You’re absolutely right that this is just the beginning of the revelations about the Libor scandal and things will get a lot worse.

However, Cameron has already agreed to an inquiry specifically into the Libor scandal.

The more important question is whether there should be a wholesale inquiry into banking practice, regulation, political links etc over the last 20 years.

I personally think there should be, but with the likes of Vince Cable and Darling saying it isn’t necessary then it isn’t at all clear that Cameron will be forced to call one.

After all we may be all so enthralled over the next few months by the specific Libor revelations, and a few criminal prosecutions, that calls for a wider inquiry will be ignored.

Well I’m looking forward to star witnesses G Brown, E Balls and M King.

Though the idea that LIBOR fixing had any effect on mortgages is bollocks.
Were talking small fractions of a percent which have an impact only on the hugely leveraged derivatives positions with which “big boy” and the other traders were concerned.

I liked Parris in Saturday’s Times:
“For all of us, press and public, the sequence is becoming a habit. First the anger. Then a scramble to find out what precisely it is we’re going to be angry about. And finally a bit of hasty cramming so we can express the anger with fluency and apparent authority.”

“Well I’m looking forward to star witnesses G Brown, E Balls and M King.”

I assumed Gordon Brown would be volunteering to chair the inquiry. Isn’t that why he’s been keeping his diary clear ?

You do know that the “rigging” of LIBOR was mostly to push it LOWER….which would make loans CHEAPER for people.

LIBOR itself is a composite of where Banks are willing to lend to each other for certain periods, and as such is a market derived fixing, unlike the BoE base rate.

This is where the journo’s have got it all upside down. LIBOR will tend to move higher when there is a shortage of cash, or Banks are worried about the solvency of their peers – for example during the Lehmans crisis. It will tend to move lower when there is plenty of cash around.

The scandal being reported is that banks fixed rates – but if you read the articles it was about artifically lowering LIBOR to suggest that Barclays had enough cash on hand, and didn’t need to show higher rates to attract deposits. Whatever you think of the ethics of this move, that didn’t hurt their customers. If you actually read through the whole issue though, what most of the fines were for was shifting customers paying a spread to the BoE base rate to paying a spread to LIBOR, which DID increase customer costs significantly as LIBOR tends to price in some risks which the base rate does not, and therefore tends to be higher than the base.

Our future as a centre for world banking is at stake here.

That’s quite a big thing to say as our economy has put all its eggs in that particular basket.

If the UK is not seen to take action over this, through the courts, through criminal investigations, and through a thorough inquiry to clean up banking – then we lose the confidence of global markets.

The government seems very keen to keep the confidence of the market when it plays to their small state agenda – and to support this country as a centre for banking when it plays to their low-tax for rich people agenda. Will they prove3 doubly hypocritical now that the UK’s position as a banking sector is really at stake?

Can’t see how they have much choice.

This could have a big knock on affect to London being one of the top financial centres. If so this may also dampen the the eagerness to hold a referendum on the EU because the Tory Party is relying on the City to be our biggest asset if we were to break away.

Lets all be honest. The main experience most people have had of banking in the last 50 years is of being ripped off by them. Indeed, you could argue that ripping people is part of a banker’s DNA – borrow money from someone at a particular interest rate, lend it to someone else at a higher rate and pocket the difference.

But that has not been enough for them- to satisfy their greed, they have had to sell us mortgages that wouldn’t pay off our loans, pensions where they keep most of the fund and insurances that would never pay out. Finally they devised junk derivatives and ruined the world economy through them.

Having been undeservedly bailed out, they have spent the last four years licking their wounds and building their balance sheets by massively widening the margin on interest rates and have been supported to do this by their lackey politicians. Until the power of the financial/political cartel is broken we will remain shackled to their rotting hulk.

Anyone for credit unions, mutual societies and peer to peer lending?

@ 7 pagar

“Anyone for credit unions, mutual societies and peer to peer lending?”

Yes… but why is it “ripping off” for banks to profit from their business? Is my local butcher ripping me off because he puts a mark-up on his beef instead of manning the business out of the goodness of his own heart and selling at cost?

Furthermore, consumers who don’t borrow, don’t mishandle their finances and don’t earn too much actually get a service from banks that is worth far higher than what they “pay” in profit margin. If you manage a £1000pcm salary though a bank account, the profit the bank makes from your money is a lot less than what it costs to provide your account, your cards, your chequebook, your statements, your tiny share of the overall payments network and branch costs etc. Not that banks do this out of generousity, but the idea that “bank” = “someone who rips you off” is extremely simplistic.

You’re taking a truly bizarre position for a libertarian – haven’t gone over to the other side, have you?

“Our future as a centre for world banking is at stake here.

That’s quite a big thing to say as our economy has put all its eggs in that particular basket.”

Eh? The City, the wholesale financial markets, is about 4% of GDP. That’s all our eggs is it?

The total financial markets, inc the retail banks, life and car insruance, the lot, is some 8 or 9 % of the economy, still smaller than manufacturing.

I mean seriously, some proportion here, please.

“Anyone for credit unions, mutual societies”

Sure, great, do as you wish. But do try to make sure that they’re not run by the local politicians: that’s what screwed the Spanish banking system.

“especially if they can prove they took out their loans on days when Libor rates were artificially inflated, implying their mortgage was set at too high a rate.”

Umm, sorry, but someone doesn’t know how a Libor linked mortgage works.

On the day of issue the rate is set at Libor plus whatever %. That whatever representing the credit worthiness of the borrower, equity in the house and so on.

The Libor part of it changes each month/quarter/year, whatever the deal is. So if Libor was artificially high on the day of issue (by, say, one or two basis points, which is the sort of levels of manipulation we’re talking about) then that would only persist until the next reset on the mortgage. Assume that it’s a year until then and one basis point. On £100,000 of mortgage that would mean an extra £10 of interest has been paid.

Given that most Libor linked mortgages reset quarterly it’s actually some £2.50 per 100,000 in mortgage.

Hey, I’m calling for the market manipulators to be dragged out and hanged as well: but this reason doesn’t seem like a very important one really.

“Then, it’s also likely that some of the top executives will be extradited to the USA and put on trial. ”

The US settlements, just like the UK ones, are settlements. Sign up, pay the fine and it’s done and dusted. Only people who refuse to settle will face further charges….at least that’s the way it usually works.

“Because while most of the actions that led to the 2008 crash were legitimate, the Libor scandal was wholly about illegal activity.”

Assuming that what you’ve said there is true that’s why we don’t need an inquiry into Libor. Because it’s already illegal. We need prosecutions perhaps, but not a mulling over of whether the naughty things should be illegal: for that’s already decided.

Using your logic, it’s that things went pie shaped from legal activity that should bring about an enquiry. Do we want these legal things to be made illegal to stop it going pie shaped again?

Tim

Ignoring the hyperbole of my post – are you really saying the UK shouldn’t give a monkeys about the UK ceasing to be the global centre that it is for the markets at present?

If so – fair enough. If not, I guess you agree with the rest of my post about the need for visible action to be taken to reassure the markets and foster business freindly conditions in the UK.

I know this is so obvious it goes without saying. But until the government does what it needs to, people like you and I probably have to say it.

I wonder what’s going to come of the Bank of England angle. It wouldn’t surprise me at all if the BoE let it be known that lower Libor rates would be helpful during the credit crunch, for sensible reasons (banking runs can be self-fulfilling processes that feed off panic – high libor rates cause panic) and it’s not obvious anybody was hurt if the banks did that. Mind you, during the crisis, as I recall (possibly erroneously) the inter-bank lending markets more or less ceased operating, making any libor rate a fiction.

@ Chaise

Is my local butcher ripping me off because he puts a mark-up on his beef instead of manning the business out of the goodness of his own heart and selling at cost?

No. Because the butcher is adding value to the meat (by chopping it up). Banks add no such value to money.

consumers who don’t borrow, don’t mishandle their finances and don’t earn too much actually get a service from banks that is worth far higher than what they “pay” in profit margin.

Nonsense. My variable rate mortgage has just gone up by over £100 per month because some interbank borrowing rate has allegedly changed.

Base rates haven’t.

I am powerless to resist what, in any other area of activity, would be classified as theft. The oligopolistic position of the banks within the current system means that I have no option to move my debt somewhere else- even if I could it would only be to another member of the cartel.

The mis-selling- of private pension funds to people with final salary schemes, of endowment insurance policies to mortgage holders and payment protection insurance to the self-employed was all deliberately fraudulent and the banks pushed all of these.

You’re taking a truly bizarre position for a libertarian

Not at all. As I’ve said elsewhere

“Generally, a contract voluntarily entered into by both sides should be inviolate however contracts entered into in an environment where the state has skewed the playing field in favour of vested interests are not equivalent to truly voluntary contracts.”

I’d say you’re taking up a strange position as a cheerleader for crony corporatism.

@ 12 Pagar

Except what the banks are being pulled up for here is artifically marking LIBOR *DOWN*….during the Lehmans crisis the true cost of interbank borrowing was miles over LIBOR. LIBOR did go up but not nearly by as much as it should have done….so in this case the banks have saved you money on your mortgage. Of course, the BoE base rate didn’t move, but the BoE base rate in real life has very little do do with the actual cost of borrowing – much as Spain, Greece et al are finding out with regards to the ECB base rate.

You are also quite wrong when you say banks add no value to money. A bank’s main job is maturity transformation of money. Taking deposits and turning them into long term loans like mortgages for example. When you got that mortgage of yours though, the bank can’t go and borrow for the same length of time easily (if they did, your mortgage would cost you significantly more) so what they do if borrow for short periods of time and roll that loan over repeatedly during the life of your mortgage. Which ultimately means they take risk, both on the short term liquidity roll and your mortgage, whilst at the same time reducing the cost of your loan by accessing the cheapest source of capital. So saying banks add no value couldn’t be any further from the truth in real life.

Finally, when it comes to rigging the markets, by far the most guilty party in the market at the moment is the BoE with their QE program. Not only have they bar far the most ammunition, they are also ultimately the regulator, and if not for QE bond yields would almost certainly be higher, and loans more expensive. So if people are upset about banks marking LIBOR lower, maybe they should also take a look at the BoE as they’ve manipulated bond yields lower, destroying massive amounts of wealth for pensioners.

tyler

Thing about marking the libor down is that it is still ripping some one off.

Just like if one seeks a loan and lies about one’s finances to get a favourable rate. In fact exactly that – but with banks instead of consumers.

All of which kind of insignificant. Following the incompetence and poor regulation that led to the credit crunch – the UK is facing a reality in which its banks are also corrupt and happy to break the law.

The credibility of banking and the authorities that regulate it in this country are at stake. The implications for our economy are thus huge.

@ Tyler

when it comes to rigging the markets, by far the most guilty party in the market at the moment is the BoE with their QE program.

Agreed. Printing money cannot be the answer to macro-economic meltdown

However your previous paragraph was essentially a defence of the FRB system, the failure of which was, and is, the cause of our current problems.

You can’t have it both ways.

If you’re arguing for policies based on sound money, I’m with you. If you’re arguing for the freedom for state backed monopolistic institutions to continue to make excess profits by ripping off unsophisticated or helpless consumers, I’m not.

11. Luis Enrique

” I wonder what’s going to come of the Bank of England angle. ”

I will preempt that by saying they dun it.

Putting aside some of the press commentary that appears to consist of people making stuff up, a bit like the Barclays submitters. The most interesting question to me is why was there such a spread in the sterling Libor rate over the Bank rate especially at the one-month and three-month rates? The inimitable Willem Buiter was puzzled at the spread as long ago as October 2007, at the beginning of what was then known as the ‘ Credit Crunch. ‘
http://blogs.ft.com/maverecon/2007/10/murder-in-the-mhtml/#axzz1zTGsWIKw

We had this at the beginning of the Credit Crunch as the BoE money market operations lost control and things only got worse in 2008.
http://bp1.blogger.com/_yudw4k5Ezww/RwQ3G5SomII/AAAAAAAAADU/ap2q4eq1A-0/s1600-h/Chart+in+Scrap_31895_image001.gif

Dr Tim Young made the obvious point why such a spread should not exist.

Tim Young | October 5 10:27pm
” I am afraid the three month LIBOR spread to repo is still a mystery to me. I can understand that banks were reluctant to lend their existing funds out to another bank for three months, but they could always access more overnight money at close to the repo rate. Why did some banks not expand their balance sheets by lending to other banks for three months at 6.9% and take a punt on being able to fund that lending from overnight money for three months? If my bank had offered me an extra 1% to convert my instant access deposit to a three month time deposit, I would have readily agreed! ”

It is patently obvious that King and the BoE caused a liquidity squeeze and this directly led to the 2008 banking crisis being so severe in the UK. The truth is the Barclays submitters should not have had to understate their cost of funds because if the BoE money market operations had done their job there would not have been a huge spread between the Libor rate and the Bank rate. Some of us have been saying for years now about the financial crisis in the UK is that it woz the BoE that dun it.

@ 12 pagar

“No. Because the butcher is adding value to the meat (by chopping it up). Banks add no such value to money.”

So if the butcher didn’t chop up the meat, but simply acted as a middle-man, you’d consider him to be a rip-off merchant? In this sense banks can be considered middle-men: they organise the lending-out of your money and take a cut of the proceeds.

“Nonsense. My variable rate mortgage has just gone up by over £100 per month because some interbank borrowing rate has allegedly changed. ”

Um, I’m pretty sure your mortgage means you don’t qualify as the kind of consumer I was talking about, seeing as one of the criteria was “do not borrow”.

“I am powerless to resist what, in any other area of activity, would be classified as theft. The oligopolistic position of the banks within the current system means that I have no option to move my debt somewhere else- even if I could it would only be to another member of the cartel.

The mis-selling- of private pension funds to people with final salary schemes, of endowment insurance policies to mortgage holders and payment protection insurance to the self-employed was all deliberately fraudulent and the banks pushed all of these.”

I”m on board with fighting oligopoly and fraudulent behaviour. I am *not* standing up for banks as overall enterprises. I’m saying that one generally has to pay for a service, such as a bank account.

“Generally, a contract voluntarily entered into by both sides should be inviolate however contracts entered into in an environment where the state has skewed the playing field in favour of vested interests are not equivalent to truly voluntary contracts.”

You’re arguing with things I’ve never said. Get to the bit where you explain why banks shouldn’t be allowed to make money on current accounts.

“I’d say you’re taking up a strange position as a cheerleader for crony corporatism.”

The fact that I don’t hate all capitalism does not mean I like corrupt forms of capitalism. If a bank is prepared to look after my money for me, plus handle payments, give me a debit card and online banking services and so on, I think it’s entirely reasonable for that bank to lend that money at higher rates than it pays me in interest.

So in the end are we just going to get a parliamentary committee with special powers to embarrass Labour (I mean review documents under the last government)?

Given that in the end, the select committee that looked at the murdochs failed because the tories told their members to vote according to whip against any criticism of the murdochs, what makes anyone think this is enough?

Sunny, I think you are confusing LIBOR-rigging with swaps mis-selling. No-one is alleging that “thousands of small businesses were ripped off by banks manipulating LIBOR”. The FSA is saying that small businesses were ripped off by banks selling them inappropriate derivatives as “protection” against interest rate rises. That has nothing to do with LIBOR. Sure, many small business loans are set at LIBOR + margin. But manipulating LIBOR downwards, which is what Barclays and most likely the other panel banks were doing, would have benefited small businesses, not ripped them off.