Oh dear

Mr Diamond is also facing calls to step down over his failure to spot the scandal, which may have caused banks to charge mortgage holders, credit card users and businesses too much for billions of pounds in loans.

I think not. An artificially low Libor would reduce the rate charged to borrowers. It would be lenders which are being paid too low an interest rate, not borrowers losing out by being charged too low a rate.

9 thoughts on “Oh dear”

  1. This seem to me to be the central question of the whole affair. It would be nice to know the answer.

  2. I made this point in comments before. I’d add that savers didn’t lose either: their deposits are tied to BoE rate, not LIBOR.

    On another point, LIBOR is an Offered Rate,so presumably only those banks with funds to lend to other banks participate in setting rates? So at the height of the crisis the market was pretty thin and easy to manipulate. Bit risky though – someone might actually ask you for that billion at phoney x%.

  3. blokeinfrance must get up earlier than I do; I was just going to make the same point. I’ve never seen a LIBOR-linked deposit account.

  4. @ blokeinfrance and Richard
    *Some* savers lost out because many stockbrokers put their clients’ temporarily uninvested cash on overnight or very short-term deposit in accounts linked to LIBOR. We are talking about tens of thousands, not tens of millions, losing out a small fraction of a percent, pre-tax, on about 5% of their invested assets so they’ll barely notice it.

  5. blokeinfrance: no, it’s called the Offered Rate because banks are asked where they think they could borrow if they accept without negotiation the cheapest available offer to lend.

  6. It could be argued that Barclays’ understatement of anticipated funding costs actually prevented serious losses. Had they gone ahead with LIBOR submissions that were very much more than those submitted by other banks, the signal to the market would have been that this was a bank in trouble. This could have resulted in withdrawal of market funding, a run on its shares and bonds, emergency funding from the Bank of England, collapse of the share price and, eventually, bailout and nationalisation. As it was, Barclays never went into this death spiral. Anyone care to calculate just how much the falsified LIBOR submissions might have saved investors and UK taxpayers?

  7. PaulB, I checked and you’re right on the technical point.
    On the substance, LIBOR is thus a damnfool measure, like going to Tesco and offering 50p for a pound of tomatoes and having the guy at the fish counter go ” er um”.

    I doubt if anyone except insiders in the market is worse off for this and the hysteria about people’s houses being repossessed is just that, hysteria.

    In which case we’re looking at some Guardian types screaming blue murder about the losses on their hedge funds…

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