The End Of The World

Allow me to briefly recapitulate. The London Interbank Offer Rate, or Libor as it’s commonly called, is supposed to be the interest rate international banks charge their most credit worthy customers, other banks.

It is primer than prime and the basis for most other calculations of interest rates, the amount charged to purchase money, throughout the global economy.

Now it’s based on a survey sent to a select few banks that they fill out anyway even if there haven’t been any recent transactions to base it on and because the sample is so small it’s extremely susceptible to error (which you can’t do anything about statistically speaking) and corruption, which is a crime.

A really big crime actually, involving practically all financial transactions over more than a decade. In layman’s terms, as far as that can be applied to numbers that are truly astronomical (92,935,700 miles is the average distance between the Earth and the Sun, a number so large it is typically abbreviated to 1 Astronomical Unit and takes light itself slighly more than 8 minutes to travel), as much as 100s of Trillions of Dollars (100 Trillion Miles is 17 Light Years, which is a lot).

It’s simple enough. Traders at these banks would make bets on the value of the Libor that they controlled and take their vigorish and add it to the bottom line. They didn’t steal a lot (well, kind of a lot but not 17 Light Years), however it made every transaction across the economy more expensive.

I hope you’re getting the impression that this is Yuuuge. So much so that initially the Court system wouldn’t deal with it despite the fact that there are literally tons of evidence and documentation. Instead banks have paid civil fines in the Billions (the cost of doing business) and every one has gone back to cheating as usual because, why not?

Lawsuit accusing 16 big banks of Libor manipulation reinstated by US court
by Jana Kasperkevic, The Guardian
Monday 23 May 2016 16.01 EDT

A US appeals court on Monday reinstated a civil lawsuit accusing 16 major banks of conspiring to manipulate the Libor benchmark interest rate. The ruling, which overturns a 2013 decision, could bankrupt the institutions, the judges warned.

A lower court judge erred in dismissing the antitrust portion of private litigation against Barclays, Bank of America, Deutsche Bank, HSBC, UBS and others on the ground that the investors failed to allege harm to competition, according to the US circuit court of appeals in Manhattan.

Libor, or the London interbank offered rate, underpins hundreds of trillions of dollars of transactions and is used to set rates on credit cards, student loans and mortgages. It is calculated based on submissions by banks that sit on panels.
…
Back in early 2013, Manhattan federal district court judge Naomi Reice Buchwald dismissed the claims filed by private plaintiffs. According to her 161-page decision, the banks did not violate antitrust laws when they colluded to manipulate the Libor benchmark interest rate and that the plaintiffs failed to prove harm from such collusion.

Buchwald’s 2013 decision surprised some, as at the time Barclays, UBS and Royal Bank of Scotland had already settled cases with more than $2.5bn in penalties. Since then penalties in Libor-rigging probes have climbed to roughly $9bn, including a penalty of $2.5bn against Deutsche Bank.
…
After determining that the plaintiffs had sufficiently shown they had been harmed by the alleged rate manipulations, the panel sent the case back to the lower court.
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They also warned of dire consequences should the case be proven against the banks. If the court were to rule in favor of the plaintiffs, they would be eligible to receive triple damages and attorneys’ fees for any violations.

“Requiring the banks to pay treble damages to every plaintiff who ended up on the wrong side of an independent Libor‐denominated derivative swap would, if appellants’ allegations were proved at trial, not only bankrupt 16 of the world’s most important financial institutions, but also vastly extend the potential scope of antitrust liability in myriad markets where derivative instruments have proliferated,” the US court of appeals in New York said in the ruling issued on Monday.

Too big to fail eh? Restores my faith in the Courts this does.

My investment advice? Yap Island Stones. Too big to steal.