The $800 Trillion Scandal: How Banks' LIBOR Lies Affected You

By Christopher Barker, The Motley Fool

Posted 10:06AM 07/09/12 Posted under: Banking, Crime

 

Banking scandals have grown so common that perhaps folks have simply run out of outrage. Or maybe the numbers are just too huge to wrap our mortal heads around.

Whatever it is that's behind the relatively light news coverage and lack of public debate on this incredible LIBOR rate-rigging scandal thus far, the story is not going away. In fact, it's bound to grow substantially in scope, as many of the world's largest banks have already been implicated in manipulating interest rates that are tied to some $800 trillion in loans and securities.

LIBOR -- the London Interbank Offered Rate -- is supposed to reflect the average interest rate at which banks are willing to loan funds to each other. Banks submit their daily estimates of borrowing costs for various loan durations in 10 different currencies, and after tossing out the top 25% and bottom 25% of those estimates, the LIBOR rates are calculated as an average of the remaining 50% of submissions. A separate benchmark called EURIBOR tracks borrowing costs among eurozone banks.

As revelations of widespread misconduct by multiple rate-reporting banks begin to emerge, worldwide confidence in these self-reported rates has been seriously eroded, and the banking establishment as a whole has taken another major leap downward into an abyss of well-deserved public distrust.

Barclays is Just the Tip of the Iceberg  READ MORE  

This global financial fraud and its gatekeepers

Protesters outside a Bank of America annual
shareholders' meeting in Charlotte, North Carolina.
Photograph: Jason Miczek/Reuters

The media's 'bad apple' thesis no longer works. We're seeing systemic corruption in banking – and systemic collusion
 Naomi Wolf  guardian.co.uk, Saturday 14 July 2012 10.47 EDT

Last fall, I argued that the violent reaction to Occupy and other protests around the world had to do with the 1%ers' fear of the rank and file exposing massive fraud if they ever managed get their hands on the books. At that time, I had no evidence of this motivation beyond the fact that financial system reform and increased transparency were at the top of many protesters' list of demands.
But this week presents a sick-making trove of new data that abundantly fills in this hypothesis and confirms this picture. The notion that the entire global financial system is riddled with systemic fraud – and that key players in the gatekeeper roles, both in finance and in government, including regulatory bodies, know it and choose to quietly sustain this reality – is one that would have only recently seemed like the frenzied hypothesis of tinhat-wearers, but this week's headlines make such a conclusion, sadly, inevitable.

The New York Times business section on 12 July shows multiple exposes of systemic fraud throughout banks: banks colluding with other banks in manipulation of interest rates, regulators aware of systemic fraud, and key government officials (at least one banker who became the most key government official) aware of it and colluding as well. Fraud in banks has been understood conventionally and, I would say, messaged as a glitch. As in London Mayor Boris Johnson's full-throated defense of Barclay's leadership last week, bank fraud is portrayed as a case, when it surfaces, of a few "bad apples" gone astray.   READ MORE