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What is surprising to me is that LIBOR setting was not based on actual transactions but on the assumptions what I would pay bank X to borrow money. The perceive
by LittlePeter 9y ago
What is surprising to me is that LIBOR setting was not based on actual transactions but on the assumptions what I would pay bank X to borrow money. The perceived punishment for lying was laughable too. All around this just invites actors with bad incentives.
I believe as of today LIBOR is set based on actual transactions. But who was the genius who created the original LIBOR? Perhaps it all started as something hacky in the 60s and they could not foresee how important LIBOR would become?
- nmstoker 9y agoIt started in the mid 80s according to Wikipedia. I don't doubt what they did was immoral, but most of the articles I've seen skip over the murky aspect of what exactly was illegal. Thinking of an absurd parallel, if you had a dinner club and had to say how much you were going to pay before the restaurant was picked, it's hard to see how manipulating your decision to influence the restaurant chosen would be illegal if there wasn't some firm agreement in the process being deterministic or formally defined. And that wouldn't change even if others were making money on the back of the restaurant choice! What I'd like to see explained is how LIBOR went from an ill-defined process to one where the way some participants set it was no longer legal. What had the participant banks signed up to do /not do which they then failed to do? Or is the illegality all on the part of those trading on it? (ie insider trading, given that it was based on non-public information)