Monday, July 9, 2012

More on the LIBOR "Scandal"

Grant Williams (via Zero Hedge) explains why it would be impossible for Barclay's to rig the LIBOR rate on its own.

Attempts to manipulate free markets invariably end badly - after all, they are, supposedly, by their very nature, free.
...
Over the past few weeks, the exposure of the Libor-rigging scandal has monopolized the headlines of the financial press and inveigled its way onto the front pages of every major news publication in the world through the sheer size and scale of the story.
Something as big as this just CAN’T be hidden from the public.
Only... it can.
It has been. It no doubt still is to a certain extent. I’m not going to go through all of the events of the past few weeks as you are no doubt familiar with them, but [simply understanding how LIBOR works makes for a simple conclusion].
I’m afraid it’s rather obvious. Given that almost half the reported inputs that help establish the Libor rate are discarded immediately, Barclays simply CANNOT have manipulated the Libor rate alone. Period.
What’s more, to effectively ensure the rate is set at the price required, you’d need to not only establish the highest and lowest 25% of prices, but then ensure the remaining 50% average out to the required rate and, based on the fact that there are 16 banks that submit rates, that would mean about 13 of the 16 involved would need to be complicit.
Williams then goes on to indicate he believes that 13 banks were actually involved in this great manipulation. It's possible the bankster did get together for such a game, but highly unlikely in my book. That said, I must continue to emphasize that  no great distortions in global market interest rates could have occurred without further distortions in the supply and demand for loans. The system would have been insanely backed up on either the supply or demand side. Further, all this focus on LIBOR causes most to take the eye of the real manipulators, the central banks. As Daily Bell puts it:
 The article we have listed last is of special import because the subject was a poll that asked people whether bankers should be prosecuted for "crimes" and came out just as the LIBOR "scandal" was breaking.
Now, some may find this to be a beneficial coincidence but we will say with considerable certitude: This Is All a Big Scam. 
We're seeing the formulation of a full-blown dominant social theme before our aching eyes. It doesn't make any sense otherwise. It's all just promotional propaganda.
The idea is that top British banks conspired together to "rig" the price of LIBOR. But the entire financial industry is rigged from beginning to end, starting with the price and volume of money.
Central banking is the predominant theme of the monetary world – of the global economy, actually. All around the world, small groups of men under the supervision of the BIS meet regularly to determine (or "fix") the price and volume of money. 
Yet we are to believe that the paltry price shaving performed by LIBOR banks is an expression of ultimate criminality while central bank price-fixing on a day-to-day and sometimes hour-to-hour basis is beneficial?

(ht John Frahm)

6 comments:

  1. Since you mentioned the Daily Bell, their interview with Ebeling was fascinating.

    "We should focus on what we all agree upon: the freedom and dignity of the individual human being; and the attempt whenever and wherever on our part to reduce, repeal and abolish all forms of regulation, control, restriction, prohibition on the peaceful and honest affairs of our fellow men.

    If the day ever comes that the government had been shrunk to the limited functions of the "night-watchman state," then there will be plenty of time for libertarians to debate about the privatization of that night watchman."

    http://thedailybell.com/4064/Anthony-Wile-

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    1. Thank you so much for linkning that write up, it was fantastic!

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  2. Why is LIEBORGate a big deal? Answer, it is getting the sort of media attention the scandalous Central Bank rate setting manipulation fraud has never gotten.

    In the process, there may be overlap that begins to focus in on unnatural ZIRP(Zero Interest Rate Policy) and of late NIRP(Negative Interest Rate Policy), the real scandal.

    Could LIEBORGate be the crack into heretofore invincible Central Bank armor?

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  3. This chart is complete bullshit. The overnight lending market during this time period given was completely illiquid. The Fed became the lender of only resort during this time period. LIBOR rates were irrelevant.

    This is not the period in question. 2006 and 2007 are. That would be during the height of the credit bubble. Credit bubbles are supply and demand distortions. So... If you were capable of manipulating an interest rate, then a supply and demand distortion for loans would occur. As did occur.

    Looks like a simple "if...then" statement to me.

    I don't understand why it's so difficult to grasp that a banking cartel with a self-reported interest rate can't manipulate its own rate, yet a banking cartel that manipulates the money supply can.

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    1. A lot of assertions and nothing to back them.

      "So... If you were capable of manipulating an interest rate, then a supply and demand distortion for loans would occur. As did occur. "

      Yes, under the central banks' ample encouragement.

      "I don't understand why it's so difficult to grasp that a banking cartel with a self-reported interest rate can't manipulate its own rate, yet a banking cartel that manipulates the money supply can."

      Because the two are completely different systems?

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    2. Because printing money actually affects the market supply and demand for loans. The Fed can keep a distortion in the market from being seen for a long period by continuously increasing the supply of money at a faster and faster rate. LIBOR is only something that is taken into account in determining what interest rates are charged by banks. If they made a huge change to it, it would be noticed immediately and/or discarded.

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