3 Reasons You Should Care About the LIBOR Scandal

Mon, July 23, 2012

Economy

Image via iStockPhoto/Yong Hian Lim

 

Have you heard about LIBOR? If so, you might be thinking it’s:

(a) The name of the new Spiderman movie villain,

(b) The second cousin to Lex Luthor, or

(c) A baby name option for the next addition to the Nicolas Cage family.

With a funny sounding name like “Libor” it could totally be any of those. But the securities geek in me wants you to that Libor is the acronym for London InterBank Offered Rate — the interest rate set by about about 16 guys in London for the rate major banks charge each other for short-term lending purposes and that’s used as a benchmark to set most other interest rates worldwide.

That Libor rate impacts major aspects of all our financial lives in this side of the Pond and is controlled by fewer people than sit on the National Security Council.

I understand that news about financial scandals and the world of securities and international banking aren’t usually the stuff of hot summer blog topics, but as there are other more sensational stories taking up most of the airwaves right now, I’d like to give you three reasons to focus on what’s going on with some U.K. masters of the universe:

1. Your credit card interest rate,

2. The interest rate on your home mortgage, and

3. Interest rates on student loans.

Those are all impacted directly by what these dudes in suits who live in the 2012 Summer Olympic city are doing over lunch on any given day. And you should care about this during the dog days of summer as you’re schlepping your kids to camp and the beach because why? Because there’s little regulation over those bankers in London who’ve have been using their ability to play with those rates to line their pockets, which has thrown the world banking system into a bit of a crisis, and which could ultimately make our financial system tank.

Otherwise, no big deal.

Where have we heard this story before? Yeah — right here with the shenanigans we experienced on Wall Street in a world where we were told that too much regulation is a bad thing, that market forces will reign in imbalances and that no one is really all that greedy as to turn the world’s money into their own personal piggy banks.

Of course, there’s one person who is much better suited to explaining this than me.

The Daily Show with Jon Stewart Mon – Thurs 11p / 10c
International Banking Actuality Part 37
www.thedailyshow.com
Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook
The Daily Show with Jon Stewart Mon – Thurs 11p / 10c
International Banking Actuality Part 37 – Libor Fallout
www.thedailyshow.com
Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook

What’s a few percentage points among friends? Some people claim that’ we’ve all benefited in some way from potentially lower interest rates, but is banking fraud the way to do that? Because those Libor guys could nudge the interest rate one way or another every day to their own benefit, they could reap millions upon millions of dollars while average consumers got the short end of the interest rate stick, ultimately costing families more to send their kids to college, increase monthly house payments and make those credit cards even harder to pay off.

I know it’s a lot of financial regulation mumbo jumbo to think about in the middle of summer, and my brain is as heat-addled as everyone else’s. But there’s a pattern of big financial fraud threatening to take down the global economy every couple of years. And with Republicans being the advocates of that ‘less regulation means a better economy” theory, it’s worth focusing on for a few minutes in the soccer camp pick-up line as we get closer to the November election.

 

Be Sociable, Share!

Related Posts:

, , , , ,

One Response to “3 Reasons You Should Care About the LIBOR Scandal”

  1. Chris Wysocki Says:

    Oh yes, Jon Stewart is Milton Friedman for Dummies. Or something.

    Those 16 guys are smarter than you. And me.

    But I kind of agree that LIBOR ought not be the be all and end all.

    More regulation isn’t the answer though. Regulation put LIBOR on top in the first place. “Standards” dontcha know. Fauucahontas and her Consumer Financial Protection Board promulgated regulations which mandated a uniform basis for setting interest rates on credit cards and loans and mortgages. The “international community” picked LIBOR.

    Once Upon A Time individual banks selected their own benchmark interest rate. But bozos like us had to read the Fine Print to find out what that rate was and how it was applied. Some bureaucrat decided that was too complicated, and LIBOR was anointed King Of The Benchmarks.

    Back in the Stone Age our schools taught basic finance. Simple interest. Compound interest. Rate of return. Kids were expected to know amortization from Americium. Somewhere along the way the government decided that stuff was too hard. And here we are.


Leave a Reply