Timmy elsewhere

At the ASI.

Of course the Fed knew about the manipulation of Libor

7 thoughts on “Timmy elsewhere”

  1. Watching political scum trying to blame the bankers for everything is like watching Baron Frankenstein trying to pass it all of on Igor(Ygor?).

    “Monster?–I just live at Castle Frankenstein Guv–I don’t know nothing about any monsters.”

    Yes, the Banksters are bad guys –just like Igor, who was a grave robber, a suborner and worse. But Igor didn’t have the idea, he didn’t set it all up, and he didn’t do the surgery, brain surgery or the electrical contracting. Because he couldn’t. No more could the banks have caused this mess alone. They were doing the dirty work of creating bogus prosperity that the scum of the state wanted and were too dumb to understand the truth about–it was temporary and would end explosively.

    And of course the state knew about LIBOR. Igor was probably stealing from the Baron–because Igor was a crooked little bastard who could not stop himself if he even understood the concept of honour–and the Baron likely knew it( If you are smart enough to return the dead to life it would not be a big leap to figure out the mentality of some little git).
    Not the silver salt cellar off the table but a silver fork here and there, choice food, wine, overstating the gold needed for bribes etc. But what can Frankenstein do?. If he warns his short-arsed assistant to lay off then Igor might decide it would be in his interest to cut a deal with the authorities and tell all about the horrors up at the castle in exchange for immunity.
    The Baron would have to kill Igor with a quick surprise to prevent that possibility. But then he has lost a valuable servant. An Aristo like the Baron isn’t going to push a corpse-laden hand cart thro’ the dark streets himself. Best therefore to turn a blind-eye to the minor depredations of his greasy little henchmen.
    Hence LIBOR.

  2. “This is where the banks themselves were not reporting the correct rates. To understand this the details of what is going on here. Each bank reports what rate it can borrow at (please note, what would it cost to borrow, not the rate at which it would lend) in a currency for a term.”

    Were they reporting an actual cost to borrow (data from actual borrowing) or an estimate of the cost to borrow (their own estimate of what lenders would charge them)? For some reason I think it was the latter.

    Tim adds: Yes, they are estimates of where they could borrow, not actual rates at which they do.

  3. Tim – There were two types of LIBOR manipulation.

    Pre 2008 there appears to have been collusion between banks to shift the LIBOR fixing up or down according to their positions. This was short term market abuse. Not much was made or lost but it was wrong and should have been stamped on.

    In 2007-8-9 there seems to have been a market-wide under-reporting of LIBOR and this was done with the nod of the central banks since they did not want to scare the markets with the information that interbank lending was frozen and banks could barely borrow for periods longer than overnight. This was a good thing. If banks had reported this fact, there would have been massive bank runs and bank failures. This was a cheap way of avoiding this. By giving the nod the central banks were doing the best thing they could.

    Also mortgage holders did well as LIBOR rates were lower than they otherwise would have been.

    Tim adds: Err, yes, that’s what my piece actually says.

  4. Oops – I am embarrassed to say that I did not realise that the ASI link was you so thought you were simply contradicting someone else.

  5. “Pre 2008 there appears to have been collusion between banks to shift the LIBOR fixing up or down according to their positions.”

    I must say that bit confuses me a little. Because:

    ” Yes, they are estimates of where they could borrow, not actual rates at which they do.”

    In which case they’re estimating some other player’s position.

    Or maybe the understanding of position & how positions interrelate in trading is different from mine.

  6. Pre 2008 there was almost surely collusion between traders in different banks. I do not mean that the banks were colluding in the sense that senior management was involved. I think this was low level individual traders.

    If one had say a large short sterling futures contract fixing then he might like to push the fixing one particular way depending on whether he was long or short.

    It is hard for a single bank (but not impossible) to move the LIBOR submission in any significant way without doing something odd i.e. moving your quote noticeably relative to the other submitters, If you want to do it by yourself then you need to get yourself kicked out of the 25-75% percentile range. If you get someone else involved it is easier. Clearly that other person would either have a similar position or a neutral position.

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