# Will the LIBOR banking scandal manage to finally force banking reform in the US? **URL:** \ **Category:** Great Debates\ **Created:** [July 5, 2012, 4:51am UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270 "2012-07-05T04:51:20Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Typo\_Negative](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/typo_negative/32/484_2.png) [@Typo\_Negative](https://boards.straightdope.com/u/Typo_Negative)\ **Post date:** [July 5, 2012, 4:09pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/21 "2012-07-05T16:09:25Z")
Any chance Diamond and\or other conspirators may actually go to prison? ---
**Author:** ![The\_Niply\_Elder](https://avatars.discourse-cdn.com/v4/letter/t/8e8cbc/32.png) [@The\_Niply\_Elder](https://boards.straightdope.com/u/The_Niply_Elder)\ **Post date:** [July 5, 2012, 5:06pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/22 "2012-07-05T17:06:55Z")
But wait: if they were underreporting their borrowing costs, doesnt that mean that they would take a loss on borrowing that money? I mean, they are still defrauding their investors, but still. If i run a business and i underreport my expenditures, and continue to do business, eventually i will have to report all those expenses in the yearly reports. I would be more worried if banks overreported their expenses, as that would mean the individuals involved could be skimming off or padding the expenses for their own profit. ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [July 5, 2012, 5:20pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/23 "2012-07-05T17:20:09Z")
> [@The\_Niply\_Elder](#): > > But wait: if they were underreporting their borrowing costs, doesnt that mean that they would take a loss on borrowing that money? I mean, they are still defrauding their investors, but still. If i run a business and i underreport my expenditures, and continue to do business, eventually i will have to report all those expenses in the yearly reports. I would be more worried if banks overreported their expenses, as that would mean the individuals involved could be skimming off or padding the expenses for their own profit. As I understand it they were defrauding investors. They wanted some investors to help shore them up during the financial crisis but were worried that if they showed borrowing costs higher than normal that would lead the investors to doubt their solvency and not invest. Defrauding investors is already illegal, there does not need to be new laws to stop what is already illegal. It is like saying “Will the Sandusky case finally get states to outlaw child molesting?” ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [July 5, 2012, 5:39pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/24 "2012-07-05T17:39:25Z")
> [@puddleglum](#): > > As I understand it they were defrauding investors. They wanted some investors to help shore them up during the financial crisis but were worried that if they showed borrowing costs higher than normal that would lead the investors to doubt their solvency and not invest. > Defrauding investors is already illegal, there does not need to be new laws to stop what is already illegal. It is like saying “Will the Sandusky case finally get states to outlaw child molesting?” Right. We just need to enforce the laws but the foxes are in charge of the hen house. ---
**Author:** ![Simplicio](https://avatars.discourse-cdn.com/v4/letter/s/c37758/32.png) [@Simplicio](https://boards.straightdope.com/u/Simplicio)\ **Post date:** [July 5, 2012, 5:54pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/25 "2012-07-05T17:54:03Z")
> [@puddleglum](#): > > As I understand it they were defrauding investors. They wanted some investors to help shore them up during the financial crisis but were worried that if they showed borrowing costs higher than normal that would lead the investors to doubt their solvency and not invest. That was part of it, but the larger scandal seemed to be that the banking part of Barclays manipulated the LIBOR numbers in such a way as to advantage the trading part of Barclays. > [@](#): > > Defrauding investors is already illegal, there does not need to be new laws to stop what is already illegal. It is like saying “Will the Sandusky case finally get states to outlaw child molesting?” But we’d like laws that make it more difficult to commit crimes, not just punish people once the crime has already been committed. One hopes that Penn State will change its policies regarding child-abuse reporting in the wake of the Sandusky thing to make it less likely to happen again, rather then just settle with the fact that Sandusky will go to jail. The obvious change here is the one mentioned in the WSJ article, require banks to actually submit a record of their transaction costs instead of self-reporting. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [July 5, 2012, 6:24pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/26 "2012-07-05T18:24:12Z")
LIBOR is used as the benchmark rate for nearly all floating rate corporate loans in the world, including the U.S. Also, when talking about total dollar amount of financial products ($800 trillion), realize that these all net to a much smaller number. Let’s say I have a floating rate loan for $100 million. I could then get an interest rate swap of $100 million to move from floating to fixed (now we are at $200 million). Then I decide I want to go back to floating but capped at no higher than rate x and a floor of no lower than rate y. I get another swap to go back from fixed to floating and I buy one option to set a floor and sell one option to set a ceiling. I’ve just added another $300 million. We now have $500 million worth of financial products but really there is only one loan of $100 million that has a rate cap and a rate floor. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [July 6, 2012, 3:12am UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/27 "2012-07-06T03:12:37Z")
> [@](#): > > **LIBOR Banking Scandal Deepens; Barclays Releases Damning Email, Implicates British Government** > > Former Barclays CEO Bob Diamond is testifying before parliament in London today, and that’s sure to bring some shocking moments. But there’s already been one huge stunner. In advance of that testimony, Barclays released an email from October 29, 2008, written by Diamond to then-Chairman John Varley and COO Jerry del Messier (who also stepped down yesterday). The email from the CEO to the other two senior Barclays execs purports to detail the content of the conversation Diamond had with Bank of England deputy governor Paul Tucker that same day. > > In the email, Diamond essentially tells the other two execs that he has been given permission by Tucker – encouraged, actually – to rig Libor rates downward. What’s even worse is that Diamond’s email suggests that Tucker was only following orders, i.e. that Tucker had received phone calls from “a number of senior figures within Whitehall” – that is, the British government – expressing concern about Barclays’ high Libor rates. Tucker in this version of events was acting as a middleman for the British government, telling Diamond to fake his borrowing rates in order to preserve the appearance of financial stability, for the good of Queen and country as it were. > > SOURCE: [http://www.rollingstone.com/politics/blogs/taibblog/libor-banking-scandal-deepens-barclays-releases-damning-email-implicates-british-government-20120704?utm\_source=dailynewsletter&utm\_medium=email&utm\_campaign=newsletter](http://www.rollingstone.com/politics/blogs/taibblog/libor-banking-scandal-deepens-barclays-releases-damning-email-implicates-british-government-20120704?utm_source=dailynewsletter&utm_medium=email&utm_campaign=newsletter) This is becoming a real shit storm in the UK. One thing the powers that be have learned in the US is to never throw your people under the bus no matter how bad they screw up. You pat them on the back and give them raises or awards and look in the camera with a straight face and tell the world how awesome they are (looking at you Bush with the Presidential Medal of Freedom Award to George Tenet). If you don’t do that it becomes cover-your-ass time and the facade crumbles as everyone takes pot shots. We need something like that over here. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [July 6, 2012, 2:01pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/28 "2012-07-06T14:01:28Z")
For those who still think this is just a UK problem and/or much ado about nothing (bolding below mine): > [@](#): > > Over the past week damning evidence has emerged, in documents detailing a settlement between Barclays and regulators in America and Britain, that employees at the bank and at several other unnamed banks tried to rig the number time and again over a period of at least five years. And worse is likely to emerge. Investigations by regulators in several countries, including Canada, America, Japan, the EU, Switzerland and Britain, are looking into allegations that LIBOR and similar rates were rigged by large numbers of banks. Corporations and lawyers, too, are examining whether they can sue Barclays or other banks for harm they have suffered. That could cost the banking industry tens of billions of dollars. **“This is the banking industry’s tobacco moment,” says the chief executive of a multinational bank, referring to the lawsuits and settlements that cost America’s tobacco industry more than $200 billion in 1998. “It’s that big,” he says.** > > SOURCE: [The rotten heart of finance](http://www.economist.com/node/21558281?fsrc=scn/rd_ec/the_rotten_heart_of_finance) ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [July 6, 2012, 3:24pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/29 "2012-07-06T15:24:53Z")
Well, heck, it their money, isn’t it? They let us handle some of it, every once in a while, before we hand it back to them. Damned white of them. ---
**Author:** ![Nancarrow](https://avatars.discourse-cdn.com/v4/letter/n/c37758/32.png) [@Nancarrow](https://boards.straightdope.com/u/Nancarrow)\ **Post date:** [July 7, 2012, 1:58pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/30 "2012-07-07T13:58:42Z")
> [@Whack-a-Mole](#): > > ETA: I will also note the fines they are forced to pay are laughable in the scheme of things. It’d be like you robbing a bank and if caught your penalty is having to return _some_ of the money. Actually the fines are even less punitive than they seem. Because the fines are applied to _banks_. Institutions that provide services to customers… for a fee. A fee that can be changed at will… by the bank. So a _fine_ to a _bank_ quickly becomes a _tax_ on _customers_. So, a couple of Mondays ago, I read on the BBC news website - Barclays to be fined £298 million for fixing interbank rates. A couple of days later - Bob Diamond - ‘I will NOT resign’. (well there was a small silver lining there at least) A couple of days later… an email in my inbox. Ooh, I love emails! _click_ [QUOTE=Barclaycard Services] Dear Mr [Nancarrow] We are writing to let you know about a change to the interest rates on your Barclaycard account. We may change our interest rates if there is a change in our costs, including those relating to funding, the risk of lending and of operating your account. Your standard rate (including purchases) will increase from 16.9% p.a. to 21.9% p.a. [/QUOTE] Fuck the fucking fuckers. :mad: ---
**Author:** ![Evil\_Captor](https://avatars.discourse-cdn.com/v4/letter/e/f17d59/32.png) [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)\ **Post date:** [July 7, 2012, 2:54pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/31 "2012-07-07T14:54:39Z")
> [@Whack-a-Mole](#): > > Generally I agree but I am hoping (a tiny hope) this may be different. > > Nothing happens as long as those with the money are riding on the gravy train. However, shit moves fast when you start taking money from those people. Witness Madoff. Not like he was the only crook on Wall Street but instead of ripping off grandma he ripped off other rich people. He went to jail so fast it was head spinning as these things go. > > In this case the banks are making money but they are ripping off other huge investors who are having the game rigged against them. This is why people on Wall Street are actually pretty appalled by this one. > > I dunno, maybe it will be another smoke-and-mirror show with nothing happening but it certainly is yet another sign of profound problems with the financial markets and sooner or later something will give and the house of cards will come tumbling down and it will not be pretty. > > It is important to restore some faith in the markets and I hope someone who can do something about this recognizes that. One of the reasons Madoff went to jail so fast was he was ripping off the mob, specifically some Russian mobsters, and he was more afraid of being killed by them than by being in jail, so he didnt fight it. ---
**Author:** ![Evil\_Captor](https://avatars.discourse-cdn.com/v4/letter/e/f17d59/32.png) [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)\ **Post date:** [July 7, 2012, 3:00pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/32 "2012-07-07T15:00:10Z")
Things will not change in the US unless Wall Street wants them to. They OWN the US government. This is not a democracy, it’s a plutocracy, and will remain one until we get campaign finance reform instituted. ---
**Author:** ![Simplicio](https://avatars.discourse-cdn.com/v4/letter/s/c37758/32.png) [@Simplicio](https://boards.straightdope.com/u/Simplicio)\ **Post date:** [July 7, 2012, 3:05pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/33 "2012-07-07T15:05:18Z")
> [@Evil\_Captor](#): > > One of the reasons Madoff went to jail so fast was he was ripping off the mob, specifically some Russian mobsters, and he was more afraid of being killed by them than by being in jail, so he didnt fight it. Sounds like BS. Madoff has already been the target of prison violence, I imagine if the Russian mob wanted to kill him, they’d have a far easier time of it when he was in jail instead of outside where he could spend part of his fortune on security measures. And there was no way he was escaping spending the rest of his life in jail, whether he fought it or not. Do you have a cite? ---
**Author:** ![Evil\_Captor](https://avatars.discourse-cdn.com/v4/letter/e/f17d59/32.png) [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)\ **Post date:** [July 7, 2012, 3:18pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/34 "2012-07-07T15:18:46Z")
> [@Simplicio](#): > > Sounds like BS. Madoff has already been the target of prison violence, I imagine if the Russian mob wanted to kill him, they’d have a far easier time of it when he was in jail instead of outside where he could spend part of his fortune on security measures. > > And there was no way he was escaping spending the rest of his life in jail, whether he fought it or not. > > Do you have a cite? I’ve got cites, but no hard evidence: [CNBC video.](http://video.cnbc.com/gallery/?video=987308800) Well actually, this article from the New York Times says Russian oligarchs invested in Madoff: [Russian “oligarchs”](http://www.nytimes.com/2009/01/07/business/07medici.html?_r=3&ref=business) Interesting that the woman who led them to invest in Madoff went into hiding. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [July 8, 2012, 6:23pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/35 "2012-07-08T18:23:32Z")
> [@Nancarrow](#): > > Actually the fines are even less punitive than they seem. Because the fines are applied to _banks_. Institutions that provide services to customers… for a fee. A fee that can be changed at will… by the bank. So a _fine_ to a _bank_ quickly becomes a _tax_ on _customers_. > > So, a couple of Mondays ago, I read on the BBC news website - Barclays to be fined £298 million for fixing interbank rates. > > A couple of days later - Bob Diamond - ‘I will NOT resign’. (well there was a small silver lining there at least) > > A couple of days later… an email in my inbox. Ooh, I love emails! _click_ > > Fuck the fucking fuckers. :mad: Yep. > [@](#): > > The Royal Bank of Scotland is about to be fined $233 million (£150 million pounds) for its role in the Libor-rigging scandal. > > \ > > _The bank, which is 82 per cent owned by the taxpayer, is preparing for a political firestorm over the affair because it believes that it has no power to claw back bonuses from the traders responsible. Instead, the expected fines would be borne by the shareholders — largely the Government._ > > SOURCE: [http://www.rollingstone.com/politics/blogs/taibblog/another-domino-falls-in-the-libor-banking-scam-royal-bank-of-scotland-20120629?utm\_source=twitterfeed&utm\_medium=twitter](http://www.rollingstone.com/politics/blogs/taibblog/another-domino-falls-in-the-libor-banking-scam-royal-bank-of-scotland-20120629?utm_source=twitterfeed&utm_medium=twitter) So the bankers made personal fortunes and everyone else is left holding the bag. They must be laughing their asses off. ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [July 8, 2012, 6:50pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/36 "2012-07-08T18:50:48Z")
No, they have people for that sort of thing. ---
**Author:** ![Robot\_Arm](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/robot_arm/32/18280_2.png) [@Robot\_Arm](https://boards.straightdope.com/u/Robot_Arm)\ **Post date:** [July 8, 2012, 11:08pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/37 "2012-07-08T23:08:45Z")
> [@Whack-a-Mole](#): > > Further, it is hard to imagine this as a UK-only scandal. As mentioned the way the LIBOR is set up it is almost impossible to imagine how RBS and Barclays alone could manipulate rates (remember the top four and bottom four reported rates are tossed and the rate is pegged from the middle eight reporting). So, Barclays could fudge numbers but alone would have little to no effect on this. It almost certainly requires the collusion of many more banks. I’ve been wondering about that “toss out the top four and the bottom four” method. Clearly no single bank, acting alone, could set the rates to whatever value they chose; but it seems that one bank could influence them up or down, however slightly, as they wanted. Imagine a situation with all banks fairly reporting their rates. Some days, Barclays’ number will be in the top four, and be disregarded in setting the rate. Some days they’ll be in the bottom four, and some days in the middle. Contrast that with the case of them trying to manipulate rates. Suppose they want the rate to be higher than it fairly would, and they report a slightly higher number. Now they’ll always be in the top four. Some days, that will make no difference. Some days, they’ll displace another bank’s number out of the top four and into the middle eight, where it can only make the final LIBOR number higher than it otherwise would have been. It would be a minor effect, to be sure, but with the sums involved even a hundreth of a percent would be significant. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [July 9, 2012, 1:38am UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/38 "2012-07-09T01:38:36Z")
> [@Robot\_Arm](#): > > I’ve been wondering about that “toss out the top four and the bottom four” method. Clearly no single bank, acting alone, could set the rates to whatever value they chose; but it seems that one bank could influence them up or down, however slightly, as they wanted. > > Imagine a situation with all banks fairly reporting their rates. Some days, Barclays’ number will be in the top four, and be disregarded in setting the rate. Some days they’ll be in the bottom four, and some days in the middle. Contrast that with the case of them trying to manipulate rates. Suppose they want the rate to be higher than it fairly would, and they report a slightly higher number. Now they’ll always be in the top four. Some days, that will make no difference. Some days, they’ll displace another bank’s number out of the top four and into the middle eight, where it can only make the final LIBOR number higher than it otherwise would have been. > > It would be a minor effect, to be sure, but with the sums involved even a hundreth of a percent would be significant. Originally the fudging seemed to move the price only a few basis points. Then it got worse: > [@](#): > > Almost all the banks in the LIBOR panels were submitting rates that may have been 30-40 basis points too low on average. > > SOURCE: [http://www.economist.com/node/21558281](http://www.economist.com/node/21558281) Hence the point that this is a global banking issue and not just one or two banks in the UK. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 9, 2012, 1:44am UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/39 "2012-07-09T01:44:56Z")
> [@LonghornDave](#): > > Also, when talking about total dollar amount of financial products ($800 trillion), realize that these all net to a much smaller number. Yes, but the derivatives have values tied to interest rate(s) so the effect of a rate change does get multiplied (albeit not multiplied by any simple linear factor). ---
**Author:** ![adaher](https://avatars.discourse-cdn.com/v4/letter/a/dec6dc/32.png) [@adaher](https://boards.straightdope.com/u/adaher)\ **Post date:** [July 9, 2012, 9:59pm UTC](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270/40 "2012-07-09T21:59:23Z")
Um, wasn’t Dodd-Frank reform? What kind of reforms are you looking for that weren’t already part of Dodd-Frank? [Previous page](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270.md?page=1) [Next page](https://boards.straightdope.com/t/will-the-libor-banking-scandal-manage-to-finally-force-banking-reform-in-the-us/627270.md?page=3)