Anthony Migchels – via henrymakow.com July 6, 2012
The LIBOR scandal, called LieMore by a witty commentator, involving the manipulation of LIBOR rates by Barclays Bank is only beginning to have an impact, but already some have dubbed it the biggest scandal in the history of finance. So is it?
LIBOR (London InterBank Offered Rate) is the index of interest rates banks charge each other. It used to be one of those highly relevant, but completely unknowns, until it became a concept of household fame in the fall of 2008.
At the height of the Credit Crunch, a peak in LIBOR showed banks were unwilling to lend to each other, forcing first the financial and then also the real economy to grind to a halt.
LIBOR is set every day by the world’s biggest banks. They call in to report the rates at which they borrow from each other. The highest and lowest 25% of rates are discarded and the rest are used to calculate the average.
This number is then used as a benchmark for interest rates all over the world. For instance, almost 60 percent of prime adjustable rate mortgages, and nearly 100 percent of sub-prime ones, were indexed to LIBOR in 2008. One estimate has it that $350 trillion worth of loans and derivatives are indexed to LIBOR.
So when a couple of bankers decide to manipulate this rate, it has immediate and profound consequences worldwide. Even with 1 basis point, (one tenth of one percent) tens of billions of dollars are lost and gained, depending on whether you are the lender or borrower.
As a result, the banks involved face class action suits and clearly the sums involved will quickly overwhelm the banks.
Whether this will happen remains to be seen. BP destroyed the Gulf, but just coughed up 20 billion and never looked back. It is well known that banks are really, really very important to us. We couldn’t exist without them, that’s why we have to cough up trillions upon trillions to bail them out.
The scandal breaks
Anthony Migchels is an Interest-Free Currency activist and founder of the Gelre, the first Regional Currency in the Netherlands. You can read all of his articles on his blog Real Currencies