While we BBQ in San Diego, watched parades in Ohio, and celebrated our Independence from the British rule a scandal was exploding in sync with the NYC Fireworks finale. This brilliant display of Bank CEOs resigning, bank shares dropping more than 15%, and $450 million (dollars not pounds) in fines highlight just how dependent these United States are really to the Empire across the pond.
You may have seen the word “LIBOR” before but not many people can explain it. The Libor (London Interbank Offered Rate) is a long established, widely used rate that can help determine how well the banking system is doing. Most US student loans, mortgages, and car loan rates are often determined by the Libor. About $10 trillion worth of US loans are indexed to Libor. And if you have an adjustable-rate mortgage, you're more than likely paying the Libor rate, plus an additional interest payment.
During the financial crisis Barclays started fudging the rate in an attempt to make the bank look more solid than it was. However, Barclays in reality had higher interest rates than most other competitors, and this has led to a flurry of investigations and negative publicity.
This fraud was paramount during the financial crisis because when the LIBOR rate is relatively high compared to the Bank of England’s base rate, it can signal a level of distrust among banks, much like when credit-card companies charge higher rates to customers with little or poor credit. The London base is especially important, since over 20% of international lending and 30% of foreign-exchange transactions are processed through London.
Given the extensive reach of the Libor, it would seem critical that the rate be calculated in an impartial and transparent manner. But the opposite seems to have been the case as with most financial transactions of late.
To view a great Timeline of this multiyear scandal and investigation click here
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