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?”
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.
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.
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.
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.
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
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.
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.
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.
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.
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).