A shocking fact about the worlds financial system: LIBOR (London Interbank Offered Rate) is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks. Calculation is daily and as follows: 18 major global banks are asked the question: “At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?” Throwing out the highest 4 and lowest 4 responses, the average is reported at 11:30 a.m. The pricing of more than $350 trillions of assets (> 20 times U.S. GDP) in the world is tied to LIBOR as a benchmark (e.g. the mortgage rate youre offered today is LIBOR + f(your credit score, etc)). Apparently, each of these banks have a nontrivial power on determining LIBOR, so they can manipulate it to make profits. In 2012, multiple frauds were discovered. Key take-away (!) is that the most important benchmark interest rate of todays financial system is determined by 18 people, every morning, 11 a.m (London time), in a manipulable fashion!
Posted on: Fri, 06 Jun 2014 05:03:54 +0000
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