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INFOGRAPHIC: The LIBOR Scandal Explained

by MoneyMagnetMagnate
4 replies
  • OFF TOPIC
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The LIBOR scandal is being called the "Wall Street scandal of all scandals" and the "rotten heart of finance," but the massive fraud can be hard to fathom for anyone who doesn't follow the markets.

The London Interbank Offered Rate (LIBOR) is a benchmark interest rate used broadly all over the world and affects trillions of dollars of loans – mortgage loans, small-business loans, personal loans – worldwide.

This nifty infographic from AccountingDegree.net gives non-finance folk an idea of the scope of the scandal (h/t r/Politics):

INFOGRAPHIC: The LIBOR Scandal Explained - Business Insider


The LIBOR Scandal Explained In Under 90 Seconds
http://www.businessinsider.com/libor...s-video-2012-7
  • Profile picture of the author seasoned
    Yeah, LIBOR is the British equivalent of our fed funds rate BUT, as you said, it is often used as an index to OTHER rates. In a way, IT is a scam. But things like that are the way the head bank doles out money to other banks, and sets the base rate for consumers in a fiat currency market.

    Steve
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  • Profile picture of the author TLTheLiberator
    Daily Kos: The Economist via Yves Smith: U.S. Cities May Seek $40 Bln Damages Due to Banks
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    "It's easier to fool people than to convince them that they have been fooled. -- Mark Twain

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  • Profile picture of the author garyv
    The LIBOR rate is set by the BBA. And they set it based on an average of rates sent to them by leading banks all around the world.

    What happened here is that Barclays had their employees fudge the numbers they gave in order to manipulate the average rate. Thus manipulating the LIBOR rate.

    Here's a better explanation of it... Behind the Libor Scandal - Graphic - NYTimes.com

    But in my opinion, the 2 billion dollar trading loss by JPMorgan is much more blatant and offensive than this.
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    • Profile picture of the author seasoned
      Originally Posted by garyv View Post

      The LIBOR rate is set by the BBA. And they set it based on an average of rates sent to them by leading banks all around the world.
      The FED EXCHANGE rate really works the SAME way! THAT is why that illustration shows those rates going between all the banks. The problem is that, for example, if the US raises their rate, the dollar gains value to a degree and various investments go up. That means the pound loses value accordingly and may decide to raise THEIR rate! Some US investments are indexed to libor and, if the fed is too low in relation, there may be problems, etc....

      But in my opinion, the 2 billion dollar trading loss by JPMorgan is much more blatant and offensive than this.
      Well, the interest rate adds up to more than 2B! Frankly, I think BOTH are bad.

      Banks are supposed to invest in SAFE investments! In fact, that is one reason given for the low rates on money markets and banks. Money markets, like banks, are supposed to invest in SAFE securities!

      Steve
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