SOMEONE PLEASE!! Explain this rate-rigging thing!

[stealthpenguin]

I'm not an idiot, but I'm seriously struggling to understand what the banks did, how they did it, and the effect that it had.

Please enlighten me!

Oh and looks like the Labour government were complicit (quell surprise!) in all this as were the Bank of England. So you can thank Brown and co for the fact that a whole generation has been priced out of home ownership so that a few bankers and politicians can get rich. Socialism, we are all equal but some are more equal than others!

MSE has an excellent explanation here

[[http://www.moneyexpert.com/financial-news/none/800580967/barclaysrateriggingscandalexplained/article.aspx
Barclays rate-rigging scandal explained]]

I think the problems of being priced out of home ownership have deeper roots that Brown and co tbh.

It is illegal to fix the rate, that's why there is a serious fraud investigation going on. It's possible that some people will go to jail.

but more likely they will 'retire' with stonking pensions

Well it's a bit of a mishmash IMO. The headlines are mainly about the reduction of the LIBOR rate, which for most people with a mortgage will be a good thing, because mortgages can be linked directly to LIBOR (e.g. you pay LIBOR + X%) or because LIBOR is used a basis to justify the rate charged by the bank for a fixed rate or tracker mortgage. However it seems that for a period LIBOR was manipulated up, and so that would obviously have been very bad for mortgage holders.

Savers could have lost out though if their returns were linked to LIBOR - if it was lower they would have been paid less interest.

The main reason for it, as far as I can see, is that it made the banks look under less financial pressure. LIBOR represents the interest rate charged between banks for funding. In the wake of the 'crisis', banks were being cautious about lending to each other and charging high rates for funding, meaning the banks were under a lot of financial stress. If outside lenders knew the stress the banks were really under they would have been more cautious and charged a higher cost for borrowing. So by reducing LIBOR the banks gave the impression they were not under stress and kept their borrowing costs down.

Someone will hopefully come along to explain it better, but that is the jist as far as I can see.

It isn't illegal no.

I thought it was, something is at any rate, because the SFO is deciding whether or not to prosecute.

I think they are looking whether there is a case for fraud.

As far as I can tell, Sparkling not very much, the BBC implied last night that this is an area that is not covered by legislation.

With Banking though, and you'll have to forgive the irony here, it's all about reputation. By setting LIBOR at 11am there is supposed to be transparency. Colluding or unilaterally working to artificially work the rate is a big no-no. This kind of behaviour impacts our financial market in the eyes of International investors that want to invest on the London markets. If the Japanese for instance are looking to place money into London, they may well think twice if the market is acting in a dodgy manner.

I said on a thread last week, I simply cannot believe that Barclays operated in this alone. Other Banks and inevitably the Bank of England will be implicated.

Given the timing of the events and its correlation to the market instability in 2007/8 I would also be amazed if it wasnt politically expedient to have the markets look more robust than they were at the time.

Bob Diamond could be interesting later...

What time is he testifying Mr G?

is it under oath?

I need to confess at this point that I worked for Bob Diamond's bank for 22 years.

Barclays couldn't fix libor on its own. The calculation of libor ignores outliers (eg the lowest or highest numbers) so that if just one bank had put a deliberately low number in it would have been ignored. I think Barclays is just the first bank where the investigation has finished - there are lots of others being investigated but these investigations haven't concluded (they started later as I think the investigations only started after Barclays basically whistle blew on the other banks)

I don't know EnjoyResponsibility. I can't find any info.

Probably they all need to go and have a nice lunch first.

I heard yesterday that one of the problems with Barclays is that it has/had the same management as at the time of the rate fixing whereas others (and RBS was named) had had a total change of management and, it was implied, therefore the current management were not implicated in the rate fixing.
My understanding is also that this isn't covered by direct legislation BUT IS DISHONEST (problem is fraud can be tricky to prove) and therefore shouldn't need direct legislation for people to know that to do it is wrong. But then there seems to be a problem with people understanding the line between honesty and dishonesty at the moment (horrified to sound like mother emoticon)

As some of you may know, I'm not averse to putting a boot into Labour, and especially Gordon Brown, but in this instance, I think it's all a big storm in a teacup and is probably best forgotten.

Here's why. Firstly, back in 2008 all the banks stopped lending to each other as each bank was fearful that other banks would go bust and take them down with it. In this instance, with no money actually being lent out, it doesn't really matter what you set (or even fiddle) the interest rate to - 1%, 10% or even 1,000,000% - no one is lending and no one is borrowing. Does manipulating the rate really matter in this instance? The answer is no.

Secondly, as has been pointed out, manipulation of LIBOR can affect mortgages. It should be pointed out that most (i.e. nearly all) tracker mortgages follow Bank of England rates rather than LIBOR (which is a very different thing), so the overall number of peoples mortgages affected is low and in any case, these mortgages would have been reduced by this measure, not increased. The flip side of this is that savers would have got lower interest rates, but as the BoE interest rates were falling all the time and, at this point, were nearly through the floor, would a short term manipulation of the LIBOR rate have much of an effect? The answer is that any effect on mortgage holders would be negligibly beneficial and any effect on savers would be negligible, albeit in a negative direction.

Finally, and this is the clincher for me, what may have happened if Barclays hadn't manipulated the rates? Well, firstly, they may have gone bust and required a bailout from you and me, the taxpayer. As it was, they were able to get a bunch of rich Arabs to bail out the company. This has saved the taxpayer many billions of pounds, and for that reason, I think that doing what they have been accused of doing, was probably a good thing.

As I said, there's nothing to see here. This is the Tories trying to smear Labour in the same way as Labour has smeared the Tories over the Sky TV takeover.

Mr G, I've no doubt they'll be sitting emitting little burps all afternoon.

I also have a little side bet that Ed Balls will be in the shitter by the end of the week.

But ifthey kept the rates low in order to maintain confidence wasn't that a benefit to the public if it meant that overall rates were low?

Oh wait - just seen loads more posts - will read them first

oh gosh I started kind of understanding people's explanations, but now I'm getting lost again. if I had any money I would take it out of the bank and put it under the mattress.... I think.

Thing is, this afternoon, if these MPs all think that LIBOR impacts the mortgage rate (which is what has been said by one comentator after another this week) then the questionning gets off on the wrong foot.

Unless the MPs are properly clued up on how the financial markets work, they cannot hope to ask the sort of questions that will un-seat Bob D. He will be able to run rings round them.

Lets face it it has taken the toothless FSA 3 years to compile a report that indicates dodgy but not illegal practice. How can a panel of MPs get to the crux of the matter this avo?

It makes me want to swear a lot. [cross]

But thanks to those who've explained it so well.

I think it's all a big storm in a teacup and is probably best forgotten.

Storm in a tea cup ? They were just fined £290 million ! That sounds pretty serious to me.

Orwellian: "So you can thank Brown and co for the fact that a whole generation has been priced out of home ownership so that a few bankers and politicians can get rich. Socialism, we are all equal but some are more equal than others!"

How do politicians get richer from banks fixing the inter-bank lending rate?

I'm sure you can accuse socialism of many things, but I wouldn't have thought showing favouritism to large high street banks was one of them.

The post that has made most sense is sashh! Thanks for that, that's really cleared stuff up!

So basically, we're being screwed through a loophole that, while not illegal, is certainly sketchy both morally and ethically!