"Everything Is Rigged: The Biggest Price-Fixing Scandal Ever"

The derivatives market is something like 10x global GDP. That in and of itself doesn’t bother me too much. Why? Because most of those derivatives will never pay out. It’s like if I contracted with you that if I become President and Chief Justice of the Supreme court, you have to pay me $100 billion, and in the meantime, I will give you $5/year. Do you take that bet? Of course. Now should the world be worried that this “derivative market” we created is “worth” $100 billion when neither of us have that money?

Either way, this back and forth is tiresome given your moving of the goalposts, and general misunderstanding and misstatements. If you want to continue this please answer some of the questions I asked. I have done more than answer yours.

  1. Give me a plausible scenario in which the average investor is meaningfully impacted by the LIBOR scandal?

  2. Given that LIBOR rates were often manipulated downward, do you think the consumers who (in theory) materially benefited should refund the money to defrauded investors?

  3. Given that the manipulation was not skewed in one direction, and was not a net gain for most banks as a whole, why should we assume?

  4. Even if all the banks colluded to swing LIBOR in one direction vs. another, how would they collude in a way that males them all money w/o getting caught immediately? Since some banks/traders want high rates and some want low ones, how does this scheme work if there isn’t a collective goal given the disparate ways bankers make money.

  5. Do you think the Fed manipulates rates in the same way?

Care to point out any specifics?

And? What does that have to do with anything I said?

What makes you think Citibank’s “net interest revenue” was entirely based on LIBOR movements?

Incorrect. The change was a result of the financial crisis, not the LIBOR scandal. This was because banks would not lend to one another, thus LIBOR went up dramatically, making the spread huge. See here.

Another cite. And another:

I thought I made it clear that I wouldn’t be responding. Feel free to take your victory lap.

Right, then you responded several more times. :dubious:

But thanks, I will enjoy my victory lap. Sad you seem afraid to answer some basic questions. I guess you wanted to whine instead of debate.

And to newcomer, since you mentioned the OIS. If you think the LIBOR was being dramatically skewed by bankers for greed, why did the spread between the two benchmarks remain remarkable consistent until the financial crisis?

Almost forgot about this thread.

Do you know what is LIBOR used for in Derivative world? Other than go-to rate for float leg of the swap, of course.

I am sure you are about to tell me… much like you told me about the rationale for the switch to OIS :dubious:.

You also ignored my question (to say nothing of you being wrong about the above).

I think you are confusing **OIS vs. LIBOR spread (they are not correlated as they represent different things; the spread itself shows certain characteristics of the market but that’s all) and LIBOR manipulation **(which is when a bank that is responsible for setting it up stands to benefit from it pushing it artificially lower or higher depending on where they stand on a derivative deal).

The 10 basis points spread prior to crisis was the sign that things are okay, relatively speaking. When it shot up to 364 points it meant things are not okay in global money markets.

The only reason banks are switching to OIS is because of the way LIBOR is constructed. If you are a market participant that has no role in how the LIBOR is determined while your counterparty does then you have obvious disadvantage. And now that the trust is broken that LIBOR process is fair and honest (sic!) market MUST move to something else. However, it will be a temporary measure because traders always find a way.

Gasoline prices change daily. From manufacturer to supplier to retailer.
When gas price goes up, it doesn’t matter if they are taking delivery of ‘new gas’ or not, the price at the pump could potentially jump.
There are times that I will get gas at a discounted rate because the actual cost of the gas hasn’t gone up on the fuel they have in stock but it will on future stock.
When they change the price of the gas they have stockpiled based upon the prices that change on future stock, they are ripping you off.

I am not confusing anything. They are correlated (the spread that is) to the overall health of the financial markets. If systemic, widespread manipulation of LIBOR was happening on a regular basis, it would be reflected in a spread that would seemingly fluctuate for no reason, and would do so solely because of the movement of LIBOR. However, we did not see that until the crisis.

If that were true, than you would see evidence of that in the spread. Most graphs I see don’t show that. My question to you is why that is the case?

Yes, which is exactly what I alluded to earlier. The significance of this is that people recognized that LIBOR was being manipulated in large part based on the spread, and LIBOR itself, not reflecting reality. That’s how the investigation began in earnest. People recognized the LIBOR numbers were cooked to overstate the health of the banks. There was evidence of clear, demonstrable skewing of the numbers, even recognizable from the outside. While I am glad it one sense they did that, it is clear that such significant manipulation likely could not at an earlier point because the banks did not all have collective strategic and tactical goals as they did at the beginning of the crisis. At that point, all of them wanted to survive, so lowering LIBOR as to present a better health picture made collective sense. All these guys want to have jobs the next day, so doing what you need to do to survive makes sense. Even with that goal, collusion is necessary to make the numbers appear plausible, which is what they likely did.

Most other times, such an incentive wouldn’t exist. That is, every bank would not want the same thing (high/low LIBOR) at the same time. Effective collusion is based on that. It’s hard to effectively conspire to commit fraud if we both want diametrically opposite things. It’s even harder if two groups at the same bank want different things (as they often did in these cases). Which is why the attempted manipulation doesn’t correlate with the individual bank’s overall NET positions. It would just theoretically help a group or a handful or traders friendly with the guy submitting the numbers.

Which is why this mostly boils down to a friend “helping” a friend rather than WIDESPREAD CORRUPTION IN AN EFFORT TO STEAL TRILLIONS. It’s just not likely such a scheme would be effective and unnoticed for as long as it was alleged to have occurred. Now I am not saying they didn’t try. I just think it was not likely successful. Certainly not successful enough to affect the average Joe on the street. I said this not only because of the way LIBOR is calculated [outliers are tossed, submissions (I believe) are public], but also because there smart people who would have a vested interest in making sure such a scheme didn’t happen. This isn’t a case of dumb money vs. smart money, or even the rich and powerful vs. poor and weak. The counter parties that would lose money are every bit as greedy, manipulative, and (most importantly) prepared as the guys alleged to have run this scam.

Just look at how this all come to a head. At the height of the crisis, the compliance guy at Barclay’s, a bank which was alleged to also be cooking the numbers, ratted out the other banks, yet said his bank’s numbers were reasonable.

People like this do not generally run effective cartels or conspiracies. As soon as his bank was threatened (in a way his bank is alleged to have threatened others for years), he decided to rat everyone out while claiming he has clear hands.

No, they switched because of volatility. I provided several cites detailing this rationale. It had very little to do with allegations of LIBOR manipulation. It was the financial crisis that led to this change.

I assume you’re just bitching, but in the off chance you aren’t . . .

the system worked just fine for me. This lower middle class bricklayer’s son borrowed money to go to a community college, and then to a state school. Then I received a bank loan to buy a car, then a mortgage for a house, and then one for my current home. All those loans are paid off now. I would have none of this without the banking system, but some crazy rich kid who had money on his own would have.

What do you want? Piles of cash left at the corner for you?

So I guess I don’t see it the way you do.

Since nobody else laughed at this, I thought I’d jump in and make a fool of myself…

You do realize that for every Investor there is a borrower? And I think you meant speculator, not investor, anyway. That’s obvious right?