14 ms·

Lies, Damn Lies and LIBOR

• johnnyg 14y ago
  If you want the same story, just played out in commodities markets, check out http://www.tfmetalsreport.com http://www.tfmetalsreport.com.
  • debacle 14y ago
    A little context? I checked out the link and didn't really see anything that caught my eye. Read a few blog posts, still didn't get it.
• intended 14y ago
  If you want to see what the different libor submissions by banks were: http://www.guardian.co.uk/news/datablog/interactive/2012/jul/03/libor-rate-fixing-bank-submissions http://www.guardian.co.uk/news/datablog/interactive/2012/jul...
  • danielweber 14y ago
    What should I get out of that? I see that some banks wanted it higher, some wanted it lower. That doesn't seem like a scandal.
    • makmanalp 14y ago
      I think the scandal is that it doesn't matter what the banks wanted, they should have been reporting what rate they were actually giving out at.
    • chollida1 14y ago
      Well, IMHO, Barclay's is taking alot of heat for the entire industry. They were correctly reporting their libor rate, which scared some people as it was higher than other banks libor rates. Partially because other banks were lying, partially because they were in more trouble than other banks. The government asked Barclays to falsely report their libor rate at a lower amount. This has the effect of lowering the reported libor rate. The libor rate is important as it's the base rate for pricing alot of other paper. This other paper is the base rate for pricing alot of derivatives,etc. if you follow the chain, the libor rate can indirectly affect the price of literally trillions of dollars of financial instruments. Hence the hoopla surrounding the rates manipulation.
      • desas 14y ago
        > The government asked Barclays to falsely report their libor rate at a lower amount. Allegedly
        • gaius 14y ago
          Tucker has fallen back on the "no recollection" defence, which is only one step up from "only following orders". Looks like him and Diamond are sacrificing themselves to protect the real power brokers.
          • intended 14y ago
            The emails are available though, so recollection or not it's clear no pressure is being applied. At the same time it's clear that the traders were pushing for rates to be fixed, which is why they got fined.
            • gaius 14y ago
              The story of Thomas Becket is relevant here http://www.bbc.co.uk/history/british/middle_ages/becket_01.shtml http://www.bbc.co.uk/history/british/middle_ages/becket_01.s... "Who will rid me of this turbulent rate?"
      • intended 14y ago
        That didnt quite happen that way. Emails from the brokers in wall street clearly show that people from within the bank, not the govt, were asking for low ball rates. It was the bank serving its own interest here. These are the infamous "when I write a book, I'll mention you" / "I hope this never gets written" lines. Regarding your statement about instructions from on high -you are alluding to the comments by Bob Diamond, head of Barclays, about Tucker, the deputy governor of the bank of England. The full,emails have been released and they show little compelling evidence of instructions, but more of paying attention to the Barclays high borrowing costs, implying lack of confidence. The rest is fine. Source: Bbc http://www.bbc.co.uk/news/business-18759479 http://www.bbc.co.uk/news/business-18759479 Trader emails http://www.thedailybeast.com/articles/2012/07/05/barclays-settlement-the-worst-of-the-emails.html http://www.thedailybeast.com/articles/2012/07/05/barclays-se...
• cluda01 14y ago
  I don't understand why this stuff isn't front page news of mainstream (cnn, fox news, etc.) newspapers. You'd figure with all the lingering resentment this would be a huge field day. Currently relegated to business news journals.
  • debacle 14y ago
    Because people don't understand it or don't care, and that doesn't garner eyeballs like the story about Tom and Katie's split.
  • danboarder 14y ago
    One reason is that the London Interbank Offered Rates (LIBOR) are just not as relevant as they used to be: "...the scandal has shed light on an inconvenient truth about these interbank rates which are used to determine the price of so many hundreds of trillions of dollars worth of global financial contracts. That inconvenient truth is that even when London Interbank Offered Rates are not "fixed", they may still not bear very much relation to reality - because banks are not actually offering much unsecured money to each other at all." See: Inconvenient truths about Libor http://www.bbc.co.uk/news/business-your-money-18701623 http://www.bbc.co.uk/news/business-your-money-18701623
    • Tloewald 14y ago
      Back in 2008 my ARM's rate was tied to LIBOR. I doubt I Was alone.
      • JackFr 14y ago
        But the the manipulation was as likely in your favor as it was against you. Edit: I take it back. Looking at the data, Barclays was definitely cheating against you.
        • retube 14y ago
          Rates were low-balled by the majority of banks. Barclays was high in comparison because for much of the time they were posting accurate rates. This was the reason for calls from the Bank of England (why are you guys so high?). The fact is anyone with a libor-linked mortgage will have benefitted from this.
• barret907k 14y ago
  It will be interesting to see when the banks have the same fallout we had in 1929. How much wealth actually exists? This article makes a good point about how we can't know. Too many shady things are happening and no regulation to figure it out.
• hxa7241 14y ago
  There should be another entry in the YC RFS http://ycombinator.com/rfs.html http://ycombinator.com/rfs.html : 10. Kill Wall Street (etc.) We now have the technology to completely remake the financial system -- not just make 'banking' or whatever easier online, but a thorough and innovative re-imagining of what the whole thing should even be about. Information structure is the essence of all cooperative systems, and that means the economics of tomorrow is absolutely about software -- its architecture, its engineering. The practicalities mean this cannot be tackled directly, but someone needs to think big and work on it (in various ways).
  • gaius 14y ago
    You're missing that all of these things have valid uses. Take CDS for example. They're a very efficient way for organizations to mutually insure each other's risks, cutting out the middleman. The trick is to cross them with two uncorrelated things (pork bellies and frozen OJ, for example) rather than using defaulted mortgages to insure umm defaulted mortgages. Or CDOs, done right they're how a bank protects itself against a run and is still able to do maturity transformations (e.g. turning monthly salaries into 25-year mortgages).
    • r00fus 14y ago
      How can CDOs be both limited in abuse as well as a meaningful The problem is that in any realm, commotidization acts as a one-way function, with enough complexity it becomes difficult or impossible to track, thus allowing effective money laundering (or outright theft). The real problem is lack of oversight, or traceability inherent in these devices. This draws in shady money and, essentially, evil.
  • veyron 14y ago
    You get back to some very deep concepts in economics and finance. Value is defined based on trust and faith. I accept dollars for goods I produce because I believe that I can then turn around and give the dollars to get other goods. It's a trust issue throughout the economy. Many of the problems associated with the economy hinge on the very usage of the dollar or renminbi or whatever currency you use. You need to replace that currency. As we saw with BTC, it's not a simple task to replace a currency and maintain a trust structure throughout critical infrastructure. We are willing to lend trust to the sovereign but your task would be to establish faith in this other entity. Unfortunately, you will need to establish a new currency to accomplish your goals. This is far beyond the scale of a YC startup.
• praptak 14y ago
  Real life dwarfs gaming. Remember the recent EVE exploit? Someone discovered that it was possible to pump prices of low liquidity goods, pack ships with said goods, destroy the ships and score an unusually high LP, due to the artificialy inflated "value" of those goods. The underlying mechanism is the same - someone ties some kind of payout to a market price. Then someone other discovers that th price is not something that reflects the market equilibrium but rather something that can be manipulated so that it maximizes said payout rather than market efficiency. It is a bit scary, especially if you tie real money in gaming goods. Or if you tie real money in goods whose price can be gamed.
  • batgaijin 14y ago
    I' still surprised the SEC doesn't actively try to game the system. I mean we all know that we aren't dealing with the worlds best people, why not try to play the psycopath game ourselves?
    • newbie12 14y ago
      They do. It is called the "revolving door". After a few years, most senior SEC staff go on to work in the banks they are supposed to regulate.
  • SkyMarshal 14y ago
    For those of us who don't know EVE jargon, what's LP?
    • praptak 14y ago
      Loyalty Points but it doesn't really matter as long as it is something freely interchangeable for other goods.
• Tycho 14y ago
  The trouble with articles like this is that they focus entirely on the problems created by 'relaxation' of regulation, but the benefits are not discussed. What we need to know is the net outcome (if it's knowable... But it's definitely worth discussing).
  • intended 14y ago
    We have the net outcome in front of us? Did you mean to say something other than wealth concentration to financiers, the meltdown of the world economy, the euro crisis... Sorry, are you saying what the net benefit would be once you remove the calamities it has caused?
    • Tycho 14y ago
      The major problem facing the world economy is excessive sovereign debt, and you cant blame the banks for that. Nor for the many other structural problems in the economy, or for shortage of natural resources, or AIDS, or wars, etc. What people do is focus on one visible failing of the financial system, then assume everything would be rosy if not for that problem, ergo the banks are a drag on society. And then just devolve into a generic rant about the public being screwed by The Man. The net outcome is whatever benefits the current banking system (or whatever aspect of it you're discussing) has brought minus whatever problems it caused.
      • recoil 14y ago
        > The major problem facing the world economy is excessive sovereign debt, and you cant blame the banks for that. In a country like Greece this may be true, but in Spain - for instance - the country's sovereign debt before the financial crisis was low: it's the possibility of Spain having to bail out its over-indebted banks that is driving government bond yields higher there. In the UK, the government was forced to nationalise the imprudent RBS and as such increase its own debt burden. And in the US, the government has been motivated to issue more and more debt partly to help re-capitalise insolvent banks... The banks are definitely to blame.
      • 14y ago
• olalonde 14y ago
  > We need to rethink as a society what banks are for, what exchanges are for, and what clearing houses are for. If they are for the profit of the few at the expense of the many now, that is because it is the business model we have permitted. Is that really true compared to Silicon Valley? Do banks concentrate wealth a lot more than a Google or a Facebook? If not, how would you feel about some random dude commenting on his blog: "We need to rethink as a society what tech startups are for, what angel investors are for, and what venture capitalists are for. If they are for the profit of the few at the expense of the many now, that is because it is the business model we have permitted."? Regardless, if banks are "concentrating wealth" they must be doing something right since after all, the ultimate purpose of a business is to make money. If they do so through illegal means (fraud, deception, etc.), we already have a legal system in place to deal with that. If they don't serve us well, we have the ability to vote with our money and move to another bank which treats us well. If those two mechanisms are failing us, as some people claim, I'd be genuinely curious to know why it fails specifically for banks while it works wonders in other industries such as tech. I'm tempted to think that it is because the barrier to entry to the banking industry is so amazingly high largely due to regulations that it favors a few large banks at the expense of eventual competitors. I'd be curious to hear what others here think and welcome rebuttals.
  • leot 14y ago
    "Financial innovation" seems to in large part consist of creating private information asymmetries, where the large banks are the only ones with enough data to accurately price the securities they engineer and then make a market for. Thus it's not at all clear here that financial innovation is a net win, and, further, any comparison with innovation in the tech world is fatuous.
    • olalonde 14y ago
      Seems like the "vote with your money" mechanism should solve that: don't buy those securities. Do you claim that this mechanism doesn't work? If so, why is that?
      • 14y ago
• dreamdu5t 14y ago
  Why do we tolerate price-fixing and interest rate manipulation of the whole economy through the Bank of England's control of the pound sterling dealing rate? The central bank of the UK is setting interest rates for the entire economy yet people only care about Libor rates being manipulated. It's a hypocrisy.
  • peteretep 14y ago
    Oooh, oooh, I know this one! Next up: - Why are the army the only people allowed guns?! - Why are doctors the only ones who can prescribe medicine?! - Why do we let the police have sirens on their cars, but I can't get one on mine?!
• rwmj 14y ago
  He had me up until he said "How [can] profits in the financial sector to be consistently higher than profits from [...] agriculture, transport, health care or utilities?" Those are four very poorly chosen examples which suffer from Baumol's Disease [1] [1] https://en.wikipedia.org/wiki/Baumol%27s_cost_disease https://en.wikipedia.org/wiki/Baumol%27s_cost_disease Now whether or not it is true that banks can really be efficient, it's better to compare banks to technology and industrial production that don't suffer from Baumol's disease.
  • ktizo 14y ago
    Don't think that one is true of agriculture, at least not since the invention of the tractor, or possibly even the horse drawn plough. As for the others, you may have a point in some areas of medicine in the US, but in transport and utilities I don't think it is a rise in wage costs that are the problem. Also, aren't the rising wage costs in this case largely driven by keeping up professional standing when socialising with people in industries that are behaving unfairly, like some areas of the legal and financial world, who are for fairly obvious reasons able to renumerate their staff to a level far in excess of the work they are actually doing.
  • Variance 14y ago
    Agreed on the poor choices of examples, though that Wikipedia article is terrible. There's absolutely nothing contrary to classical economics in "cost disease", and Baumol's stuff was more an analysis of the economics of a situation than a sudden discovery of some unforeseen phenomenon. Articles like the OP link are little more than populist sensationalism. Valid and extremely strong arguments can be made for reform in the banking system, but they aren't made by expressing that banks should be "in service of the people, not the profit." Those are political talking points, and the most offensive is that he compared financial markets to casinos, which is where authors lose all credibility to anyone who understands economics. Also: >Price discovery is not a sexy function of markets Hell yeah price discovery is sexy. If it isn't, what is? The entire stock market exists literally only to set prices as quickly and accurately as possible.
• kenster07 14y ago
  The problem is fundamentally very simple. Would you ever lend your money to someone dishonest? You are lending your bank money every time you deposit in their vaults.
• lifeisstillgood 14y ago
  We have allowed markets to evolve in ways that make supervision of markets almost impossible. This reminds me of the big monolithic app vs small services debate. A some point an app becomes harder and harder to break out Into testable pieces, becomes Interdependant and complex
• adnam 14y ago
  Here's a thought: : if you have a LIBOR-linked mortgage with Barclays, you could probably cease repayments, report the bank to credit rating agencies and and sue them for contractual misrepresentation.
  • SideburnsOfDoom 14y ago
    > if you have a LIBOR-linked mortgage with Barclays, They all did it. Barclays were the last bank to start doing it, and the first to confess.
    • adnam 14y ago
      So far, only Barclays, Citigroup, RBS, UBS AG, ICAP, Lloydsand Deutsche Bank are being investiagted. http://www.businessweek.com/news/2012-07-09/libor-criminal-probe-cftc-bank-exemptions-canada-compliance http://www.businessweek.com/news/2012-07-09/libor-criminal-p...
      • SideburnsOfDoom 14y ago
        I don't think there's a contradiction between "they all did it" and "so far, only many of the big banks are being investigated". We don't have proof that "they all did it" so perhaps I overstated the case a little. We do know that the UK government contacted Barclays because their rates were higher than everyone else's. Perhaps some of those lower rates were legitimate. Perhaps not. But if we're going to be pedantically accurate, perhaps you should say "if you have a LIBOR-linked mortgage with Barclays, Citigroup, RBS, UBS AG, ICAP, Lloyds or Deutsche Bank" ....
        • deleted 14y ago
          [deleted]
        • adnam 14y ago
          A little touchy, aren't we? The involvement of Barclays has been widely reported, so you could (maybe) demand adequate assurance without being dishonourable.