There is a word becoming trendy: LIBOR. Like a trend it will pass and be forgotten… but in fact I believe it is casting light on some practices that impact my savings, every day.
But first, let’s get into another subject, the “weakening” of Euro-zone confidence and let’s think if it is the same mechanisms at work there… or not? So, to put it in short, the traders and investors decided that it is not safe to lend to Greece any longer. I’ve read it was related to Credit Default Swap products and indexes, very complex I first thought. For sure those “lettability” ratings are like the triple A ratings to my opinion, they are based on indexes that are very well understood and used by traders.
Now back to LIBOR, the London inter-bank offered rate. I started to have some thoughts, reading “the rotten heart of finance” in The Economist. First, the scale: “It is used as a benchmark to set payments on about $800 trillion-worth of financial instruments [… like your typical] mortgage.” And this LIBOR has been manipulated! And the Economist article goes on “[…]including Canada, America, Japan, the EU, Switzerland and Britand […] similar rates were rigged by large numbers of banks.”
Then the culprits are designated further down “DERIVATE TRADERS”.
With the normal flow of justice this scandal can cost a lot to banks. But why shall I accept this? When the Economist articles says that the LIBOR and like investigations could “cost the banking industry”, I tend to rather interpret it as my private bank account at Barclays will see its interest rates lower to compensate for the cost of getting caught cheating.
I don’t believe this treatment is fair. Let’s apply an existing solution: how we punish hackers. If a hacker messes with our private data (or public services) he can be banned from using a computer for the part of his life (or at least under control). Well, if a trader/banker messes around with our private money (here it impacts our mortgage!) or public money he should be deprived from any bonus for part of his life, and why not in severe cases blocked to earn the minimum wage for the rest of his life.
Now here it when it all comes together: if traders rig our mortgage rate, why couldn’t they do so about Greece, Spain, etc. interest rate? It is clearly admitted by senior bankers that the LIBOR rate is set on estimates and not on actual transactions! So if traders play with LIBOR rates why aren’t they playing with Euro zone rates?
I was initially categorizing such a question in conspiracy theory. But for me, real conspiracy theory is when an uninteresting citizen (like me) wants to believe that they are people interested in listening to his conversations, monitoring his life, etc. It makes him feel important. The flaw here is that in reality government and rich people have much better to do than try to know what a random bloke is doing, there is no interest… But here when we talk about our mortgages or the Euro zone, there is a lot of money at stake, a lot of money on bet and transactions to be made.
So I am just asking questions, but here is a suggestion: at the moment we tend to tell the South of Europe what to do (while half of their youngs are on the dole) wouldn’t we rather want to tell banks and monitor banks what to do about our private and national interest rates?