers in California. Was that a good idea? Beats me. Was it a conscious and defensible decision about the allocation of resources? I’m guessing no. That, and not “ooh bankers lie a lot,” may be the real problem with Libor manipulation.’

Comments are closed!