Tuesday, July 10, 2012

Now the Council on Foreign Relations Writes Up the LIBOR "Scandal"

 The Council on Foreign Relations writes :
More Evidence That LIBOR Is Manipulated, and What It Means 
Barclays’ admission that it deliberately understated the interest rates at which it could borrow between September 2007 and May 2009 suggests grievous flaws in the widespread process of using LIBOR (the London Inter-Bank Offered Rate) as a benchmark off which to price commercial loans, mortgages, and other forms of lending. Our figure below illustrates this by comparing LIBOR with so-called NYFR (ICAP’s New York Funding Rate), the operative difference between the two being that NYFR is based on anonymous reports from major banks. Normally LIBOR and NYFR are closely aligned, yet a huge gap opened up between the two rates in September 2008, at the time of the Lehman Brothers and AIG crises. During that month in particular, a bank revealing publicly that it could only borrow at elevated rates naturally put itself at risk of suffering a bank run or lending halt. It should not be at all surprising, therefore, that banks would be less honest about their rate reports when their names were attached to them.
Three things need to be pointed out about this period:

1. It was during the height of the financial markets crisis, so no one was making any loans anyway. Barclays was posturing, by reporting rates it wasn't able to actually get.

2. If it resulted in any actual influence on LIBOR at all, it meant LOWER rates than otherwise would have existed for every borrower in the world, who had a rate that was benchmarked to LIBOR.  Got that? It lowered the income that was coming into banks.

3. It apparently didn't fool the markets, since Barclay's was during this entire event, as the facts make clear, being charged more than what it was bluffing that it was paying.

The focus on this by the establishment is truly bizarre.  The "scandal" is nothing more than a bankster version of "painting the tape", which has been around since, well, the advent of prices being sent across by tape.(read Jesse Livermore)

Rupert Murdoch may be correct in his suspicions that this "scandal" was designed to take down Barclays, but there appears more to the game. There is much too much focus here from those who take marching orders from the elite. Something big in banking is about to be restructured.

UPDATE from the CFR:

Hello Mr. Wenzel –

I am writing in regard to your post today titled, “Now the Council on Foreign Relations Writes Up the LIBOR ‘Scandal’” at http://www.economicpolicyjournal.com/2012/07/now-council-on-foreign-relations-writes.html.

In your first sentence, you credit post authorship to Maurice Greenberg. Though Geo-Graphics is a publication of the Maurice Greenberg Center for Geoeconomics, Mr. Greenberg did not in fact write the post. It was produced instead as a collaborative effort by the Geo-Graphics team, the members of which are listed in the masthead box on the right-hand side of our post.


Jon Hill
Research Associate, International Economics
Council on Foreign Relations


  1. This whole LIBOR thing looks like a delayed reaction to all of the End the Fed talk here in the US and the general decline in confidence in central banks worldwide. Kind of a PR blitz to make the central bankers look like they are being responsible instead of actively destroying their economies.

  2. Wow, CFR flunkies are reading your site...I don't whether to be happy for you or afraid for you.

    1. Why would the CFR bother to contact you? It can't be good.

  3. "Got that? It lowered the income that was coming into banks."

    Net interest margin would be the correct metric to use. Moreover, if the duration of assets is greater than that of liabilities, the bank profits from a suppressed LIBOR.

    1. "if the duration of assets is greater than that of liabilities"

      That assumes an inflationary environment, or more specifically increasing price levels in the assets mentioned...and of course in a crack up boom all bets are off.

      So the choices for LIBOR based home loans for example, might be interest rates lower than what the market would generate organically and compounded into further losses via asset deflation.

      The attempt to sustain asset prices now eats into the already thin net interest margin via decreased value of said margin, but MAYBE asset prices are sustained(not always) depending on the size of the asset bubble.

      In the case of homes maybe you get more and more smart people walking away from their LIBOR based home loans because they know the asset value on the books is way over the reality.

      Now you have losses and inflation against lower net interest margin...possibly sending you into negative cash flow with no way out. Even inflation as a monetary tool isn't helping you because it's increasing your operating costs....

      Then one of two things happen...you stop inflating and hope your asset prices don't collapse(nor your net interest margin via walk aways)...or you inflate hoping that the economy will fix itself...until the Mises crack up boom destroys what's left of that hope.

      What's your point in mentioning net interest margin? Regardless of the metric lower interest rates lower income generated.

  4. I'll give up arguing the LIBOR thing. In the end, it's bank on bank crime.

    That and the litany of actors on the left "analyzing" this is getting disturbing. Taibbi is a quack. But the CFR may actually be read by someone semi-literate.

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