Libor scandal??? what is the LIBOR?? what is exactly happened on LIBOR Scandal, oke lets we describe it slowly, LIBOR is —the London Interbank Offered
Rate— Libor is calculated by the financial information and news company
Thomson Reuters for the British Bankers’ Association, based on daily
submissions from BBA member banks. The submissions are not based on an
actual market rate of interest for interbank loans. Rather, submitters
estimate what they think they would have to pay. High and low
submissions are thrown out, the remainders are averaged, and voilà: the
Libor.
Because Libor is used in U.S. derivatives markets, an attempt to manipulate Libor is an attempt to manipulate U.S. derivatives markets, and thus a violation of American law. Since mortgages, student loans, financial derivatives, and other financial products often rely on Libor as a reference rate, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide.
If this sounds like a remarkably flimsy form of economic data, it is. It’s just a guess, not a real measurement of anything. And it’s generated by a trade group, not a regulatory agency. And it’s self-reported, not based on any public data. But over the decades Libor came to take on a foundational role in prosaic economic transactions. In a world of large multifaceted financial-services firms, the quirks of the Libor process were a conflict-of-interest disaster waiting to happen. One unit of a BBA member bank could be cruising along, minding its own business, doing its morning Libor submissions, while another arm of the bank was trading interest rate swaps, currency futures, or other derivatives. Some of those trades’ successes or failures could come to hinge on whether the Libor went up or down. But the Libor’s not external to the banks’ activities, and it’s not an objective measurement of anything. A bank could try to tailor its Libor submissions to meet the needs of its trading desk rather than offering good-faith estimates.
Oke but the Libor is interested in you. Even though the typical American is never going to seek an interbank loan in London, the number is used as a benchmark for a wide range of other financial instruments. Credit instruments with variable interest rates—private student loans, auto loans, adjustable-rate mortgages, credit cards, etc.—need to be indexed to some underlying marker of the overall cost of funds within the financial system that connected each other of financial system
So often that’s something called the “prime rate” set here in the United States, but it’s also frequently the Libor. So growing evidence that Libor numbers have been deliberately manipulated by banks for years means that millions of people have been paying the wrong interest rate on all manner of financial products. Vast sums of money have been wrongly snatched from innocent people and created equally vast undeserved windfalls for others. The basic structure of the world’s financial system has once again been exposed as fundamentally broken.
Because Libor is used in U.S. derivatives markets, an attempt to manipulate Libor is an attempt to manipulate U.S. derivatives markets, and thus a violation of American law. Since mortgages, student loans, financial derivatives, and other financial products often rely on Libor as a reference rate, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide.
If this sounds like a remarkably flimsy form of economic data, it is. It’s just a guess, not a real measurement of anything. And it’s generated by a trade group, not a regulatory agency. And it’s self-reported, not based on any public data. But over the decades Libor came to take on a foundational role in prosaic economic transactions. In a world of large multifaceted financial-services firms, the quirks of the Libor process were a conflict-of-interest disaster waiting to happen. One unit of a BBA member bank could be cruising along, minding its own business, doing its morning Libor submissions, while another arm of the bank was trading interest rate swaps, currency futures, or other derivatives. Some of those trades’ successes or failures could come to hinge on whether the Libor went up or down. But the Libor’s not external to the banks’ activities, and it’s not an objective measurement of anything. A bank could try to tailor its Libor submissions to meet the needs of its trading desk rather than offering good-faith estimates.
Oke but the Libor is interested in you. Even though the typical American is never going to seek an interbank loan in London, the number is used as a benchmark for a wide range of other financial instruments. Credit instruments with variable interest rates—private student loans, auto loans, adjustable-rate mortgages, credit cards, etc.—need to be indexed to some underlying marker of the overall cost of funds within the financial system that connected each other of financial system
So often that’s something called the “prime rate” set here in the United States, but it’s also frequently the Libor. So growing evidence that Libor numbers have been deliberately manipulated by banks for years means that millions of people have been paying the wrong interest rate on all manner of financial products. Vast sums of money have been wrongly snatched from innocent people and created equally vast undeserved windfalls for others. The basic structure of the world’s financial system has once again been exposed as fundamentally broken.
No comments:
Post a Comment