LIBOR Rate Fixing Scandal... (Page 3): Lavender Room: Slowtwitch Forums

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LIBOR Rate Fixing Scandal...

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trail

Jul 13, 12 14:12

Post #51 of 52 (292 views)

Re: LIBOR Rate Fixing Scandal... [theaud] [In reply to]	Quote \| Reply

>LIBOR based loans are floating rate loans - that means rates can go up or down regardless of the starting point and people should have been prepared for this. If rates were artificially low when they borrowed initially, then they had >the opportunity to enjoy the artificially low rates. But rates rising back to "normal" levels or rising because sometimes rates go up is always a possibility that someone borrowing a floating rate loan has to be prepared for.

I think you're missing the point. Fraud is fraud, regardless of the competence of the victim.

ziggie204

Jul 13, 12 14:20

Post #52 of 52 (286 views)

Re: LIBOR Rate Fixing Scandal... [theaud] [In reply to]	Quote \| Reply

Lots of misinformation in this thread, I'll try to clear up some of this stuff.

1. Why is LIBOR important? Commerical and private loans are all based off an underlying rate plus or minus a spread. If you by a house, the rate you receive is ultimately tied to a base rate. This rate can be LIBOR, US Treasury, Fed Funds, etc. LIBOR is a VERY common base rate used all around the world.

2. Why is this such a potential powder keg? The LIBOR market is huge. If Barclays was able to affect this market by even 1/10th of 1 percent, you're easily looking at $100 billion plus of damages to anyone negatively impacted at these artificial rates. The damages could easily be north of $500 billion. The class action suits could severely impact the banks earnings for over a decade.

3. What did Barclay's have to gain? The reports they are accussed of doctoring express the bank's cost of funds. The cost of funds are the life blood of a financial instiution are directly corelated to that bank's health. Can you think of a reason a bank would want to artifically represent financial health in 2008-2009? Further, if the traders have certain positions on the books, a tenth of a percent move in LIBOR could rack up huge profits.

4. Who was hurt? Let's say they did move the market, which is nearly impossible for one actor to do. Who gets screwed? Not the consumer. . . the consumer is the borrower and Barclays is accused of lowering rates, which helps them. The folks getting screwed are the lenders who made loans are artificially low rates and investors whose investments were related to changes in LIBOR and other interest rates.

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