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> In 2014 "a private corporation called ICE Benchmark Administration (IBA) took over the daily production and administration of [LIBOR] subject to the regulatio

> In 2014 "a private corporation called ICE Benchmark Administration (IBA) took over the daily production and administration of [LIBOR] subject to the regulation and supervision of" the UK's Financial Conduct Authority [1]. ICE is an American company that trades on the NYSE. In 2014, a full 6 years after a crash, that doesn't negate the issue of allowing a non-American set interest rate to be the basis for American financial institutions in the first place. Literally billions of dollars in city, firefighter, and police pensions, not to mention other investments, in the US were negatively affected by the manipulation of LIBOR. Even though they sacrificed a scapegoat, and LIBOR was indeed being abused, the structure of LIBOR itself is part of the problem here. > Of the 18 LIBOR member banks, 3 are American... Not really reassuring me with those kinds of numbers. > all have a presence in New York City [2]. That's how the Fed is able to regulate them. They can regulate their American side, but not their London side, correct? Still doesn't change the original issue. Also, the Fed regulating the banks is sorta the fox guarding the hen house isn't it? I mean, as far as I know, the true ownership (who owns stocks in the Fed) is private still is it not? Isn't it a sort of inherent conflict of interest? Don't get me started on how the SEC has their balls cut off on this subject. > Other way around. If Washington cut London's dollar clearing privileges the City would implode. I understand the power of the defense/petro-dollar, but I'm talking about culture wise, where I have repeatedly seen the Fed and major heads of banks bend over for bankers in the City. It's much more ancedotal and on this point I haven't read any good academic papers or books, so if you have some reading on the relationship between the City and Wallstreet I would love to hear about it.

JumpCrisscross 10y ago
> allowing a non-American set interest rate to be the basis for American financial institutions in the first place American banks don't borrow based on LIBOR. Their overnight borrowing and lending is done at the Federal funds rate [1], an arguably much better-designed system than LIBOR. The only reason LIBOR shows up in the U.S. is people write it into contracts. > Of the 18 LIBOR member banks, 3 are American >> Not really reassuring me with those kinds of numbers The U.S. overruled British regulators in 2008 regarding Lehman Brothers and Barclays, and did so again in reforming LIBOR. The four British banks who are LIBOR members depend more on the U.S. than any American bank depends on London. > the true ownership (who owns stocks in the Fed) is private No, the Fed was created by Congress [2]. Its Board is appointed by the President and confirmed by the Senate. It remits its profits to the U.S. Treasury. Commercial banks own "stock" in the regional reserve banks, but it's more of a reserve accounting mechanism than actual stock. The "stock" is not transferable and confers no management rights; "the Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the Federal Reserve System" [2]. > I understand the power of the defense/petro-dollar The size of the American economy, particularly its consumption, underwrites dollar hegemony. That size means lots of people, within the country and without, must hold U.S. dollars. That, in turn, makes it ideal for lending and borrowing in, which in turn makes it ideal for trading commodities. > I have repeatedly seen the Fed and major heads of banks bend over for bankers in the City Since World War II and the implementation of the Bretton-Woods pact the City has served at the pleasure of Washington. For a hint at this, search the British financial press for mentions of American regulators and then do the same of the American financial press for British regulators. [1] https://en.wikipedia.org/wiki/Federal_funds_rate https://en.wikipedia.org/wiki/Federal_funds_rate [2] https://www.federalreserve.gov/faqs/about_14986.htm https://www.federalreserve.gov/faqs/about_14986.htm
- arca_vorago 10y ago
  I just wanted to say I appreciate your taking the time to educate me on this, banking is so cultish and esoteric sometimes, you have given me a direction to focus my reading to expand my knowledge, so I am much obliged. In particular, I didn't realize that LIBOR wasn't actually used by the American banks for interbank stuff, but was used voluntarily in contracts. That LIBOR impacted so much of America and they allowed it to do so voluntarily (or out of ignorance) is astounding to me. I wish all this kind of information was layed out in a single place more clearly for public conspumption.
  - fitchjo 10y ago
    One other clarification for you, many floating-rate lending agreements actually allow for the borrower to select between the Fed rate and LIBOR throughout the term of the agreement. As I understand, the prevalence of LIBOR in US contracts at least somewhat coincided with the increased globalization of US business as, from a risk management perspective, sometimes you may want the interest rate on your borrowings to reflect a different economic sentiment than just the US. Clearly, once LIBOR started being manipulated by the bankers, it no longer accurately reflected the market it was supposed to represent, but its not always about having the most "accurate" rate, but aligning/managing your risk appropriately.

JumpCrisscross 10y ago

> allowing a non-American set interest rate to be the basis for American financial institutions in the first place American banks don't borrow based on LIBOR. Their overnight borrowing and lending is done at the Federal funds rate [1], an arguably much better-designed system than LIBOR. The only reason LIBOR shows up in the U.S. is people write it into contracts. > Of the 18 LIBOR member banks, 3 are American >> Not really reassuring me with those kinds of numbers The U.S. overruled British regulators in 2008 regarding Lehman Brothers and Barclays, and did so again in reforming LIBOR. The four British banks who are LIBOR members depend more on the U.S. than any American bank depends on London. > the true ownership (who owns stocks in the Fed) is private No, the Fed was created by Congress [2]. Its Board is appointed by the President and confirmed by the Senate. It remits its profits to the U.S. Treasury. Commercial banks own "stock" in the regional reserve banks, but it's more of a reserve accounting mechanism than actual stock. The "stock" is not transferable and confers no management rights; "the Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the Federal Reserve System" [2]. > I understand the power of the defense/petro-dollar The size of the American economy, particularly its consumption, underwrites dollar hegemony. That size means lots of people, within the country and without, must hold U.S. dollars. That, in turn, makes it ideal for lending and borrowing in, which in turn makes it ideal for trading commodities. > I have repeatedly seen the Fed and major heads of banks bend over for bankers in the City Since World War II and the implementation of the Bretton-Woods pact the City has served at the pleasure of Washington. For a hint at this, search the British financial press for mentions of American regulators and then do the same of the American financial press for British regulators. [1] https://en.wikipedia.org/wiki/Federal_funds_rate https://en.wikipedia.org/wiki/Federal_funds_rate [2] https://www.federalreserve.gov/faqs/about_14986.htm https://www.federalreserve.gov/faqs/about_14986.htm

arca_vorago 10y ago
I just wanted to say I appreciate your taking the time to educate me on this, banking is so cultish and esoteric sometimes, you have given me a direction to focus my reading to expand my knowledge, so I am much obliged. In particular, I didn't realize that LIBOR wasn't actually used by the American banks for interbank stuff, but was used voluntarily in contracts. That LIBOR impacted so much of America and they allowed it to do so voluntarily (or out of ignorance) is astounding to me. I wish all this kind of information was layed out in a single place more clearly for public conspumption.
- fitchjo 10y ago
  One other clarification for you, many floating-rate lending agreements actually allow for the borrower to select between the Fed rate and LIBOR throughout the term of the agreement. As I understand, the prevalence of LIBOR in US contracts at least somewhat coincided with the increased globalization of US business as, from a risk management perspective, sometimes you may want the interest rate on your borrowings to reflect a different economic sentiment than just the US. Clearly, once LIBOR started being manipulated by the bankers, it no longer accurately reflected the market it was supposed to represent, but its not always about having the most "accurate" rate, but aligning/managing your risk appropriately.