Barclays' LIBOR, Euribor and Interest Rate Derivatives Scandal VIX is Spiking, On Cover of The Economist

The Economist (source: Google+)
I haven't officially posted about the LIBOR (London Interbank Offered Rate) and interest rate derivative trading scandal yet, but it's definitely crazy that $350 trillion of notional interest rate swaps and $437 trillion of CME Eurodollar futures notional volume (in 2009), all tied to LIBOR, have been manipulated by LIBOR "submitters" and interest rate derivative traders at Barclays (and other big banks?) from 2005-2009 (CFTC vs. Barclays). The CFTC document also said that Barclays manipulated Euribor for its traders and colluded with other banks. And not only that, Barclays manipulated its rate to be perceived as a healthier credit during the credit crisis. And was the Bank of England involved with that? So, this is why the scandal is perceived as such a big deal, even if it just involved a few basis points at a time. It is also another blow to the credibility of the bailed out too-big-too-fail financial system now that (legal) credit fraud contagion has officially spread to interest rates (to the public at least). According to the CFTC, LIBOR sets the rate on $10 trillion of variable rate loans.

I've covered LIBOR on this blog before. LIBOR is the "trimmed average" of interbank lending rates submitted by banks to price short-term credit risk in the banking system (overnight, 1-week, 1-month, 3-month, 6-month etc). Read more details at the British Bankers Association's website. LIBOR was the most important rate to watch during the 2008 financial crisis to see if the Fed could save the financial system (unfreeze liquidity) when all of the banks were headed to zero (see posts: 1, 2, 3). And LIBOR also moved higher when the sovereign debt crisis in the euro zone started to flare up (1, 2). So these rates are no joke. And I think we now know why the Eurodollar COT predicts the S&P 500 one year in advance! Ha. So, after knowing all of this, how did the banks not profit from their own credit crisis in 2008?

Here are related articles and Max Keiser's interesting views on the scandal.

The LIBOR affair: Banksters: How Britain’s rate-fixing scandal might spread—and what to do about it (The Economist)

Barclays Corrupts Libor and Maybe a Lot More (Bloomberg)

Barclays’ Diamond Blames Libor Fixing on Other Banks, Regulators (AdvisorOne)

Wall Street Bank Investors in Dark on Libor Liability: “The automatic reaction from investors is: ‘Who’s next?’” said Todd Hagerman, a New York-based analyst at Sterne Agee & Leach Inc. (BusinessWeek)

Rate Scandal Set to Spread: Former Barclays CEO Lambasted in Parliament as Other Banks Brace for Fallout (WSJ)

Who Should Be Sharpening Their Pitchforks For Barclays? (DealBreaker)

Analysis: Future unclear for Barclays investment bank arm (Reuters)

Barclays’ US deal rewrites Libor process (Financial Times)

LIBOR Banking Scandal Deepens; Barclays Releases Damning Email, Implicates British Government (Rolling Stone)



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