patrick.net

From the last link, an editorial

Yet, on these shores, the reaction has been mainly a shrug. Perhaps we’re suffering from bank-scandal fatigue, having lived through Bank of America’s various travails, and the Goldman Sachs revelations, and, most recently, the big JPMorgan Chase trading loss. Or maybe Libor is just hard to gets one’s head around.

But the Brits have this one right. They may not understand the intricacies of Libor any better than we do, but they sense, powerfully, that banks have once again made a mockery of the role that society entrusts to them.

Since the story broke, I'm having a hard time distinguishing their crime from Ben Bernake's futzing and manipulation of the interest rates.

That's the thing. Everybody already knows that the Big Banks are just organized crime syndicates. It's almost like "old news."

Now, where can I get some hot gossip news about the Kardashians?

Cap'n - BINGO, you hit the nail on the head. The Fed manipulates interest rates and causes giant distortions in the economy. Example? People buying much more home than they can afford. Buying a new car when trouble is brewing in the economy. Refi'ing a house and blowing the money just before the SHTF.

Why aren' t these people in jail ???

marcus says

The Wall Street Scandal of all Scandals

What does interbank lending rates between banks only in Britian have anything to do with Banks in the USA or Wall Street ?

We have something called the FED that is clearing agent of US bank transfers..

thomas.wong1986 says

marcus says

The Wall Street Scandal of all Scandals

What does interbank lending rates between banks only in Britian have anything to do with Banks in the USA or Wall Street ?

We have something called the FED that is clearing agent of US bank transfers..

You are kidding right? You claim to be an accountant? The libor rates are used extensively in the US financial system. Go read some of the Wall Street Journals articles about this.

The banks in the US use the FED rates in their Intrabank transfers not LIBOR...The charges cover bank transfers between British Banks.. not US Banks or Wall Street.. The issues are over British Banks getting overcharged by Barclays!

If anyone wants to know the Libor rates in the US or anywhere.. its published as you state in the WSJ as released by the British Bankers Association and not Barclays.. so its a non issue for non-British Bank.

You guys are running amuke placing blame from yellow journalism
without knowing all the facts...

The WSJ is yellow journalism? They detail many places libor is used in the the US financial system (which actually has more elements than just the intrabank transfers, things like municipal bonds, student loans, credit insurance, etc., etc., etc.) as well some of as the effects of the libor manipulations. The libor rate matters a great deal in the US.

bob2356 says

as well some of as the effects of the libor manipulations

No not WSJ... the NYT.. again the official rates are published by the BBA.. and not Barclays. The published rates were not manipulated. If you want to point to any victim.. its the other British Banks that got hosed by Barclays interbank borrowings. Trying to extend this to WS or US banks is rather irresponsible reporting. It should be obvious the borrowing banks didnt take care and were sloppy in checking their openly published borrowing rates.

thomas.wong1986 says

The banks in the US use the FED rates in their Intrabank transfers not LIBOR...The charges cover bank transfers between British Banks.. not US Banks or Wall Street.. The issues are over British Banks getting overcharged by Barclays!

In a word, wrong. At least not nearly the whole story.

Barclays is just one of many banks who say what they believe the libor rate should be. They poll a number of banks, including some Us banks (international banks), to come up with the libor (and yes it's related very much to what the Fed and other central banks do.

It turns out that some rates in the US are actually tied to the libor rate, including some adj. rate mortgages.

But finally here's the point. There are very large securities markets that trade basically predicting what will happen to interest rates. These markets are used for many things other than predicting rates, but if you know what's going to happen to rates you can make out VERY well.

It's very difficult for me to describe to you how large and usually liquid these markets are.

With the Libor scandal there is the suggestion of collusion of banks to move the libor rates for reasons having to do with TRADING. (Barclays just happens to be where the smoking gun is. Were talking about small fluctuations that could allow a bank to have a small (but significant) edge putting on a large position, knowing that if they are wrong they can probably get out without a loss.

Here let me make up an example to clarify it, but using stocks. Let's say a few years back some big institution want to buy AAPL stock for $360. And they have somewhat reliable information that so does everyone else at that time, that is they believe it's a screaming buy at that price. They want to buy a few million shares (leveraged). But They can't even get in to a position that large without possibly moving the stock up.

Fortunately they have a pal, that is going to put out some news, that's basically false, and within a very short time will be seen as meaningless bs, but for a brief couple of hours or even less will create massive selling. And you even know exactly when that will happen. So the BS news comes out and the stock goes down to 355 for only minutes (you buy your millions of shares, and the stock turns around quickly, closing at 364.

The beauty is, you got your position on at a good price, and there is so much support at this price, that should the stock turn around you will be able to scratch the trade (ie get out at the price you got in.) You could probably put in a stop loss at 357, and barring some very unusual event, get out of that huge position without a loss.

Possibly even more blatant quick profits could be made, having large postions that profit quickly form the surprising announcment. The big banks are all involved in a big way trading these markets. For themselves and for customers. As I tried to explain, these markets are so large and so liquid that massive trades can be gotten in and out of instantly. SOmetimes they are for very brief periods,illiquid moving sharply for brief periods because of surprising news.

Treasuries, and Euro interest rate securities trade sort of like stocks, (but different). These are HUGE HUGE extremely liquid markets. There are derivatives traded on these, that have been since the 80s.That is futures and options contracts. These are exchange traded derivatives that are considered much less controversial than the ones you've heard about in recent years. They trade in huge, very liquid markets. It's not difficult to put on a massive position in a matter of seconds in these markets.

Most of what you read about this scandal is hard to follow because the journalists writing about it, don't understand. Robert Reich probably has a pretty good idea, since he used to work a Goldman.

In one way, this isn't that surprising. But if you want to compare it to the fed, it would be sort of like if the fed gave out inside information about what happened at their meeting to a few traders, before giving it to everyone else.

Or (this isn't the fed), but what if the bureau of labor and statisitics gave the unemployment report to a few traders before it was released?
That's more of a market mover than a slightly surprising libor number, but you get the idea.

And yes, this does affect and probably include traders at US institutions trading treasuries, as well as interest rate "swaps" and or any one of a number of other securities. In many cases they can just be locking in relatively riskless positions at good prices.

London is very close to being as much of a global finance center as New York is, and that has been the case for quite a while. It may even surpass New York now. But that doesn't mean that all the biggest AMerican players aren't involved, in fact it means that they are.

Also, back to interest rates. There's almost a circular reasoning involved. The banks who weigh in on the libor rate probably use US treasury bills as one of their biggest factors in their decision. And yet that doesn't mean that treasuries can't in turn react to a surprise with the libor. A big part of the reason for this is that people trade these securities against one another.

marcus says

With the Libor scandal there is the suggestion of collusion of banks to move the libor rates for reasons having to do with TRADING. (Barclays just happens to be where the smoking gun is. Were talking about small fluctuations that could allow a bank to have a small (but significant) edge putting on a large position, knowing that if they are wrong they can probably get out without a loss.

there is no proof of that.. all you said was 'suggestion'... again their UK Central Bank sets the rates... and where to you come up with "collusion of Banks"... so now your 'suggesting' other British Banks involved ?

So why would other banks want to overpay above the central bank rates.. makes no sense what your 'suggesting'.

This is a British problem!

marcus says

It turns out that some rates in the US are actually tied to the libor rate, including some adj. rate mortgages

which is published by BBA.. not Barclays. And if you want to use that rate like the US risk free rate, you look it up!

By way of disclosure, I traded treasury derivatives for many years.

thomas.wong1986 says

This is a British problem!

Wrong. In fact if that's what your purveyors of propaganda are telling you, then it's probably orchestrated by US banks.

But I don't think you are getting your opinion (this time) from propaganda. This time I think it is totally being pulled from some orifice.

Were you like this in 2008. First one on your block to understand the whole shadow banking aspects of the real estate crash, and yet having it completely wrong?

marcus says

But I don't think you are getting your opinion (this time) from propaganda. This time I think it is totally being pulled from some orifice.

Hard to tell the difference between the two, isn't it?

The LIBOR effects more than just Britain, that's for sure. Credit card companies use it to compute interest rates, for example.

wthrfrk80 says

marcus says

But I don't think you are getting your opinion (this time) from propaganda. This time I think it is totally being pulled from some orifice.

Hard to tell the difference between the two, isn't it?

Be careful, wong1986 is an accountant and and expert on banking/finance/econ. Some day he will even post some sort of actual fact, but it hasn't happened yet.

thomas.wong1986 says

So why would other banks want to overpay above the central bank rates.. makes no sense what your 'suggesting'.

I'm sure you didn't even get to my point.

It's about TRADING.

As for the word, "suggestion." I could have said implication or whatever, but it's more than that. They have emails. So forgive me if I didn't stop and measure every word for potential criticism.

You can learn about this. OR you can continue making shit up. I really don't care.

marcus says

You can learn about this. OR you can continue making shit up. I really don't care.

The ignore function is a great way to filter out far-right talking points.

There are plenty of reasonable conservatives out there. But not many seem to hang out here at Patnet.

CaptainShuddup says

Since the story broke, I'm having a hard time distinguishing their crime from Ben Bernake's futzing and manipulation of the interest rates.

While I'm not debating the wrongness of Bernake's playing with interest rates, the difference is in how these banks did so in secret, to ensure profit for themselves at the expense of everyone else. Bernake was manipulating rates out in the open, in compliance with the law. What the banks did was blatant insider trading.

futuresmc says

While I'm not debating the wrongness of Bernake's playing with interest rates, the difference is in how these banks did so in secret, to ensure profit for themselves at the expense of everyone else.

You mean like Congress and their Sunday night closed door secret meetings with the Bernanke, then calling E. F. Hutton first thing Monday morning?

wthrfrk80 says

The LIBOR effects more than just Britain, that's for sure. Credit card companies use it to compute interest rates, for example.

Are you using the official published rates from the BBA or the spiked unpublished undisclosed Barclays Inter-Bank Trading rates ?

Should be obvious which source you are using...

Reich

But the other scandal is even worse. It involves a more general practice, starting around 2005 and continuing until – who knows? it might still be going on — to rig the Libor in whatever way necessary to assure the banks’ bets on derivatives would be profitable.

This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us – whose money they’ve used for to make their bets – losers and chumps.

marcus says

Were you like this in 2008. First one on your block to understand the whole shadow banking aspects of the real estate crash, and yet having it completely wrong?

I have been telling people we are in a real estate bubble for a long time.. a big one.. but many justify RE for all the wrong reasons... so now same people simply blame the banks for the blow up... as if 20-50% appreciation was even justified. Today, they still wrongly believe their peak prices are still attainable! But lets blame the banks for the insane pricing by consumers, because someone wants their 20 pounds of flesh...

marcus says

Reich

But the other scandal is even worse. It involves a more general practice, starting around 2005 and continuing until – who knows? it might still be going on — to rig the Libor in whatever way necessary to assure the banks’ bets on derivatives would be profitable.

This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us – whose money they’ve used for to make their bets – losers and chumps.

Bring forth the criminal charges! Bring your evidence to the regulators.

thomas.wong1986 says

But lets blame the banks for the insane pricing by consumers

That isn't even my point. MY point was simply that you understand this story probably about as much as you understood CDOs CDSs, not that I claim expertise.

thomas.wong1986 says

What does interbank lending rates between banks only in Britian have anything to do with Banks in the USA or Wall Street ?

ARMs, credit card rates, student loans...often indexed to LIBOR.

swebb says

ARMs, credit card rates, student loans...often indexed to LIBOR.

Correct.

It's just more evidence that Tom Wong doesn't know what he's talking about.

swebb says

ARMs, credit card rates, student loans...often indexed to LIBOR.

yes, published by the BBA or are you assuming some parties were using unpublished rates from Barclays.

thomas.wong1986 says

yes, published by the BBA or are you assuming some parties were using unpublished rates from Barclays.

I'm not sure I understand...are you suggesting that this whole LIBOR problem is just something that is internal to Barclays?

Read up on it. Barclays (and probably other banks) were misrepresenting the rates, so the official published rate likely got skewed. This affects "everyone".