General Discussion
Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region Forums6 Ways Big Banks Screwed Grandma in the Price-Fixing Scandal That's Rocking the World
http://www.alternet.org/story/156460/6_ways_big_banks_screwed_grandma_in_the_price-fixing_scandal_that%27s_rocking_the_world***SNIP
1. Lower LIBOR reduced rates of return on prudent investments. Two general principles dictate investment patterns during a persons lifetime. First, as a general rule, people borrow during household formation, save (or invest) as empty nesters, and then spend their savings and investment income during retirement, along with any pensions. Second, investment patterns also change throughout an individuals lifetime. People invest more aggressively in shares of stock, for example, earlier in life, and then shift into less risky fixed income investments as they age.
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2. Lower LIBOR squeezed pension yields. Along with other retirees, Grandma has lost out when the pension she expected to receive ended up with lower returns. Her pensions viability depends upon the yield of her pension funds investments. Lower LIBOR translates to lower rates of return on the floating rate bonds the pension funds hold.
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3. Finagling LIBOR is securities fraud, which ultimately spanks bank profits and harms shareholders. Finagling LIBOR to windowdress banks health is textbook securities fraud, for which banks and their employees should expect to pay civil and even criminal penalties. Banks are also open to considerable civil legal liability, including treble damages available under antitrust statutes, if it can be proven that they colluded in fixing LIBOR. These damages will reduce bank profits, and may depress share prices.
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4. Artificially low LIBOR prevented bank problems from being nipped in the bud. By underreporting LIBOR starting in 2007 when signs of the current credit crisis were becoming apparent, banks sent a message that they were in less trouble than they later proved to be.
dipsydoodle
(42,239 posts)albeit the degree to which the rate was artificially lowered seems to be in the order of 0.001 %
The subject does however contradict statements that mortgagees suffered at the same time. It can't apply in both directions
On the Road
(20,783 posts)Lowering LIBOR certainly would work both ways for a bank. I guess it depends on how much of their assets vs. their liabilities are LIBOR-sensitive as well as the timing of that effect. Eg, ARMs are only reset in certain months, but interest on variable rate accounts varies constantly.
I have had a hard time getting a sense of the scale of this -- 0.001% doesn't sound like much, but it could be sizable spread over trillions of transactions.
Article was informative, but the author appeared to take the view that the entire financial cataclysm should be laid at the feet of any party that temporary reduced borrowing rates by a tenth of a basis point.