Thursday, July 19, 2012

LIBOR Rate-Rigged and Rotten to the Core

Another sign that the worlds financial system is rigged and rotten to the core has been revealed.  Sometimes the most important and memorable incidents in earth-changing events occur in a very common way. In the rapidly spreading scandal of how the LIBOR or [London inter-bank offered rate] is set, the crux of the problem is how casual bank traders were as they manipulated the most important figure in finance. The investigations show they joked, or offered small favors. “Coffees will be coming your way,” promised one trader in exchange for a fiddled number. “Dude. I owe you big time!… I’m opening a bottle of Bollinger,” wrote another. This explains why concerns about inter-bank lending rates are now spreading to other jurisdictions.

From what started for many as an affair involving the British bank Barclays rigging an obscure number, this is beginning to assume global significance. The number that the traders were toying with determines the prices that people and corporations around the world pay for loans or receive for their savings. The LIBOR rate is used as a benchmark to set payments on about $800 trillion-worth of financial instruments that rang from complex interest-rate derivatives to simple mortgages. How they arrive at this number that determines the global flow of billions of dollars each year is beyond flawed, it is totally rigged. All this adds to the foul odor coming from central banks that are printing money and distorting markets with record low interest rates, these low rates are punishing savers, yes the system seems rotten to the core.
Over the past week more damning evidence has emerged, in documents detailing a settlement between Barclays and regulators in America and Britain, it seems that employees at the bank and at several other unnamed banks tried to rig the number time and again over a period of at least five years. And more shenanigans are likely to emerge as investigations by regulators in several countries, including Canada, America, Japan, the EU, Switzerland and Britain, are looking into allegations that LIBOR and similar rates were manipulated by large numbers of banks. Corporations and lawyers, too, are examining whether they can sue Barclays or other banks for harm they have suffered. Before the smoke settles this could cost the banking industry tens of billions of dollars.

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