The Libor Scandal: What Happened?
LIBOR, or the London Interbank Offered Rate is the average bank-to-bank borrowing rate estimated by leading London banks. So to simply put, each bank would come up with an average rate it would lend another bank its money at, government people would collect these rates, make an average out of them and create the LIBOR rate.
It is estimated that 350$ trillion in derivatives, that’s trillion with a T are tied to the Libor rate, as do lots of mortgages and other rates. So you probably guessed it’s a big fucking deal when something like this gets rigged every day, huh? But exactly that happened?
When you trust banks, expect a buttfuckin’ once the lights go out. The banks responsible for the Libor rate were colluding since the 90’s to keep it low, under-reporting their rates. Why did they do that? Well, for one, the Libor rate is a good indicator in theory as for the health of the banks and the system in general. If the banks are healthy, have lots of dough in the oven, they loan money at lower rates, but when the bank is in trouble, when it doesn’t have that much money, it rises its rates of lending because it cannot take much risk, pretty simple.
Libor Manipulation is the Biggest Banking Fraud in History
The financial crisis of 2008 revealed a staggering level of fraud from every corner of the banking industry, yet the Libor rate stayed pretty much the same. This raised quite a few eyebrows, but without much attention. The Wall Street Journal reported on May 29th, 2008 that the Libor rate was plain simply rigged and the borrowing costs were understated by some banks. In response the BBA, British Banking Association told everybody to fuck off and that the Libor rate was still a great, healthy indicator of the economy. Lots of economists were against such accusations, and the issue died off for a while.
The FED, too, released some documents dating back to 2007 suspicious of the rate, yet still without anyone doing anything. This is the thing though, top level economists, banking executives and journalists can point the truth right in the face and almost everyone would be indifferent. Status Quo as it is referred to is a dangerous state of mind, a type of conservatism, not the political ideology, but a psychological type, which still prevails in the upper echelons of financial and political industry. Let sleeping dogs lie as they say.
Libor is Investigated
In the beginning of 2011, regulators began a probe into the allegations of the Libor manipulation. Then a year later the US Department of Justice and the Canadian Competition Bureau joined the party and began their own investigations into the rising concerns. Among the banks involved in the Libor Scandal were Citibank, Deutsche bank, HSBC, UBS, Royal Bank of Scotland, JP Morgan and of course Barclays.
On July 27th, 2012 Barclays was fined millions by the branches above for the manipulation of the Libor rate. Which prompted Marcus Agius, Barclays’ Chairman to resign…for one day, after which he was reappointed to a better position of full-time Executive Chairman. So he got a raise, now that’s some business skills, huh? Never mind that the whole scandal and the implications reveal a staggering, enraging amount of insider trading and investor-assfucking for the benefit of the bank, and that the guy was definitely personally responsible for making the decisions, fuck that.
The Libor Scandal Deepens
The scope of the scandal increased once the investigators released the information that at least 20 more banks were suspected of the manipulating the Libor rate. The fire raged on, municipalities and civil courts began filing law suits against banks, citing billions in losses due to the rigged rate. For example, municipalities sold their municipal bonds which were tied to the Libor rate, instead of a fixed rate, on the suggestion of banks manipulating it. It is estimated that it cost US municipalities at least 6$ billion in losses.
Today, UBS, the Swiss bank, was fined 1.5 Billion Dollars payable to the U.S Department of Justice and 160 million pound to the UK Financial Services Authority for participating in the manipulation of the Libor rate.
This is only the beginning, the tip of the iceberg of the scandal. What comes next is only speculation. The facts and knowledge known right now suggests this isn’t over by a wide margin, that the scandal will linger for a while, prompting more fines, more investigation and more thought about banking in general.
The only hope there is, is that the investigation will lead somewhere bigger, somewhere the bankers wouldn’t want us to look into to, and maybe then, just maybe, we’ll make a real difference.