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San Fran Fed Demonstrates Artificiality Of Libor
Contrary to the BBA's claims of the persistent objectivity of Libor, the San Fran Fed has released a paper demonstrating that the Fed's generosity has been singlehandedly responsible for throwing out that last somewhat objective money market benchmark into the gutter of unrelliable and useless indicators.
The conclusion, expected as it may be, demonstrates why Libor floors on credit deals using this metric for whatever reason, are going to be quite a recurring feature.
The Fed introduced TAF in mid-December 2007 to alleviate turmoil in the interbank market. An indepth analysis based on a six-factor model suggests that TAF may have helped reduce the TED spread for the first eight months of 2008. The failure of Lehman Brothers in mid-September 2008 temporarily eliminated those gains. But, following extensive government initiatives since then, including significant TAF expansion, the three-month Libor rate has again fallen to a level considerably lower than what it otherwise would have been.
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I fucking love libor antics. Take Barclays for example. Here is how they ass raped the money market for profit and gain. So they used Lehman Brothers as their libor house to create commercial paper to back their cds and other magical financial instruments they righteously pulled out their ass.
Now, when that shit went belly up, say like Project Valhalla, Barclays was over a barrel because their margin call was more than the gnp of most civilized countries in these fiascos. What to do, what to do.
Well, Barclays decided to watch Lehman Brothers die on the vine of the Barclay libor contracts, and when the corpse was nice and stiff, they bought Lehman Brothers for pennies on the dollar.
That also means Barclays bought back their own libor debt for pennies on the dollar. This how they posted that profit last spring. Same bullshit that petty 3rd world despots pull on the IMF, but with Barclays letterhead.
Of course, they got away with it, they always do, which is something people around here need to get use to.
didn't know that, thanks
You mean its fascist corporatism? Who knew?
Corporatisim and Fascism are interchangable terms.
Inflation in terms.
How does a government induced artificially low Libor rate do anything but create further mispricing of risk?
Of course that question presumes that the fed facilities will be wound down at some point.
Indeed, I thought as much (re: risk pricing).
As for your presumption, I have to go sideways on that one: A permanent state of emergency has existed politically/legally since March 1933 (and arguably back to the Civil War in the 1860s), so a permanent state of financial emergency doesn't seem far fetched to me at all.
Wow, although I am rarely inclined to do so, I must intervene here: because it's so incredibly rare that anyone understands what you (nicholsong) obviously do, in light of your comment!
I would suggest that the "permanent state of emergency" you reference goes rather for the whole western world, and starts with the french revolution. But no matter how one dates and locates it, this phenomenon of a "permanent state of emergency" in contemporary politics is the subject of a hugely interesting, important, and relevant (especially right now) series of texts written in the 20's-60's mostly in reference to nazism, the holocaust, etc. and which has been completely forgotten outside a tiny and altogether insignificant academic/scholarly niche (to which I happen to belong!).
Anyway, I think you're totally right; I think this is one of the most important facts one could possibly understand about the contemporary world/political order; and I think hardly anyone thinks about it or recognizes it.
So I would highly recommend to you (and anyone else interested) three books as a means of further developing--and more fully understanding the consequences of--your thesis about the "permanent state of (financial) emergency" that is and has long been our political lot.
First, Carl Schmitt, _Political Theology I_ :
http://www.amazon.com/Political-Theology-Chapters-Concept-Sovereignty/dp...
Second, Walter Benjamin, The Origin of the German Trauerspiel (Trauerspiel = an exclusively German literary category that for some retarded reason is translated as "tragic drama", thereby completely missing the whole point/premise of the book--which is namely that this strange, ephemeral, and distinctively German literary phenomenon considered, interpreted, and commented upon precisely with reference to its singularity can tell us a whole hell of a lot about the times in which we live and how everything got to be this way). Anyway, :
http://www.amazon.com/Origin-German-Tragic-Drama-Thinkers/dp/1844673480/...
And third, Giorgio Agamben (a follower of Benjamin's), _Homo Sacer_:
http://www.amazon.com/Homo-Sacer-Sovereign-Meridian-Aesthetics/dp/080473...
(the above order is that in which one ought to read these books in order to get the most out of them)
And if you end up having the time and motivation to read these things* and have questions about them, I would like nothing more than that you contact me about this ( rjj (at) princeton.edu ) so we can discuss it. I am avocationally and to some extent also vocationally a teacher of precisely these sorts of text--and if this is so, it's primarily because I think non-academics could benefit immensely from learning something about the western cultural tradition and the (clever) stuff that's been written about it, and I'd like to help make that happen...and not so much because I treasure the opportunity to help create a new generation of the moronic language-police* that constitute ~95% of my academic field! So, please, by all means, let's talk about these texts--and more importantly about the permanent state of emergency that has characterized our politics since _____ --in another forum.
*whether it be a few pages, a skim of one whole text, a thorough reading of all of them, etc.
**In the highly unlikely event that anyone else following this blog has experienced something of my professional niche, I offer a line of farce: '"is understood" did you say?!?!?! could you define "is" for me please? but haven't you read your Derrida? my god, haven't you understood that "to be" and "to understand" are not verbs we are allowed to use anymore?!!!!!?'
PS: Und in dem Fall du (=nicholsong ebensowie auch irgendjemand) Deutscher(in) bist und ueber diesen Themen unterhalten moechtest, schreib mir mal auf Deutsch, wenn das dir besser/leichter/schneller waere!
That nicely summarizes the nexus of the problem... because as we unwind everything we consider 'bad' right now... leverage, destructive financial instruments, debt, etc... we are winding up another ball of twine that is likely even worse... how do you ever properly ever price risk again with an artificial Libor, implied government guarantees, bailouts, too big to fail, etc... What a mess!
I think a lot of people should use that phrase '£91K not a lot of money' to any and every bank that seeks to foreclose, try to enforce late payment charges, severance pay, and anything else it could be applied to.
We just can not compete with the vast amounts of money being used to influence decisions. The Rich says"
good articles; my newest bookmarked finance websitehttp://www...
The SF Fed has been pumping out some great work over the past few months.
Note their economic letter from May that outlines the consumer deleveraging ahead and some general comparisons to Japanese consumer debt of the 90's:
http://www.frbsf.org/publications/economics/letter/2009/el2009-16.html
Oh--I ate spinach last night and subsequently, I saw "green shoots" floating in my office bathroom this morning. I think I blew out an O ring in the process.
Audit the Fed
http://www.scribd.com/doc/17527050/HR-1207-Audit-the-Fed
Can anyone provide a brief synopsis as to why 3 month libor is at its lowest? 30 year swap are (almost) returning to positive spreads, however 3m libor is at 45 or 46s bps???
implicit gov't guarantees back all the banks short terms