The LIBOR affair: Banksters. The LIBOR scandal: The rotten heart of finance. LIBOR Scandal Broken Down By MSNBC's Chris Hayes. Expect More News From The Libor Scandal This Week. It has been little over a week before the first details regarding Barclays manipulation of the Libor rate became worldwide news.
The news send yet another shockwave through financial markets. Let's recap the main events and see what we can expect in the next weeks. Old-fashioned process Libor stands short for London Interbank Offered Rate. The interest rate is crucial as it directly and indirectly affects trillions in consumer and corporate loans as well as financial derivatives. It is crucial that banks make an estimate yet they do not actually borrow or lend at these rates. How far stretched is the fraud? Barclays already admitted to rigging the Libor rates after settling with UK and US banking regulators for 290 million pound. We can be certain that traders have been manipulating the rate for their own gains as the chat records between traders clearly show. Do you trust this author to give you good analysis? Follow and be the first to know when they publish. Follow The Value Investor New!
Shhh... Don't Tell Anyone; Central Banks Manipulate Rates. It should come as no surprise to anyone that major commercial banks manipulate Libor submissions for their own benefit.
The OTC derivatives markets was designed by the big banks, for the big banks, to ensure that as they set up their own private securities exchanges - away from regulatory scrutiny - they could control the interest rate settings. To that end, if there was a big reset for a specific bank on a given trading day, and a lower rate suited, said bank would surely shade its Libor submission lower. And then of course there were the far more unscrupulous submitters who tried to influence where other banks might post rates on a given day (for a bottle of Bolly or for a quid pro quo at a future date).
It is impressive that it took this long for the regulators to actually realize what a complete shame the entire structure really is. The biggest banks in the US and Europe spent decades trying regain control of the securities markets. Why Americans should care about LIBOR and Barclays. Tess Vigeland: This month marks two years since the passage of the Dodd-Frank financial reform law.
But there is a fresh reminder that we still have a long way to go before confidence is restored to banking and financial markets. Today -- one day after the chairman of Barclays Bank stepped down -- the CEO and the chief operating officer of the British bank resigned. It all comes after the bank admitted to U.S. and British regulators that it engaged in a type of price fixing on a key global interest rate. Our New York bureau chief Heidi Moore joins us to explain. Hello. Heidi Moore: Hi. Vigeland: So let's briefly review what exactly happened here. Moore: Sure. Vigeland: Why are American mortgages, student loan rates -- why are they tied to something in London? Moore: Well there are no more country borders, right?
Vigeland: But who died and made LIBOR the king? Moore: Well, you know, the rest of the world is bigger than the U.S. in many ways, so we do have to play by their rules. LIBOR For Mortals: An Easy Explainer. Call it the Barcapalypse (as some wags on Twitter did): In a 48-hour span between July 1 and July 3, Barclays bank lost most of its senior management team: the chairman, Marcus Agius, the CEO, Bob Diamond, and the chief operating officer, Jerry del Missier, resigned over a scandal in which the bank was accused of manipulating the LIBOR interest rate.
Diamond is reported to have felt "hounded" by members of parliament who were going to drag him into a public enquiry and take up all his time, with no one left to run the bank. That leaves England's most important bank with absolutely no one in the executive office. Things work differently in England, as you can see; you didn't see Jamie Dimon resigning to avoid facing Congress last month. Barclays - nicknamed BarCap by Wall Street insiders - is known to most Americans mainly as the bank that bought Lehman Brothers. And LIBOR isn't known to most Americans at all. It does seem that way, doesn't it? So, catch me up. About $10 trillion worth.