According to the calendar of then New York Fed President, Timothy Geithner, who is now U.S. Treasury Secretary, it even held a "Fixing LIBOR" meeting between 2:30-3:00 pm on April 28, 2008. At least eight senior Fed staffers were invited.In other words this great "scandal" that Taibbi and crew are blowing up, would have benefited every single one of the borrowers in the $500 trillion market that Taibbi and crew tend to babble about. Banks were downplaying their costs of funds, which means they set rates lower than they otherwise would have. They were likely doing so to appear stronger relative to market activity, during the financial crisis. Note: This action would have resulted in nothing more than giving the appearance that LIBOR was more in line with the Fed Funds rate and the T-Bill rate, which, again, means the move benefited borrowers at the expense of the bankers themselves. Some collusion. This appears to have been done at the height of the crisis when no loans were being made anyway and can be seen as little more than posturing. It would be hard to understand how this posturing could have occurred when markets were actually functional, since it would mean rates would be set lower than at market levels, which would mean supply not equaling demand, with less supply of funds but greater demand for funds, thus distorting the global loan markets. In active markets, something like this would have resulted in banks around the world adjusting their premiums relative to the LIBOR benchmark or not using the LIBOR as a benchmark at all.
It is unclear precisely what was discussed at this meeting or who attended. Among those invited, along with Geithner, was William Dudley, who was then head of the Markets Group at the New York Fed and who succeeded Geithner as its president in January 2009. Also invited was James McAndrews, a Fed economist who published a report three months later that questioned whether Libor was manipulated.
"A problem of focusing on the Libor is that the banks in the Libor panel are suspected to under-report the borrowing costs during the period of recent credit crunch," said that report in July 2008 that examined whether a government liquidity facility was helping ease pressure in the interbank lending market.
In addition to the crisis period there is this report on an email:
In documents released with the Barclays settlement, the CFTC said Barclays traders on a New York derivatives desk asked another Barclays desk in London to manipulate Libor to benefit trading positions.In this situation, you have a New York trader asking the Barclays desk in London to keep its rate low. Think about this for a minute. The trader is asking for an immediate distortion in rates. Is the Barclays desk supposed to call up the other 15 banks to manipulate this for Barclays that day? What if some of the banks were on the opposite side of Barclays on this trade and wanted to see rates higher?
"For Monday we are very long 3m (three-month) cash here in NY and would like the setting to be set as low as possible," a New York trader emailed in 2006 to a person responsible for setting Barclays rates.
Its very possible the New York trader didn't understand how the LIBOR was set, or was simply hoping that London could bail him out. If he understood how the rate was set, he would understand how difficult it would be to manipulate the rate, especially on such short notice.
What's going on here? I think Rupert Murdoch had it right when he tweeted:
Libor " scandal" very suspicious. 2008/9 huge crisis and Brown should defend pressure to keep rates down and prevent meltdown.Now, the interventionists, led by Taibbi, are taking the scandal to a new level so that they can play their favorite game: calling for more regulation of the economy, specifically in this case the banking sector---while ignoring the true elephants in the room that can, and do, manipulate rates on a daily basis, the Fed and the Bank of England.
Don't know, but suspect Diamond scapegoat used by old establishment who did not like energetic competitor.