But here’s the rub: practically nobody borrows at LIBOR. Entities borrow from and give to one another at LIBOR plus a spread, which are negotiated between your ongoing celebrations at the commencement of the contract. It’s the spread, which reflects the negotiated price for credit risk undertaken by the lender.
Spreads are the true market price of credit. LIBOR is only a true number pulled from a page on a Reuters or Telerate terminal. Let me suggest a remedy to you: of course they did. Actually, I believe the only participants who obviously benefited from the systematic manipulation of LIBOR were those who got entered into contracts priced before that manipulation began. So, regardless of the huge numbers involved and its own pervasiveness throughout the global financial infrastructure, it is far from clear if you ask me that banks’s systematic manipulation of LIBOR led to vast wealth transfers from one set of market participants to some other.
No, the true harm this practice triggered be now what we should be witnessing. The current scandal is the last nail in the coffin of whatever trustworthiness banks may experience left after five many years of crapping the bed. Sure, nobody (or hardly any people) could have been ripped off by this behavior.
Sure, systematic lying by banking institutions about their creditworthiness through the financial meltdown may have lulled the public into not panicking and triggering a wholesale, global financial collapse. It could have even helped in more systemic ways. But I believe … Read more