Libor: trustworthy?

[campbell]

Ah, the opening of the lawsuit floodgates

http://www.businessweek.com/articles...=&utm_content=

These are parched times for law firms. Clients just aren’t willing to pay what they used to for associates’ billable souls.

How fortuitous then that a multitrillion-dollar financial scandal promises to throw the lawsuit industry beaucoup fees, from both the alleged aggressors and their aggrieved. Thanks to the Barclays blowup, we now know that Libor, the most widely used and quoted benchmark for valuing about $360 trillion in financial products, has been rather rigged. Throw in the fact that this gauge is set by Wall Street, the villain à la mode, and a heretofore harmless interest rate could join the likes of asbestos and tobacco in one-word liability infamy.

Let the litigating begin. On Monday, word got out that the Berkshire Bank, a small New York-area lender, was suing 21 banks including Bank of America (BAC), Barclays (BCS), and Citigroup (C) for damages over alleged Libor manipulation. In a July 25 filing in Manhattan federal court, Berkshire sought undisclosed compensation and punitive damages and the right to represent other lenders in a class action. Berkshire claims that Libor fraud ate into its interest payments.

“Tens, if not hundreds, of billions of dollars of loans are originated or sold within this state each year with rates tied to [U.S. dollar] Libor,” Berkshire Bank said in its complaint. The New York banks “were unable to collect the full measure of interest income to which they were entitled,” Berkshire said. Berkshire wants to represent the several hundred banks, savings and loan institutions, and credit unions headquartered in or predominantly run out of New York.

[JMO]

At the risk of putting myself on Mary Pat's list, I want to share a headline I just saw:

LIBOR, LIBOR, Pants on Fire

ETA - I admit the rhyme is a bit weak.

[campbell]

Yeah, that's pretty pathetic.

anyway, you didn't write the headline, so you get a pass for upping your list count

[Pseudolus]

Pants of... fiber? Hmm. Will effort.

[zeroEthix]

[campbell]

This sounds like it was an excellent idea
http://www.reuters.com/article/2012/...8AJ0MH20121120

(Reuters) - In late 1996, Marcy Engel, then a lawyer for Wall Street heavyweight Salomon Brothers Inc, fired off a warning letter to U.S. regulators: If they approved a Chicago Mercantile Exchange plan to change how a popular futures contract was priced, they would put at risk the integrity of a key interest rate in the global financial system.

The CME was already doing big business in its Eurodollar futures contract - a derivative product that lets traders bet on the direction of short-term interest rates - and it had long set the price for these contracts using a benchmark rate it tabulated itself. Now, it wanted to adopt a more commonly used rate published by the British Bankers' Association, known as the London interbank offered rate, or Libor. Using this benchmark, the CME said at the time, "will make our Eurodollar futures an even more attractive risk management tool."

The problem with the CME's plan, as Engel saw it: The banks that set the rates in London daily were also able to take positions in the CME's Eurodollar contract. In her letter to the U.S. Commodity Futures Trading Commission, she said tethering the futures contract to Libor "might provide an opportunity for manipulation" of the interest rate. A "bank might be tempted to adjust its bids and offers ... to benefit its own positions."

[Mr. B]

And, breaking news:

UBS admits fraud in $1.5 billion Libor rigging settlement

http://www.reuters.com/article/2012/...8BI00020121219

How come I never hear about individuals being prosecuted for their malfeasance? Everyone who has been implicated in the rate rigging should be barred from any financial services position for the rest of their lives and should be forced to pay back their ill-gotten gains. The only thing I ever see are headlines about companies paying fines - even when the people responsible for the fraud might not even work there any more. Our justice system is a complete joke.

[MountainHawk]

Originally Posted by Dismal Science

How come I never hear about individuals being prosecuted for their malfeasance? Everyone who has been implicated in the rate rigging should be barred from any financial services position for the rest of their lives and should be forced to pay back their ill-gotten gains. The only thing I ever see are headlines about companies paying fines - even when the people responsible for the fraud might not even work there any more. Our justice system is a complete joke.

This is the first time I remember an admission of fraud by the company. Given that, you'd have to think criminal prosecution would be coming, but perhaps I'm being overly naive.

Maybe I spoke a little too soon...

UBS Libor Traders Face U.S. Criminal Charges

Originally Posted by Bloomberg

Tom Alexander William Hayes and Roger Darin were charged with conspiracy in a criminal complaint unsealed today, the U.S. Justice Department said. Hayes also was charged with wire fraud and a price-fixing violation for manipulating the London Interbank Offered Rate at another bank, the department said.

“Make no mistake, for UBS traders, the manipulation of Libor was about getting rich,” Assistant Attorney General Lanny Breuer, the head of the Justice Department’s criminal division, said in a news conference in Washington.

The charges are the first brought by U.S. officials against individuals alleged to have manipulated Libor and comparable benchmarks in Europe and Japan.

Guess the Justice Department reads this thread.