31 January 2013

The Libor scam

First the definition:
The Libor scandal is a series of fraudulent actions connected to the Libor (London Interbank Offered Rate) and also the resulting investigation and reaction. The Libor is an average interest rate calculated through submissions of interest rates by major banks in London. The scandal arose when it was discovered that banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were.
Now some excerpts from an article at Bloomberg:
Details are only now revealing just how far-reaching the scam was...
For years, traders at Deutsche Bank AG, UBS AG, Barclays, RBS and other banks colluded with colleagues responsible for setting the benchmark and their counterparts at other firms to rig the price of money, according to documents obtained by Bloomberg and interviews with two dozen current and former traders, lawyers and regulators. UBS traders went as far as offering bribes to brokers to persuade others to make favorable submissions on their behalf, regulatory filings show...

We will never know the amounts of money involved, but it has to be the biggest financial fraud of all time,” says Adrian Blundell-Wignall, a special adviser to the secretary-general of the Organization for Economic Cooperation and Development in Paris. “Libor is the basis for calculating practically every derivative known to man.”..

Some former regulators say they were surprised to learn about the scale of the cheating. “Through all of my experience, what I never contemplated was that there were bankers who would purposely misrepresent facts to banking authorities,” [facepalm] says Alan Greenspan, chairman of the U.S. Federal Reserve from 1987 to 2006. “You were honorbound to report accurately, and it never entered my mind that, aside from a fringe element, it would be otherwise. I was wrong.”

Sheila Bair, who served as acting chairman of the U.S. Commodity Futures Trading Commission in the 1990s and as chairman of the Federal Deposit Insurance Corp. from 2006 to 2011, says the scope of the scandal points to the flaws of light-touch regulation on both sides of the Atlantic. “When a bank can benefit financially from doing the wrong thing, it generally will,” Bair says. “The extent of the Libor manipulation was eye-popping.”..

Manipulating Libor was a common practice in an unregulated market big enough to span the world though small enough for most participants to know one another personally, investigators found.
The source link at Bloomberg is long and detailed.   Via Reddit.


  1. This, together with the market distortion that is high-frequency trading puts the lie to the belief that the financial markets 'generate' any money; instead they are scams that syphon of money from the rest of the economy.

    I'm actually pretty pessimistic about this being solved through democratic methods as imho it's reached the point that the people who are benefitting from these schemes have enough power over our politicians to stop any attempt at reform.

  2. Until, the punishment for 'wrong' is more then lame bad press and impotent fingers wagging....
    Until the reward for doing this 'wrong' is less then the power required to exist above the law in any nation (though I've read China has the right idea)...
    Until someone or something steps in and causes the punishment to be far worse than the crime, how could anyone expect this NOT to happen?
    Apparently, their gods (if they have any) don't mind and with big enough donations, I bet their holy men assure them everything is OK.


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