Libor Scandal: Massive Fraud at a Fundamental Level, Even Calls for the Jailing of Bankers

First, what is Libor or LIBOR?

It is the London Interbank Offered Rate. The rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to 11.00 London time.

In short it’s the rate at which banks can get money from other banks just before lunchtime in London.

It sets a benchmark for most of the world’s derivative markets which trade in various currencies. It is, after the Fed Funds Rate the most important interest rate in the world.

And it looks like at least some of the world’s banks may have colluded in 2008 (and probably for a good bit longer than that) to keep the rate lower than it should have been, in essence making the banking sector look healthier than it actually was.

On the 27th of June of this year Barclays, the second biggest British bank admitted to reporting fake borrowing costs from 2005-2009. Yesterday Barclay’s CEO, Robert Diamond left his post in disgrace.

For the first time in quite a while a cold wind is blowing through the C-suites of the world’s greatest banks.

It is unlikely that Barclays is alone in its extreme shadiness, fraud, theft, whatever one wishes to call it. Likely many other banks were in on the game. Citi, UBS, Deutshe Bank, and HSBC are all currently being examined by the Justice Department. Not that having Eric Holder on the scene gives me any confidence that justice will actually be done.

My bet is that this is just the tip of the floating glacier. To date the big banks have succeeded in keeping the hand of retribution at bay. But when Robert Diamond gets shown the door and then Bloomberg writes articles entitled There’s Something Rotten in Banking it is possible that the winds may have shifted just a bit. There is a small chance that they may have shifted a lot.

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