March 29, 2024

News Cymru

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LIBOR Rigging “Scandal” – Why It Lowers Your Monthly Mortgage Repayment

One thing that has struck me through all the news coverage of the supposed LIBOR rigging has been the complete lack of explanation from the media as to why anyone should care.

Bloomberg are the best mainstream media outlet for business news and even they fail in providing a cohesive explanation as to why the LIBOR rigging is a newsworthy article.

The best thing they have come up with is that 500 trillion dollars of loans are based on the LIBOR rate. Okay that is a big number, but how exactly has it effected anyone? And has the supposed rigging by the banks actually effected the LIBOR in any way?

Some banks have been under-reporting their loan rates, some have been over estimating, so far there has been no evidence presented that I have seen that shows the rate itself to be unreasonable.

Bob Diamond’s resignation is all part of the pantomime to create a news story where there is none. In reality the current LIBOR system probably lower interest rates on mortgages and loans at the expense of the banks. The media frenzy is building public opposition to a system which actually benefits the public. image source: http://www.bloomberg.com/news/2012-07-03/diamond-pays-penalty-for-being-first-mover-in-libor-probe.html

And remember the LIBOR is not calculated scientifically, LIBOR is the average of 15 different opinions. It is not a scientific number. I have yet to hear a convincing argument that makes this a bad thing.

Bob Diamond and the CEO of Barclay’s resigning is more pantomime to build up the story when there isn’t one.

I believe this whole news story is being carefully choreographed, I believe Bob Diamond knew he was going to resign before the “news” story broke. If all these heads weren’t  rolling, the press would be a having a seriously difficult job in making people care about the whole issue.

There is a Commons Select committee today “grilling” Bob Diamond, yet more pantomime.

I am not saying people were being completely truthful in their answers to the BOE when LIBOR was being calculated, what I am saying is the this LIBOR “rigging” probably involves hundreds of people at all the major banks, and if it does not directly involve hundreds of people at the major banks, I am sure that hundreds of people have been aware of what has been going on for years.

The BBC is now preparing people for what I predicted yesterday, ie more centralised control of the LIBOR rate.

You can bet that there are people out there who can do a lot of whistle blowing about the LIBOR rate, Bob Diamond’s resignation makes the story look bigger than what it actually is, it also serves to scare any whistleblowers that might want to come out with their story.

Looking at Bloomberg’s coverage of this story today another theme becomes apparent and that is the effort the journalist seems to be going to, to paint a picture where the BOE, and each individual bank are seperate entities working in isolation, which of course they are not.

The LIBOR has effects on everyone’s mortgage payment, you want to believe that politicians have wanted to have some sort of influence and likewise the BOE.

With regards to the 15 banks that are asked what their borrowing rate is, I would be shocked if these banks did not call each other prior to the BOE phone call so they could all get their ducks in a row, so to speak.

What is portrayed in the media as separate banks competing against each other is imply not reality. The crash of 2008 showed that what we have is an international banking cartel where all the major banks are working extremely closely with each other to maximise their profits.

The media is trying to show in its reporting of the LIBOR “scandal” is that there are loads of different entities who are all dishonest so the answer needs to be centralised control by an “honest” organisation to make sure this sort of “rigging” does not happen in the future.

The reality is that the rigging of the LIBOR has been possible because all the parties involved have been working together as one entity, the problem, if there is one, is that the power to set LIBOR is too centralised and is controlled by too few people.

Bloomberg itself says 15 people control the interest rate on 500 trillion dollars of loans, if the real issue is supposed corruption, and everyone is in agreement that power corrupts, there is only one logical solution to the LIBOR process and that is to widen the number of people who are asked what their borrowing rate is. Instead of only 15 people being asked to set such an important interest rate, the process should be opened up.

Given the scope of loans that the LIBOR effects, I would say a minimum of 100 people should be asked what they think they can borrow at. It is much harder for 100 people to manipulate something in a coordinated way than it is for 15 people.

With 100 people there is also more scope for whistle blowers, it harder to please 100 people than it is 15.

The answer to this LIBOR “rigging” problem is to open up the process, it is obvious that any problem that exists does so because such a small group of people are wielding such power, the only obvious solution is to open up the process to include more people, I am positive the answer put forward by politicians will be the exact opposite.

And going back to the complete lack of intelligent reporting on the LIBOR issue.

Like I wrote above, no news outlet I am aware of has specified what exactly the problem is with LIBOR rigging and what the effect was on the electorate.

To me, this is an essential thing to report, especially as David Cameron has now said taxpayers have to pay for an investigation into the matter.

If taxpayers are being asked to pay for an investigation, you would at least expect Cameron to explain why he thinks the taxpayer should pay for the investigation, ie, explain what the taxpayer will gain from paying for this investigation.

And this takes us to the crux of the matter. It is widely thought that LIBOR has been unreported, in other words banks have been claiming lower interest rates than reality to lower their borrowing costs.

The effect of this has been to lower the cost of borrowing for the electorate. In other words the LIBOR “rigging” has in all probability lead to lower mortgage repayments for the electorate, lower borrowing costs for the public and business and it has also lower the interest costs on student loans.

In short, the current system is keeping loan costs lower than it would normally be and is helping the public at the expense of the banks.

The numbers supplied by the banks to calculate LIBOR exposed each bank’s creditworthiness. The banks are under reporting to make their business look stronger, and this is hurting their profits. The banks want a way to charge higher interest rates without the negative effects of making their business look weaker. Centralised control of the LIBOR will get them what they want.

Perhaps now it is more obvious why the calculation of LIBOR has been blown up into such a big news story. The benefits for the public and businesses was massive, for the situation to be changed the banks have had to make it look extremely bad which is why we see bankers falling on their swords.

The outcome of this furor is going to be higher borrowing costs for everyone, if this is going to be the result you have to do everything you can to show the current situation is completely unacceptable, when in fact the opposite is the case.

And this is what we have, the banks want to change the way LIBOR is calculated because they are actually paying higher interest rates on their borrowing than reality. The whole media frenzy surrounding this LIBOR situation is designed to create  public opposition to a system which actually makes people’s lives cheaper.

In short, the reporting of LIBOR has been completely inadequate at best.

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