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Reforming LIBOR: The $300 trillion question. Pretense of Knowledge: Logic Contradicted by Empirical Facts. The pretense of knowledge, aggregate demand and the LIBOR by Dirk Ehnts The Pretense of Knowledge is a phrase coined by Friedrich Hayek ( pictured ). He titled his Prize lecture like this, and spoke about the limits of economics and economists: It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences — an attempt which in our field may lead to outright error.

It is an approach which has come to be described as the “scientistic” attitude — an attitude which, as I defined it some thirty years ago , “is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.” Follow up: Hayek goes on to provide an example (my highlighting): Well, there actually is a clear positive correlation . About the Dr. Dollar-Funding Pressures Ease as Libor-OIS Gap at One-Year Low. Money-market forward indicators signaled strains in short-term dollar funding markets abated with the gap between where banks say the can borrow from each other and the Federal Reserve’s benchmark rate the lowest since August 2011.

The three-month London interbank offered rate, or Libor, which represents the rate banks say it would cost to borrow from one another, fell to 0.355 percent, adding to consecutive daily decline that began on Aug. 22. The Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed to 22.4 basis points, touching the least since August 2011. Overnight index swaps, or OIS, give traders predictions on what the Fed’s effective funds rate will average for the term of the swap. The central bank’s target rate is set in a range of zero to 0.25 percent. The British Bankers’ Association should be stripped of the responsibility for managing the rate and other organizations invited to replace it, Wheatley said in London the day the report was published.

The Psychology of LIBOR abuse. A post relating to this item from Finextra:28 September 2012 | 5783 views | 0 Market data firms and index compilers are set to go to tender for the right to administer a souped-up version of the tainted London Interbank Offered Rate (Libor). I’ve briefly touched on this topic previously, but I recently gave an after-dinner speech at a fraud event in London and two of my fellow speakers happened to talk about the importance of considering the psychological aspect of fraud. In particular, we were discussing rogue-trading and market abuse and what makes traders actually end up acting in such an unlawful way. With the recent news regarding the FSA’s desire to remove the over-reliance on unchecked ‘human’ input when setting the LIBOR rate, it once again got me thinking about the psychology of a fraudster. Depending on your outlook, you’ll either see all fraudsters as criminal low-life or some as victims of circumstance. Libor Prompts Labour Party to Demand Economic-Crime Law.

The U.K.’s opposition Labour Party demanded the introduction of a new economic-crime law to help prevent future financial scandals such as the manipulation of the Libor benchmark. The party’s home-affairs spokeswoman, Yvette Cooper, told the party’s annual conference in Manchester, northern England, today that the law would provide clarity for the police and prosecutors and determine which agencies should tackle financial fraud. “Look at the Libor scandal that emerged this summer,” Cooper said.

“It is a multibillion-pound fraud. People were fiddling figures to get rich, while small businesses paid the price. Yet no one has been arrested.” Financial Services Authority Managing Director Martin Wheatley called last week for oversight of the London interbank offered rate to be handed to the U.K.’s financial regulator under proposals designed to revive confidence in the tarnished benchmark. “Governance of Libor has completely failed,” Wheatley said. The Genesis of the LIBOR Crisis. -- Posted Wednesday, 3 October 2012 | Share this article | Comment - New!

By Rob Kirby The roots of the LIBOR crisis can be found in the broad based sub-prime FRAUD in America circa 2000 - 2007. The sub-prime fraud involved American investment banks securitizing [bundling] poor mortgage credits into “pools” – then working hand-in-hand with credit rating agencies like S & P and Moodys – having these pooled securities rated AAA.

In Q1/2007 American investment bank - Bear Stearns, a major player in this sub-prime securitization – had a number of these sub-prime pools FAIL to perform. The failure of AAA credit – up till then – was UNHEARD of in modern finance and precipitated a GLOBAL CREDIT CRISIS where banks became UNWILLING TO LEND – even to one another. The sanctity of triple “AAA” credit had been violated. So by August 2007, Global Credit Markets were “locked up” – Commercial Paper markets, which function on “creditworthiness” – are the oil that greases the wheels of world industry. Sweeping Libor reforms follow scandal. Martin Wheatley, head of the incoming Financial Conduct Authority, unveiled the final rules in a 92-page document, The Wheatley Review of Libor: Final Report, after an industry-wide consultation. The report, which is still subject to scrutiny by government, contains many recommendations for the government, the British Bankers’ Association and the banks, as well as regulatory authorities both in the UK and internationally.

Proposals include removing responsibility for setting the Libor rate from the BBA and giving it to a new body that will have oversight and accountability. The BBA, which had been overseeing Libor when Barclays and at least seven other banks had been manipulating the rates, was criticised heavily for not exercising due diligence. At the time, Barclays’ chairman Marcus Agius was also chairman of the BBA. The report also suggests that Libor manipulation and attempted manipulation could constitute a criminal offence under the law relating to fraud.

Key points: Treasury view: Sens. Grassley, Kirk blame Geithner for failing to warn of Libor manipulation | BankCreditNews.com. Sens. Grassley, Kirk blame Geithner for failing to warn of Libor manipulation Chuck Grassley Chuck Grassley (R-Iowa) and Mark Kirk (R-Ill.) blamed Treasury Secretary Timothy Geithner this week for failing remove the use of the Libor interest rate that they allege he knew was rigged. Grassley and Kirk said that Geithner’s inaction lead to a “deluge” of lawsuits over the manipulation, which they contend he knew about as president of the New York Federal Reserve in 2008, Reuters reports. Geithner did warn British authorities about the rigging but failed to inform the public in his capacity as either president of the New York Fed or as treasury secretary. Documents released by the New York Fed earlier this year at the request of the House Financial Services Committee showed that Barclays Plc told Fed staffers as early as August 2007 about potential problems with Libor.

Barclays Plc was the first bank to settle as part of the Libor manipulation, agreeing to pay a $453 million fine in June. RBS faces delay in Libor settlement - sources. By Matt Scuffham and Steve Slater LONDON Fri Oct 5, 2012 6:52pm BST LONDON (Reuters) - Royal Bank of Scotland faces a delay in reaching a settlement over its role in the Libor interest rate rigging scandal because of difficulties agreeing a deal with all the regulators involved, finance industry sources said. The British bank is eager to draw a line under the affair and refocus attention on its recovery. The bank was partly nationalised during the financial crisis in a 45 billion pound rescue by the UK government. Barclays was fined $450 million (278.4 million pounds) by U.S. and UK regulators in June for manipulating Libor - the London Interbank Offered Rate - and is the only bank to have settled. More than a dozen banks are now under investigation by regulators for suspected rigging of interbank rates used to price trillions of dollars worth of financial products, including home loans and credit cards.

"RBS would love to get it all over and done with. EU Parliament to back jail sentences for Libor cheats. Tracking Libor’s Descent From Britain’s 1797 Bank Rate. The London interbank offered rate -- which is set daily by asking banks what they would charge to lend to other banks -- has formally existed since the 1970s, when the acronym Libor was first coined. As a concept, however, it goes all the way back to 1797. It was known as “the bank rate,” and it referred to the one that the Bank of England would charge for an emergency loan. In effect, this rate became a barometer of market conditions, measuring the anxiety of borrowers and lenders alike. The “bank rate” quickly became a trans-Atlantic benchmark, and by 1798, it was published in every major newspaper in Britain, the U.S. and Europe. It became the base rate for loans to farmers, homeowners and businesses around the world. The international cost of credit indirectly determined the price of flour in Baltimore and the price of slaves in New Orleans.

Setting the rate was simple during the 19th century and most of the 20th century. Gold Run Fed Rate Read more Echoes columns online. Armed forces charities to get £35m from fines levied by City regulator | UK news. The chancellor George Osborne said £35m of fines levied by the FSA would go to armed forces charities and support groups. Photograph: Matt Cardy/Getty Images Charities and support groups helping the armed forces are to be handed £35m in fines levied by the Financial Services Authority (FSA), George Osborne has revealed.

The windfall will include a share of the penalty slapped on Barclays for attempting to rig Libor, the Treasury said after the announcement in the chancellor's Birmingham speech. In the immediate aftermath of the Libor scandal – for which Barclays was fined a record £59.5m – Osborne made clear his intention to stop the profit from any fines being used by the FSA to reduce the fee that City firms are charged each year for regulation. David Cameron had earlier told delegates: "We don't think it's fair that the fines from scandal-hit banks go back into the banking industry. So far this year the FSA has announced fines of £103m, while in 2011 it took £66m in fines. Libor, Set by Fewer Banks, Losing Status as a Benchmark. After being rigged by some of the world’s biggest financial institutions, the London interbank offered rate, the benchmark for more than $300 trillion of securities and loans, is now increasingly being set by a smaller group of banks.

Bank of America Corp., Citigroup Inc. (C), Bank of Tokyo Mitsubishi UFJ Ltd., Royal Bank of Canada, Sumitomo Mitsui Financial Group Inc. and Lloyds Banking Group Plc (LLOY)’s submissions have been used in setting the rate on an almost daily basis in the past four months, data compiled by Bloomberg show. Two years ago, none of the 18 designated lenders made it into every fixing of the measure, which excludes outliers by stripping out the four highest and lowest contributions. “You have a core group setting the rate and that’s a major concern,” said Bret Barker, a money manager at Los Angeles- based TCW Group Inc., which oversees $128 billion. “It’s going to be very tough to fix that and very tough to replace Libor.”

FSA Recommendations Close Open Small Group. LIBOR-gate Comes To Crude: Total Exposes Price Fixing In The Energy Market. While the recent revelations of multi-year LIBOR manipulation (but, but how was that possible: it involved thousands of people, operating for years, manipulating numbers - all the traditional reasons presented against conspiracy theory crackpots alleging that manipulation may be going on here, or there, or at the BLS, or somewhere), which we had said had been happening for the past 3 years, confirmed that the entire rate-based derivative market was a giant scam, at least one market spared from cartel whistleblower, i.e., insider, humiliation, was the commodities market. No longer. As the FT first reported, a Swiss trading office of Total Oil Trading sent a response letter to IOSCO (the International Organization of Securities Commissions), alleging that the same kinds of market "pricing" shennanigans that have been now exposed to have taken place over bottles of Bollinger, may have been pervasive in the crude market as well.

The conclusion: Full Total letter (pdf) Libor, now set by smaller group of banks, losing status as a world benchmark. Bloomberg Oct 9, 2012, 10.46AM IST LONDON: After being rigged by some of the world's biggest financial institutions, the London Inter Bank Offered Rate (Libor), the benchmark for more than $300 trillion of securities and loans, is now increasingly being set by a smaller group of banks. Bank of America Corp, Citigroup , Bank of Tokyo Mitsubishi UFJ, Royal Bank of Canada, Sumitomo Mitsui Financial Group and Lloyds Banking Group's submissions have been used in setting the rate on an almost daily basis in the past four months, data compiled by Bloomberg show. Two years ago, none of the 18 designated lenders made it into every fixing of the measure, which excludes outliers by stripping out the four highest and lowest contributions.

"You have a core group setting the rate and that's a major concern ," said Bret Barker, a money manager at Los Angeles-based TCW Group, which oversees $128 billion of funds. Libor-rigging bankers should be jailed, survey finds. Britain needs new economic-crime law to tackle financial fraud. Britain needs a new economic-crime law to be introduced to halt repetition of financial scandals such as the manipulation of the Libor benchmark, the opposition Labour Party has demanded. The proposal was tabled by the party’s home-affairs spokeswoman, Yvette Cooper, at the party’s annual conference in Manchester, northern England.

Cooper said the law is needed to provide clarity for the police and prosecutors and to help prevent future financial scandals, as well as determining which agencies should investigate and tackle financial fraud. “Look at the Libor scandal that emerged this summer,” Cooper said. “It is a multibillion-pound fraud. People were fiddling figures to get rich, while small businesses paid the price. Yet no one has been arrested.” “In the U.S. they have seen 800 prosecutions for serious fraud since last year,” Cooper said. The Lib Dems accused Labour of double standards over its attitude to the finance industry during 13 years in power to 2010. Libor: Who’s looking after Cdor, the benchmark rate’s Canadian cousin? | FP Street | News. Just who’s in charge of Cdor? It’s an important question, because financial products priced in relation to the Canadian equivalent of Libor are so widely held — by corporations, governments, banks and pension funds — they affect virtually all Canadians.

Why are the major players unable to say who is responsible for making sure proper procedure is followed and that the end result is accurate? The Investment Industry Regulatory Organization of Canada announced on July 13 that while it wasn’t “aware of concerns” with the Canadian Dealer Offered Rate (Cdor), the ongoing issues around Libor “point to a need for increased scrutiny of such survey-based reference rates.” Canada’s investment industry regulator has not made a peep since it announced this past summer it was launching a “review” of Cdor. Interestingly, the regulator states that it oversees only the investment dealers that participate in setting Cdor: in other words, it’s not responsible for the rate itself. To illustrate, Mr. Rigged LIBOR costs states, localities $6 billion. Study shows how LIBOR rigging hits home - In the Markets. Two grad students discovered Libor rate rigging in 2010 | BankCreditNews.com.

Banking standards board to be considered by industry taskforce | Business. Banks Being Sued For Systematically Manipulating Libor Up While Also Systematically Manipulating It Down. Banks Sued by U.S. Homeowners Over Rigging of Libor Benchmark. Libor: First change it, then render it obsolete. LIBOR Scandal’s Ripple Effect. Carry trade buoys Asian basis swaps. IMA: Should we go further and fully separate banking operations?

Deutsche Bank evaluating past procedures involving Libor scandal | BankCreditNews.com. Bloomberg View: Getting to the Bottom of Libor. Fortune Mag Focuses on Mondawmin Mall to Illustrate Libor Impact - Baltimore - eWallstreeter. Barclays Makes £500M Betting On Food Crisis, While Millions Face Starvation. Weekly Financial Biz Recap: Libor Lawsuits Piling Up, BofA Falters on Mortgage Agreement. Congress extends New York Fed’s deadline in Libor inquiry - Business. Why LIBOR Is The Crime Of The Century. New BBA chief aims to restore trust in banking sector. TV is ignoring the LIBOR scandal. UPDATE 5-RBS confirms it sacked staff over Libor rigging scandal.

RBS CEO Blames Libor Manipulation on ‘Handful’ of Staff. Bank of America Received Subpoenas Related to Libor Probe. Sherrod Brown questions Fed Chairman Bernanke’s authority in Libor scandal | BankCreditNews.com. Government Complicity Provides Libor Defense | Macquarie Sees $176 Billion In Lieborgate Losses, $88 Billion Hit To Libor Panel Banks. Libor rate-rigging scandal intensifies pressure on Wall St. LIBOR - Insider Trading on a Massive Scale.

Why There Is No Solution To The LIBOR Scandal. Libor civil suits starting to grow. Libor Barclays UBS RBS. Libor: Bankers behaving badly. Libor and the rotten heart of capitalism « The Standard. U.S. Libor Charges Said to Go Beyond Barclays Traders. UPDATE 1-Libor now honest says British regulator. Wall Street Journal Names Some Names in Libor Case. Libor reveals a rotten financial system. Rate-Rigging Probe Turns Up More Li-Bros. Banks Turn on One Another in Libor Scandal. Banks in Libor Inquiry Are Said to Be Trying to Spread Blame. Are Handcuffs Needed for the Libor Scandal to Register With Bank Perps? LIBOR Scandal: Bank thieves and the rest of us - Varsity Newspaper Online. The Libor lynch mob should cut Wall Street some slack. The Fed, Ben Bernanke and the rotten Libor. Libor's effect on NC pensions not yet known. History of the Libor rate.

Libor Plaintiffs May Refer to Barclays Accord, Judge Rules. Former UBS Traders Offered Deal in Libor Investigation. Breakingviews-How to take the lies out of Libor. American and British authorities at odds in Libor probe. Explaining the Libor scandal. Banks Looking for ‘Scientific’ LIBOR Method. Exclusive: Former Barclays trader has cooperated with Libor probe. FSA's failures allow American regulators to close in on City. British Regulators Plan Changes to Libor Oversight. Libor could be scrapped after row - Title1. Outrage at Libor price mechanism. Libor Scandal: UBS Plays the “Most Dangerous Game” Why the LIBOR Scandal Affects Everyone.

Tougher penalties, not just fines needed to halt financial sector abuses - The Hill's Congress Blog. Libor Failures Neuter BBA as Lobby May Lose Oversight of Rate. Libor’s Risks Emerged From Clubby London Banking Culture. Libor scandal: How I manipulated the bank borrowing rate. Beyond Barclays: Laying out the Libor Investigations. Libor Interest Rate Scandal: Crime of the Century.

Wall Street. Neugebauer Seeks More Fed Papers on Libor Rate Abuses. Pressure mounting for Libor jail terms - Jul. 23. Libor scandal: Randy Neugebauer presses the Federal Reserve for more information. LIBOR EXPERT: The Fed Has Destroyed LIBOR. Libor rate-fixing amplified CDO losses, experts say. Attac_fr: Le scandale du LIBOR en im...

Tricky lessons for the players in Liborgate. The WSJ Editorial Page and the Libor scandal. The LIBOR Scandal Explained in One Simple Infographic. Libor rate not under Fed control, says Ben Bernanke - Associated Press. It's over for the banking cabal. 4.jul.2012. Beyond Libor. LIBOR Arrests Said May Be Imminent.