Was Libor rigged in 2007/2008?

Thrugelmir

wouldbeqaulitymoneysaver wrote: »

You should watch the Keiser Report.

I have often. But the quality of the reporting too often is skewed for what purpose I'm unsure.

gagahouse

Thrugelmir wrote: »

How would they what other banks would lend to them at? With a crystal ball.

Your understanding is flawed.

"The Libor is the average interest rate that leading banks in London charge when lending to other banks."

A cash depo dealer at bank A will ask others at banks B,C,D etc where their offer is in overnight , 1 day, 1 week, 1 month out to 3 month. Depending on who is asking and who is quoting they will get firm offers which they can 'lift' - that's how they know.

Now what they report and what the offers actually came back to them were do not necessarily have to be always the same if they choose to report it like that.

sabretoothtigger

Thrugelmir wrote: »

I have often. But the quality of the reporting too often is skewed for what purpose I'm unsure.

RT is funded by Putin. Still more interesting then Reuters echoing the consensus

vivatifosi

Have found a couple of new articles this morning.

Bloomberg, which has come in overnight:
Tainted libor rate guessing games facing replacement by verified trades
http://www.bloomberg.com/news/2012-03-13/tainted-libor-rate-guessing-games-facing-replacement-by-verified-trades.html

CNN, dated 11 March but which outlines the importance of Libor in US:
http://money.cnn.com/2012/03/11/markets/bondcenter/interest-rate-manipulation/?iid=HP_LN&hpt=hp_t2

purch

HAMISH_MCTAVISH wrote: »

LIBOR will always relate to market inter bank lending rates, as it is an average of the rates banks will lend to each other on the day.

No it is not.

The question that each individual trader is expected/required to answer when asked for their LIBOR settings is....

“At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?”

The rates are input into a Reuters terminal, by a named individual at each Bank.

The main problems with this method is that there is no proper definition of what a "reasonable market size" means, and could easily vary hugely between different market participants, and also it leaves the trader being asked the Q to decide based on his/her opinion how the rest of the market perceives his/her Banks credit standing, and ability to borrow.

Back in ye olden days when the BBA used to ring around the Banks on the panel to find out the LIBOR's the question was slightly different, and just asked "what the is rate one prime name could borrow from another prime name".

Note, in neither scenario is anyone asked for the rate that they would lend funds.

The methods for setting LIBOR are seriously flawed in any period of market dislocation (which 2007-now certainly is) as if there is little inter-bank liquidity, and any Banks ability to borrow a decent sized amount is severely limited, then the actual definition of LIBOR is wrong.

Also, LIBOR is not a statutory rate, and the decision to use it as the main basis for settlement of Financial Instruments is down to the exchanges that use it, not the BBA.

And of course it is, and always has been "manipulated".

What do you expect ?

Banking has never been an honourable profession :eek:

purch

Thrugelmir wrote: »

How would they what other banks would lend to them at? With a crystal ball.

Your understanding is flawed.

"The Libor is the average interest rate that leading banks in London charge when lending to other banks."

I am sorry Thrug, but it is your understanding that is flawed.

I suggest you read up on the subject.

P.S. I set DEM LIBOR's for a few years in the early 90's, and even though my memory is often flawed, I'm sure it isn't on this subject.

purch

wouldbeqaulitymoneysaver wrote: »

You should watch the Keiser Report.

No thanks.

I can form my own opinions, without needing to listen to the vested interests of someone with an often limited understanding of the matters he chooses to rant about.

Generali

Re ease of manipulation, I'm sure that the posters here all know how LIBORs are calculated: Reuters discard the highest and lowest answer's to purch's questions and take a simple average of the remaining answers.

LIBOR is measured for various currencies as London is a major banking centre for cash transactions so lots of bank funding is done through London, not just for GB Pounds. In fact LIBOR is calculated for the following currencies according to the BBA website:

Aussie, Canadian, US and Kiwi Dollars, Euro, Yen, Danish Krone and good old Pounds Sterling.

Let's take a couple of examples, the Pound and the arriviste Aussie Dollar. LIBORs for the Pound are made from a panel of 16 banks of which the top and bottom 4 answers are discarded with the average being made up of the remaining 8 answers in the middle.

For the Aussie however, there are only 7 contributors to the panel so only the single top and bottom answers are discarded with the average of the 5 remaining being used.

To manipulate LIBOR by a small amount, all you need do is get a group that all answer above or below the normal range so are struck. The easiest thing will be to use an example.

Let's say answers for Aussie overnight rates come in as follows:

4.1, 4.2, 4.3, 4.3, 4.5, 4.6 & 4.7.

Overnight AUD LIBOR would be (4.2+4.3+4.3+4.5+4.6)/5 = 4.38%.

Now let's imagine that a greedy trader at Strewth Will Ya Look at My Bonus Mate Bank (SWYLAMBM Bank) decides he can make some more bonus to spend at lap dancing clubs and to pay for the Zionist Lizard Conspiracy if LIBOR is a bit lower. Whereas he should be reporting 4.6% he instead reports 4.0%.

Now his 4.0% will be the low answer getting discarded and 4.1% will replace his 4.6% in the average. LIBOR is now 4.28% rather than 4.38%.

Now if he can get a couple of mates to state 4.0% then the answer will be pushed down further but it doesn't follow that there has to be a conspiracy.

LIBOR may not be regulated but, AIUI, fraud is defined as 'gaining pecuniary advantage by deception'. If you lie and gain in a trade or via a lower/higher rate of funding for your bank then that is fraud. Of course proving it is the tough bit....

Generali

PS Of course the above is a joke. No trader would use his bonus at a lap dancing club as that's what the corporate AMEX is for.