Home About Archives RSS Feed

The Independent Investor: What's Libor To You?

By Bill Schmick
You may want to pay attention to the unfolding scandal swirling around one of the world's oldest and most important financial benchmarks. It's called the London Interbank Offered Rate and its level can directly impact the interest rate you pay on an adjustable rate mortgage and other consumer loans.

The London Interbank Offered Rate (commonly known as Libor) is supposed to be the collective best guesses of 18 of the world's largest global banks. They determine the interest that borrowers should be charged on any given day for short-term loans. Libor is set daily in London by the British Bankers Association (BBA), which eliminates the highest and lowest rates supplied by the member banks and then calculates an average from the remainder.

Since Libor is a benchmark rate, other loans are calculated on the basis of that rate. Most of the multitrillion dollar derivatives markets, for example, are based on Libor as are various commercial mortgages, commercial loans and consumer loans, including adjustable rate mortgages.

Some time ago I made readers aware that there was an ongoing, global investigation into the setting of interest rates by regulators in the U.S., Europe and Asia. This global governmental task force has been examining the complex trades throughout the financial capitals of the world for more than a five-year period.

This week the U.K. Financial Services Authority, the U.S. Department of Justice and the U.S. Commodity Futures Trading Commission levied a $451 million fine on one of Britain's most prestigious banks for falsifying interbank rate submissions to the BBA. These alleged deliberate bogus submissions were intended to help the bank's derivative department traders make illegal profits over an extended period of time. Regulators stressed that this was only the first of several findings that will involve some of the biggest banks overseas and in our country as well.

Some may wonder if justice is truly served by fining one bank $451 million. Although it is a lot of money, is it anywhere close to the true cost of this alleged manipulation of trillions of dollars in loans benchmarked to this all important rate? It is my understanding that many of the same characters that were responsible for the global financial crisis are also involved in this scandal.

If so, how many times will these financial thugs escape justice by simply shelling out our money to avoid the consequences of their actions? Let's face it, in the end; these fines are being paid by taxpayer money. It is the world's governments, through the central banks, that have been pumping billions into these banks' coffers. These same banks have used the money to speculate in derivatives and other markets. Now we are told they were rigging the markets as well in order to make even more profits. So, do they really care that they are fined a billion or two of those profits if they get caught in a scandal like this?

Hell no! If these allegations prove true, and the authorities haul in more of the same perps that brought us the financial crisis and its on-going consequences, I, for one, expect criminal charges be brought against these banksters and their henchman. We should all demand nothing less.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.



0 Comments
     
News Headlines
PHS Looks to Add Four New AP Courses
Williams Provost Accepts President Position of Virginia College
Williamstown Library Receives $160,000 From Deceased Patron
Cultural Pittsfield This Week: Feb. 12-18
Red Cross Offers Tips for Keeping Safe in Frigid Weather
Williamstown School Budget Looks at Staff Reductions
Lanesborough Sets Special Town Meeting For Feb. 23
New Committee Digging Into Pittsfield Airport Financials
Adams Seventh- and Eighth-Graders Win Tourney
Williams Men's Hockey Tops Middlebury in OT

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (192)
Independent Investor (263)
Archives:
February 2016 (2)
February 2015 (5)
January 2016 (5)
December 2015 (6)
November 2015 (6)
October 2015 (9)
September 2015 (7)
August 2015 (7)
July 2015 (6)
June 2015 (8)
May 2015 (6)
April 2015 (8)
March 2015 (6)
Tags:
Oil Commodities Economy Housing Retirement Fed Greece Selloff Deficit Election Metals Rally Fiscal Cliff Debt Stimulus Euro Stocks Debt Ceiling Taxes Markets Congress Banks Energy Jobs Currency Stock Market Crisis Federal Reserve Europe Recession Europe Pullback Japan Bailout Interest Rates
Popular Entries:
The Independent Investor: Don't Fight the Fed
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: QE II Supports the Markets
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
Recent Entries:
@theMarket: Stocks at Bottom of Trading Range
The Independent Investor: Is a Recession Looming?
The Independent Investor: The High Price of Cash
@theMarket: Stocks Rebound
The Independent Investor: This Too Shall Pass
The Independent Investor: A Tale of Two Chinas
@theMarket: Nowhere Land
@theMarket: Santa Comes to Town
The Independent Investor: Christmas in the New Age
The Independent Investor: How Rising Interest Rates Will Change Your Life