The Biggest Financial Scam In World History

George Washington's picture

There have been numerous big banking scandals recently.

But the Libor scandal is the biggest financial scam in world history.  See this and this.

The former CEO of Barclays said today that banks across the world were fixing interest rates in the run-up to the financial crisis .

Professor of economics and law Bill Black notes:

It is the largest rigging of prices in the history of the world by many orders of magnitude.

Indeed, the scandal effects an $800 trillion dollar market - 10 times the size of the real world economy.

Matt Taibbi explains that this is the "mega scandal of all mega scandals", because Libor is the "sun at the center of the financial universe", and manipulating Libor means that "the whole Earth is built on quicksand."

Local governmentscredit card holders, students, small businesses, small investors, homeowners and virtually everyone else in the entire world has been impacted by the manipulation.

Credit card debt - almost a trillion dollar market - is pegged to Libor. So are student loans - a trillion dollar market.

Mortgages are a bigger market: around $10 trillion dollars in the U.S.  The Washington Post notes today:

60 percent of prime adjustable rate mortgages, and nearly 100 percent of subprime ones, were indexed to LIBOR.

 

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That means that when LIBOR rises, so do the prices ordinary consumers pay to, say, get a mortgage.

 

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So how did the manipulations by Barclay’s affect this rate? First, from 2005 and 2007, the bank allegedly varied the rates it reported to the BBA and Thomson Reuters so as to improve its margins on internal trades. For example, it could have placed bets that the LIBOR rate would increase, and then reported artificially high rates which in turn artificially increased the LIBOR averages, so that the bets were likelier to pay off. This ... bumped up mortgage rates  however infinitesimally  for consumers even when the risk of the loans hadn’t changed at all.

Other loans - like small business loans - are usually based on Libor as well.

But that is all small potatoes compared to the $350 trillion in swaps tied to Libor.  Virtually every single local government in the United States has been scalped by Libor manipulation.

The big banks have robbed the whole world.

Indeed, the scandal is so big that it will further destroy trust in our financial system and drive many people from investing in the capital markets altogether.

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Peter Pan's picture

Agree wholeheatedly and woud like to add that the banks by manipuating LIBOR were in fact imposing a financial transactions tax of their own even though they resist it tooth and nail if it is to be collected by governments,

The major concern for me is not what has happened but more so what happens from here. Any jail time or are politicians afraid of setting a precedent for when their turn for punishment comes?

machineh's picture

 'banks across the world were fixing interest rates'

I am shocked ... SHOCKED ... to learn that banks were fixing interest rates!

Fixing interest rates is what every central bank on earth does, all day long.

ZIRP me up, Ben, there's no rational economic actors down here.

WALLST8MY8BALL's picture

Super Furry Animals - "The Turning Tide"

 

It just occurred to me
That things aren't as they seem:
It's conspiracy
Aaaah

And we're living in a world of quicksand
Castles on their keep
Still waiting under siege
For the turning tide up
Need some inspiration
Time to hitch a ride
On the turning tide
Ah ha ha

The service was so slow
My eyes began to grow
Into telescopes
Aaaah

That are looking at a world of quicksand
Castles on their keep
Still waiting under siege
For the turning tide up
Need some inspiration
Time to hitch a ride
On the turning tide

And we're living in a world of quicksand
Castles on their keep
Still waiting under siege
For the turning tide up
Need some inspiration
With no obligation
Coz there's quicksand
Sucking up the goodness
Graciously impatiently
Is that the time out?
Need recuperation
Time to hitch a ride
On the turning tide
To the turning tide