LIBOR is Not a Hungarian Actress

I’ve spent a lot of time talking with people about LIBOR over the years; even well-educated Americans are fairly clueless about what it is – and no, she is not a Hungarian actress.

 

 

 

 

 

 

 

 

 

Here is a nice infographic about what LIBOR is, with a very brief explanation at the bottom about the current scandal (and, at the top, a link to a rather poor Washington Post article about the same – the main item of interest is that now the British government is saying Tim Geithner is lying). LIBOR is used in a LOT of financial vehicles: mortgages, derivatives, alternative risk transfer arrangements, etc. Below is a selection of some articles that make efforts to explain the current scandal, and why they may be important:

1. From the UK’s Economist – “The rotten heart of finance” (which, towards the bottom, touches on something focused on in #5 below)

2. From the Wall St. Journal – “Rate Scandal Set to Spread” (now behind pay wall) – which contains the (probably inaccurate) factoid that more than $800 trillion in securities and loans may be linked to LIBOR, and “U.S. Regulators, Taken to Task on Libor, Vow Vigilance” – which shows the current political nature of this affair.

3. From Professor Mead (from the American Interest) – “The LIBOR Scandal: A Crisis of Faith” – which is really more about the lack of faith people have in the current global leadership. Which brings us to one of the dimmest bulbs in that particular pack…

4. An accusation of the US Treasury Secretary in the NY Post – “What did Tim know?” I know people who have worked with Tim Geithner. And, yes, he really does have poor math skills. But I am not sure if this particular scandal is the problem that will get him in trouble, which brings us to…

5. Asia Times‘ Spengler – “Dr Frankenstein’s LIBORatory” – refreshingly brings his knowledge of banking, history of the 2007-2009 financial crisis and how the monkeying around with LIBOR at the time, “this tissue of lies, collective referred to as ‘regulatory forbearance,’ allowed the banks to get their balance sheets under control within a year, repay emergency loans to the US Treasury with a profit, and get back to the business of lending.”

This is a big deal, but is still off most peoples’ radar. Read or review all the above and come to your own conclusions…

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