Tuesday, December 3, 2013


Sorry about yesterday, real life interfered with what was going on financially in the world and I had to attend a funeral.  Lot more of that going on these days; I really don't like it when the starring member of the cast is younger than me.  It's not a role I relish.

Anyway, there emerged yesterday in rumor that somewhere around 10 banks were going to be fined by the European commission that deals with such things--there's a new commission for something every day Over There--for colluding to fix LIBOR.  Today, the rumor seemed to be confirmed with figures in the area of hundred of millions of dollars being thrown about.  Now, just to review the bidding for a minute, LIBOR is the London Interbank Offered Rate, often defined in loan documents as the rate,"...at which First Class Banks in the London market will lend dollars to one another…"  blah, blah.  In the early days, the definitive rate was to be found in the Wall Street Journal the next day.  Lately, it was reported to some mob in London (another commission). Eighteen banks were designated rate setters although not everyone reported every day.  With a few changes and addition of about a dozen reporting banks LIBOR has rolled along for about 40 or so years.  But the one thing that has not changed was the knowledge that it was merely a reference rate designed to assist in the determination of a lending rate for what has become a myriad of financial instruments.  But it was never "real" in the sense of the price of gold at Johnson Mathey was "real" a couple of times a day or in the sense that Sterling is "real" @1.63005 at 4:00pm every day in London.  It was a made up average of quotes delivered by financial institutions who may not have borrowed in the defined sense for a week…if they chose to quote.

So, with that in mind I would think that the question to be asked is Cui Bono from the collusion and did any benefit that occurred come about on high quotes, low quotes or both ways around?  And then again, who lost?

I have no doubt that individual traders may have benefited from achieving a rate on a particular day beneficial to an individual mark of individual positions.  But I find it impossible to imagine how an institution could construct a program to affect the amount of payment received on debt instruments so precise as to work in the institution's favor in a changing marketplace on a daily basis.  So who lost?  Well, I suspect it was the institutions themselves who were paying  individuals on the basis of their supposed profit which could have been rigged.  Then I ask, on what basis does a government or a "commission" representing groups of governments extort monies from institutions that are in fact victims themselves and ultimately from the shareholders?   Because the institutions were stupid managers?  If someone could explain that to me I would love to know.  Oh yeah,  please explain at the same time who gets the money.

Detroit was declared officially bankrupt today.  A 35 year tragedy involving probably 1,000,000 people played out in a simple court room before one person.  And we worry about LIBOR?

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