The LIBOR scandal was just revealed end of june 2012;
LIBOR = London Inter Bank Offered Rate.
It is the reference rate that banks use to borrow money between one another.
Of course, it is used to fix then the cost for us to borrow on mortgages and loans.
It has affected $800 trillions dollars worth of transactions, well everything.
The system is that each day some 16 megabanks are required to submit their quotes for LIBOR to calculate the global LIBOR,
and we discovered that Barclays has been manipulating its LIBOR submission for years.
Normally, the LIBOR corresponds to a cost of borrowing money; but what has interested Barclays here is manipulating it as an index, just to increase profits on the trading desks.
They basically operated the biggest insider trading in History, the stock at stake being… well “Earth”.
But in order to alter the LIBOR, you have to collude with all other banks so it is likely all other 16 banks were involved.
Below are different cases of how Barclays traders asked to influence the LIBOR.
Judge for yourself:
“Hi Guys, We got a big position in 3m libor for the next 3 days. Can we please keep the libor fixing at 5.39 for the next few days. It would really help. We do not want it to fix any higher than that. Tks a lot. September 13, 2006, senior trader in New York to submitter
“In another, a trader from an unnamed rival bank thanks a Barclays trader for successfully getting the lender’s Libor rate lowered, saying: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger.””
“Sometimes, the traders asked the submitters to try to have Barclays excluded from the Libor calculation altogether by deliberately falling into the top or bottom quartile, in an attempt to influence the official fixing. ”
Frauds committed by Barclays:
* Fraud 1: Trading positions are not legitimate factors on which to base a bank’s daily LIBOR submission. Barclays based its LIBOR submission upon its derivatives trader requests.
* Fraud 2: Barclays conveyed false report that it submitted rates for LIBOR based on the cost of borrowing funds in interbank market
* Fraud 3: Barclays regularly attempted to deliver false and misleading report concerning US Dollar LIBOR and at times YEN and Sterling LIBOR.
On top of that, we also know now that at least 2 central banks were involved or aware of LIBOR rigging:
The bank of England and the US Fed;
The bank of England authorized the rigging and the US Fed (through T. Geithner) choose the LIBOR rate to bail-out AIG and other banks back in 2008 lending them money at the manipulated lower rate.
As this story is developing, I make 2 predictions:
* Pretty much all banks were involved
* At the end, it will come very soon down to the why of interest rate charged by central banks, which are in a way their biggest instrument of insider trading