Oh dear Cammo

David Cameron warned that “spivvy and probably illegal activity in the City” meant that “homeowners may have paid higher mortgage rates”.

You\’ve bought into this as well have you?

I do wish someone could tell me how manipulating LIBOR down could increase mortgage rates.

14 thoughts on “Oh dear Cammo”

  1. Building societies paid fixed on IRS, then doled out fixed rate mortgages to the high street. They fund mortgages on cash market.
    LIBOR is supposed to track the cash market, but every time a big reset comes round, mysteriously, LIBOR and cash diverge, and the building society always seems to receive a little less than it thought it would on it’s IRS fixing.
    Building societies know this happens, so they increase the rate on the initial mortgage rate offered to customers to compensate.

  2. But doesn’t that happen anyway, irrespective of what Barclays in particular does?

    Anyway, from what Bobbo said yesterday, Barclays’ LIBOR submission was always one of the outliers, before and during the rigging.

  3. One thing I don’t quite get – Barclays /try/ to manipulate LIBOR by adjusting the amount they *think* they’d be charged by other banks downwards by 0.01% and they’re pilloried.

    The UK government *actually* adjust rates by 300x that and no-one bats an eyelid.

    What gives?

  4. @PJH

    Also, one reason for the Bank of England reducing rates is to make money cheaper, so surely it’s counter-productive if the Libor goes high, and forcing it low as well would be supporting the interest-rate policy and a Good Thing (for borrowers).

  5. The only people who’ve lost money are (maybe) some traders in LIBOR related derivatives.
    Why should we feel sorry for them?
    And if Barclays was always an outlier they wouldn’t have featured in the LIBOR calculation, so all this stuff about big boys getting a bottle of Bollinger is nonsense.
    And these traders seem to be extraordinarily naive. Would you bet on stuff where the rate was so easily fixed?
    It was a bit before my time but I’ve a hunch that LIBOR has always been fixed. Does anyone remember the secondary banking crisis and the BoE lifeboat, etc.? I can see the attraction for the clearing banks in fixing LIBOR to make a choke hold on smaller banks and take them over for peanuts…

  6. @blokeinfrance, I suspect you are right, it’s always been fixed. But in the past not much trade was carried on using LIBOR so it didn’t matter. And everyone knew it was being fixed so you could say that it was a true free market because everyone had all the information necessary to make a proper decision.

  7. I think one reason that this issue has such implications is that, in contrast to earlier episodes back in the 70s or so on, there is now a huge swaps and derivatives market that is pyramided on top of the LIBOR rates that the trading community uses as its reference point.

    In other words, the payoffs for gaming the system are much, much bigger. It is not that bankers have become more evil, which is the sort of line you might get if you listen to some commentators.

  8. “huge swaps and derivatives market that is pyramided on top of the LIBOR rates …”

    Presumably both sellers and buyers decide that the deal is adequate for them when they bargain, so if the rate is x% they don’t really care how x is derived (since it’s an arbitrary and uncertain process anyway): it’s just a number, and they only really care whether they like the look of x.

    Obviously the traders who arranged slightly different values of x when they were gaming the system–or so they thought, although doing so using recorded e-mails suggests they were rather stupid “big boys” anyway and might believe anything–would benefit from a shift in a small trade, which is reprehensible, but any losers on that deal couldn’t have *relied* on a more favourable Libor value since it might or might not have been what it was anyway (without manipulation).

  9. But if ‘the man in the street’ doesn’t lose out, he might question all the faux outrage. Bob Diamond was put on a show trial yesterday by a bunch of low lifes, the worst of whom, George Mudie (Gordo’s chief anti Banker attack dog), managed to claim £62000 over four years for a house with a mortgage of £26000. I saw the papers submitted where it quite clearly separates the incidents of trying to fix rates – up and down – by some prop traders from the period when Barclays themselves asked why so many banks were claiming an ability to fund at rates they (Barclays) knew they could not achieve – ie when Barclays were consistently the highest or second highest submission and finally from the period of thetelephone call with the BoE where Barclays wanted Whitehall to realise that they had no trouble funding over the period after the Lehman collapse. Three distinct periods that they willfully (or ignorantly) tried to wrap into a single issue.

  10. “But if ‘the man in the street’ doesn’t lose out, he might question all the faux outrage”

    Indeed. That’s presumably why all the reports I’ve heard are suggesting that horrid bankers were ensuring Libor was too low, and therefore … we were all overpaying our loans etc. It would make me cross, if I couldn’t add. In fact, we are all overpaying our loans, but it has less to do with Libor than the government’s insistence on lenders “repairing their balance sheets” (which might be right, to be fair) hence high actual interest rates.

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