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The Largest Insider Trading Scandal Ever
07-08-2012, 09:13 PM #1
Shadow Mrs. Buckwheat
Posts:12,775 Threads:1,181 Joined:Feb 2011
I haven't posted anything on this because I truly do not understand it, but I have been following it trying to grasp the meaning. And find an understandable explanation of just why this is blowing up the banking world. From what i can get, LIBOR (London interbank offered rate) is the base measure of the world's economic performance and banks have been manipulating it for decades to extract maximum payment from clients and borrowers while betting for or against the performance they control. If anyone can explain it clearer I'd sure like that.

What’s the most basic service banks provide? Borrow money and lend it out. You put your savings in a bank to hold in trust, and the bank agrees to pay you interest on it. Or you borrow money from the bank and you agree to pay the bank interest.

How is this interest rate determined? We trust that the banking system is setting today’s rate based on its best guess about the future worth of the money. And we assume that guess is based, in turn, on the cumulative market predictions of countless lenders and borrowers all over the world about the future supply and demand for the dough.

But suppose our assumption is wrong. Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them – bets that will pay off big for them because they have inside information on what the market is really predicting, which they’re not sharing with you.

07-08-2012, 09:54 PM #2
Upāsaka Member
Posts:1,382 Threads:252 Joined:Feb 2011
Quote:The London Interbank Offered Rate is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks.[1] It is usually abbreviated to Libor (play /ˈlaɪbɔr/) or LIBOR, or more officially to BBA Libor (for British Bankers' Association Libor) or the trademark bbalibor. It is a benchmark, along with the Euribor, for interest rates all around the world.[2][3]

Libor rates are calculated for different lending periods: overnight, one week, one month, two months, six months, etc., and published daily after 11 am (London time) by Thomson Reuters. Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to (and typically higher than) Libor.

Definition of Libor

Libor is defined as:

The rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to 11.00 London time.

This definition is amplified as follows:

The rate at which each bank submits must be formed from that bank’s perception of its cost of funds in the interbank market.
Contributions must represent rates formed in London and not elsewhere.
Contributions must be for the currency concerned, not the cost of producing one currency by borrowing in another currency and accessing the required currency via the foreign exchange markets.
The rates must be submitted by members of staff at a bank with primary responsibility for management of a bank’s cash, rather than a bank’s derivative book.
The definition of “funds” is: unsecured interbank cash or cash raised through primary issuance of interbank Certificates of Deposit.


Every contributor bank is asked to base their bbalibor submissions on the following question:

“At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?”

Therefore, submissions are based upon the lowest perceived rate at which a bank could go into the London interbank money market and obtain funding in reasonable market size, for a given maturity and currency.

bbalibor is not necessarily based on actual transactions, as not all banks will require funds in marketable size each day in each of the currencies/ maturities they quote and so it would not be feasible to create a suite of LIBOR rates if this was a requirement. However, a bank will know what its credit and liquidity risk profile is from rates at which it has dealt and can construct a curve to predict accurately the correct rate for currencies or maturities in which it has not been active....

...What is bbalibor used for?

bbalibor is the primary benchmark for short term interest rates globally. It is written into standard derivative and loan documentation such as the ISDA terms, and is used for an increasing range of retail products such as mortgages and college loans. It is used as a barometer to measure strain in money markets and as a gauge of market expectation for future central bank interest rates. It is also the basis for settlement of interest rate contracts on many of the world’s major futures and options exchanges.....

Calculation of bbalibor

Thomson Reuters is the designated calculation agent for BBA LIBOR. Data submitted by panel banks into the bbalibor process is received and processed by Thomson Reuters and the data is calculated using guidelines provided by the FX&MM Committee.

Each cash desk in a LIBOR contributor bank has a Thomson Reuters application installed allowing that institution to confidentially submit rates. Each morning between 1100 and 1110 a named individual responsible for cash management at each panel bank formulates their own rates for the day and inputs them into this application, which links directly to a rate setting team at Thomson Reuters. A bank cannot see other contributor rates during the submission window - this is only possible after final publication of the BBA LIBOR data. Thomson Reuters run a collection of automated and manual tests on the submitted rates before they are sent to the calculation engine, and after calculation the data is released to the market via Thomson Reuters and other licensed data vendors.

Every bbalibor rate produced by Thomson Reuters is calculated using a trimmed arithmetic mean. Once Thomson Reuters receive each contribution submission they rank them in descending order and then exclude the highest and lowest 25% of submissions - this is the trimming process. Details of this are shown in the table below. The remaining contributions are then arithmetically averaged to create a bbalibor quote. This is repeated for every currency and maturity, producing 150 rates every business day.....

The more one, looks into Libor the more complex the system becomes to manipulate, unless as Shadow, has stated all the banks were complicit. The mention of Thomson Reuters sets of the alarm bell, considering who owns the Agency.
07-09-2012, 07:36 AM #3
Cynicalabsurdance Member
Posts:9,968 Threads:223 Joined:Feb 2011
My Great Grand Daddy's Death Bed Statement to all of us in the Family

Boy, Bank serve one purpose in life,and that is to rob you,
You serve a purpose in Llfe

to rob the banks for robbing poor folks

now,,, let me die, and you go do
your purpose.



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