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June 30, 2012 11:49 AM The LIBOR Story

By Ryan Cooper

Former HQ of Lehman Brothers, now owned
by Barclays, via

We should probably start with a bit of background. LIBOR stands for London Interbank Offered Rate; it’s how much banks charge when lending to other banks. London is a massive financial center, and the LIBOR rate was widely adopted by a variety of actors largely for reasons of convenience. As it turns out, though, big British banks (and probably others) have been illegally manipulating this rate—Barclays is going to pay at least $450 million to settle charges from several countries.

FT has been doing some great reporting on the underdiscussed LIBOR scandal in the UK and elsewhere; check out their investigation page and this Gillian Tett column.

But Matt Taibbi has for my money the best nickel summary:

This is unbelievable, shocking stuff. A sizable chunk of the world’s adjustable-rate investment vehicles are pegged to Libor, and here we have evidence that banks were tweaking the rate downward to massage their own derivatives positions. The consequences for this boggle the mind. For instance, almost every city and town in America has investment holdings tied to Libor. If banks were artificially lowering the rates to beef up their trading profiles, that means communities all over the world were cheated out of ungodly amounts of money.

(To get specific, according to Tett, we’re talking about $350 trillion in derivatives contracts and 90 percent of US commercial and mortgage loans linked to this sucker.) The next up looks to be the Royal Bank of Scotland. As Taibbi says, this is just straight-up fraud of the kind usually associated with the Mafia, and it’s one more exhibit in the case that the financial industry has evolved into an enormous tick buried in the jugular of the economy. Let’s hope someone famous goes to jail over this one.

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Ryan Cooper is a National Correspondent at The Week, and a former web editor of the Washington Monthly. Find him on Twitter: @ryanlcooper

Comments

  • John Sully on June 30, 2012 12:43 PM:

    Didn't Taibbi describe it thusly:

    "A Vampire Squid wrapped around the throat of humanity"?

    I thought that was an apropos description of Goldman, but it goes for the rest of the financial sector, too.

  • Hedda Peraz on June 30, 2012 12:49 PM:

    Why borrow from the imitation, when you can deal with the real thing? I speak, of course, of my friendly banker of last resort, Tony Soprano.

  • c u n d gulag on June 30, 2012 12:55 PM:

    Jail, my @$$!

    If there was a God, he/she/it would SMITE THEM!

    But there is no God.

    Still, I's like some people to go all "Old Testament" on these greedy @$$holes!!!

    Or, 'French Revolution' them.

    A few heads on pikes, with their intestines tied into Double-Windsor knots, might discourage such future behavior.
    For awhile.

    As a rule, I've been against the death penalty my whole life - but I'm going to make an exception for greedy financial @$$holes in this, and other cases - AND, maybe, a few of their family members.

  • Russell Sadler on June 30, 2012 1:07 PM:

    Great reporting, Ryan Cooper. Keep stuff like this coming and eventually someone famous will go to jail.

  • DAY on June 30, 2012 1:27 PM:

    @Russell Sadler- you have SUCH a sense of humor! Marvelous.

    Has anyone else noticed the sidebar ad for Boeing? We can even download an app!
    I guess it ain't just geezers like me and unemployed folks like gulag that haunt this site.
    Sorry, Boeing, I make my own airplanes- out of 90 pound bond, and fly them in the back yard.

  • ClearEye on June 30, 2012 2:35 PM:

    The more things change, the more things stay...

    Great review of new book on the man who ruined U.S. Grant: http://www.nytimes.com/2012/07/01/books/review/a-disposition-to-be-rich-by-geoffrey-c-ward.html?ref=books

    ''Ward knew that finance is a universe of the imagination, floating above the real economy of services and stuff. Prices bounce with each emotion. Any fear can be boxed as a derivative. The entrepreneur and swindler both create dreams of what might be, then convert them into stocks and bonds — optimism in its marketable form. “How much confidence you give me, so much hope do I give you,” Melville’s confidence man declares. Any founder of a start-up could say the same.''

  • Mitt's Magic Underpants on June 30, 2012 6:10 PM:

    Doesn't this just prove The Market WORKS!

  • SadOldVet on July 01, 2012 9:17 AM:

    That the world's financial institutions are corrupt. I tell you I am shocked, I am absolutely shocked.

    Actually, if The Obomination's administration prosecuted anyone for this would be the real shocker.