Barclays’ Ex-Chief Spreads the Blame in Rate-Rigging Scandal

A lot of them look like they are engaged in it. Not just LIBOR---TIBOR (Japan equivalent) and other global reference rates as well.

 

I've been waiting for someone to come up with one of these:

 

Can I just ask what might be a relevant point?

Ok, so a lot of banks submitted estimates of interest rates that are lower than what they should be, and hence the profitability of certain items (like pension funds) within the bank's liabilities will go down.

But surely if LIBOR has been underestimated, then for some people (people who take out mortgages for example) this scandal actually benefits them, because they now pay lower interest rates. Doesn't it?

 

Yes but that pales in comparison to the overall manipulation of the global market.

Also, I believe they also fixed it upwards when it benefitted them.

Ultimately, the point is that for clients some days it was beneficial and some days not, but for the perpetrators it was always good, every day all day.

 

Is anyone else surprised at the lack of criticism of BBA for having such a silly, idiotic, manipulable system for calculating LIBOR?

 

I don't disagree with your criticism of BBA, or the mechanism for calculating it, but I want to know why apparently everyone relied on it, knowing how it was calculated?

 

It's how the system works. Similar thing for TIBOR (TOKYO Interbank Offering Rate) and other reference rates.

People like to believe in integrity. The system is built on it. From issuer pays on credit ratings to BBA submissions, there is a lot of room for human corruption. Bankers have preyed on the trust built into the system for them.

A much better way to do these things, imo, is to measure individual default/credit risk through measuring the number of basis points on default swaps, then extrapolating the interest rate, or (in any case) finding a market aggregate to measure risk for the banks, and assume an interest rate, but I wouldn't be surprised if bankers found some way around that too.

 

I think in a way, it's a moot point to talk about who benefits and who gets hurt over LIBOR being rigged higher or lower, because with interest rates, either way will definitely benefit some part of the economy. The point is that what used to be thought as a 'competitive' interest rate (so the idea of fairness comes into play) is now revealed to be false, so almost as if if somehow, NYSE Euronext (the company which operates the NYSE) could manipulate the stock exchange.