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 bankers must now get accustomed to staying in the doghouse for a long time. It might be time to choose curtains even.
- 2 As well as perhaps an indictment of how ineffective or inattentive its regulators were, too
- EPR Properties (EPR) – income of $56.25
- Inflation rate = 2%
- Testimonial style,
- 10% agent collection fees
- Tough competition
- 14 months ago from England
- Are you flashpacking throughout the world, clutching a dog-eared, well-worn passport
Donald MacKenzie, What’s in a Number? 1 Think about a straightforward example: Bank A borrows a million dollars in the interbank market on the floating-rate basis at 3-month US dollar LIBOR. It then turns around and lends you a million money adjustable rate mortgage indexed to 3-month LIBOR plus a spread. Assuming no timing differences in the reset computation of LIBOR on either “leg” of the transaction, the Bank or investment company A’s online exposure to LIBOR in this example is strictly zero. LIBOR could be 10% or maybe it’s 2%; it wouldn’t influence Bank A at all.
Now amount this up over hundreds of thousands of mortgages, tens of thousands of commercial loans, and tens if not thousands of interest rate swaps and other derivative transactions. Good luck figuring that out. 2 And an indictment of how ineffective or inattentive its regulators were perhaps, too?
Two-year government yields rose six up to 0.72% (down 33bps y-t-d). Greek 10-season yields jumped 14 is to 8.12% (up 80bps y-t-d). Japan’s Nikkei equities index fell 1.9% (down 14.6% y-t-d). Japanese 10-year “JGB” yields surged 10 bps to negative 0.10% (down 36bps y-t-d). The German DAX equities index increased 0.3% (down 3.5%). Spain’s IBEX 35 equities index dropped 0.6% (down 10.5%). Italy’s FTSE MIB index fell 1.3% (down 22.4%). EM equities were mixed. 2.464 billion (from Lipper). Freddie Mac 30-year fixed mortgage rates dropped five up to a near-record low 3.43% (down 48bps y-o-y).