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This week we enjoyed a glimpse of a largely invisible and previously poorly understood part of the universe. No, not the Higgs boson. The LIBOR. As physics geeks popped champagne, finance geeks were discovering the secrets of this seemingly obscure financial indicator which, as it turns out, gives mass to the entire financial universe.
Its manipulation by traders at Britain's third-biggest bank, Barclays, has triggered one of the biggest banking scandals in history, engulfing the Bank of England and Whitehall. Investigations continue into other banks which now face possible legal suits from pension funds and other investors who say they have been dudded out of billions of pounds.
So: what the heck is it?
The LIBOR, or London Interbank Offered Rate, is the interest rate at which banks are willing to lend to one another. Calculated daily, it forms the basis of many hundreds of trillions of dollars worth of financial contracts, including home loans.
The problem with the LIBOR is that it is not, as you might expect, an average of what banks actually pay, but an average of what major banks estimate they would have to pay at any given point in time (11am each day). These estimates are gathered from 16 of London's major banks and are inherently subjective, and open to manipulation.
And get this. The people responsible for estimating their bank's interest rate sit in the same office as the traders who earn a living entering into contracts, the profitability of which hinge on movements in the LIBOR.
Derivatives are a type of financial contract that allows traders to take a punt on future directions in interest rate movements. Even the smallest change can mean millions in loss or profit. And derivatives traders, as it turns out, are not shy folk when it comes to making money.
A series of emails between Barclays derivatives traders and the bank's LIBOR submitters unearthed by the British Financial Services Authority - which, along with US authorities, issued Barclays with a record £290 million ($440 million) fine - makes for entertaining reading.
''If it [LIBOR rate] comes in unchanged, I'm a dead man,'' writes one external trader to a trader at Barclays. The Barclays trader responds that he will ''have a chat''. The Barclays LIBOR submission is later lowered. By return email, the external trader thanks the Barclays trader, adding: ''Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger.''
In another, a Barclays trader emails the LIBOR submitter asking for a low rate that day, adding ''coffees will be coming your way either way, just to say thank you for your help in the past few weeks''. To which the Barclays submitter responds: ''Done, for you big boy.'' These are the modern-day cowboys running our financial system.
In a later phase of manipulation during 2007 and 2008, the authority found the Barclays LIBOR submitters had been instructed to set a lower rate to make the bank appear more credit-worthy.
The bank's former chief executive, Bob Diamond, who quit this week, has released emails suggesting Bank of England officials asked for a lower rate due to concern from Whitehall.
The scandal is a reminder that, for all the edifice, financial markets are run by humans employed specifically for their profit-maximising abilities - their greed.
Prisons the world over are crammed full of the perpetrators of crimes motivated by scarcity. But recent experience and empirical studies have shown that higher-wealth individuals are more likely to commit crimes of greed.
In a paper this year titled Higher Social Class Predicts Increased Unethical Behaviour, psychologists from the University of California, Berkeley, outlined the results of seven different tests showing a link between higher social class (wealth, occupational prestige and education) and tendencies to lie, cheat and endorse unethical behaviour. In one test, the researchers observed cars stopping at four-way intersections (an odd arrangement that doesn't exist in Australia, but consists of four stop signs and requires drivers to stop and then give way to the right).
All up, 12 per cent of drivers cut in front of other drivers. The proportion was significantly higher for cars deemed of a higher social class, such as Mercedes, BMWs, etc.
In another study, participants in a laboratory experiment were rewarded with a jar of lollies and told they could share them with children in a nearby lab. People of higher social class took more lollies from the jar before handing it over to the children - literally stealing candy from a baby.
Upper-class individuals have fewer interactions with others in their daily jobs, are more likely to have the resources to deal with financial penalties, express a more positive attitude towards greed, and, tellingly, are more likely to have studied economics. ''The pursuit of self-interest is a more fundamental motive among society's elite, and the increased want associated with greater wealth and status can promote wrong-doing.''
A glimpse into the financial universe's dark heart.
-------------------------------------------------------------
This is why the beloved "financial market" needs to burn, it is corrupt to it's core! It is a money laundering scheme, nothing more, let it collapse, let it all burn. Fark the rich.
Chook.
This week we enjoyed a glimpse of a largely invisible and previously poorly understood part of the universe. No, not the Higgs boson. The LIBOR. As physics geeks popped champagne, finance geeks were discovering the secrets of this seemingly obscure financial indicator which, as it turns out, gives mass to the entire financial universe.
Its manipulation by traders at Britain's third-biggest bank, Barclays, has triggered one of the biggest banking scandals in history, engulfing the Bank of England and Whitehall. Investigations continue into other banks which now face possible legal suits from pension funds and other investors who say they have been dudded out of billions of pounds.
So: what the heck is it?
The LIBOR, or London Interbank Offered Rate, is the interest rate at which banks are willing to lend to one another. Calculated daily, it forms the basis of many hundreds of trillions of dollars worth of financial contracts, including home loans.
The problem with the LIBOR is that it is not, as you might expect, an average of what banks actually pay, but an average of what major banks estimate they would have to pay at any given point in time (11am each day). These estimates are gathered from 16 of London's major banks and are inherently subjective, and open to manipulation.
And get this. The people responsible for estimating their bank's interest rate sit in the same office as the traders who earn a living entering into contracts, the profitability of which hinge on movements in the LIBOR.
Derivatives are a type of financial contract that allows traders to take a punt on future directions in interest rate movements. Even the smallest change can mean millions in loss or profit. And derivatives traders, as it turns out, are not shy folk when it comes to making money.
A series of emails between Barclays derivatives traders and the bank's LIBOR submitters unearthed by the British Financial Services Authority - which, along with US authorities, issued Barclays with a record £290 million ($440 million) fine - makes for entertaining reading.
''If it [LIBOR rate] comes in unchanged, I'm a dead man,'' writes one external trader to a trader at Barclays. The Barclays trader responds that he will ''have a chat''. The Barclays LIBOR submission is later lowered. By return email, the external trader thanks the Barclays trader, adding: ''Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger.''
In another, a Barclays trader emails the LIBOR submitter asking for a low rate that day, adding ''coffees will be coming your way either way, just to say thank you for your help in the past few weeks''. To which the Barclays submitter responds: ''Done, for you big boy.'' These are the modern-day cowboys running our financial system.
In a later phase of manipulation during 2007 and 2008, the authority found the Barclays LIBOR submitters had been instructed to set a lower rate to make the bank appear more credit-worthy.
The bank's former chief executive, Bob Diamond, who quit this week, has released emails suggesting Bank of England officials asked for a lower rate due to concern from Whitehall.
The scandal is a reminder that, for all the edifice, financial markets are run by humans employed specifically for their profit-maximising abilities - their greed.
Prisons the world over are crammed full of the perpetrators of crimes motivated by scarcity. But recent experience and empirical studies have shown that higher-wealth individuals are more likely to commit crimes of greed.
In a paper this year titled Higher Social Class Predicts Increased Unethical Behaviour, psychologists from the University of California, Berkeley, outlined the results of seven different tests showing a link between higher social class (wealth, occupational prestige and education) and tendencies to lie, cheat and endorse unethical behaviour. In one test, the researchers observed cars stopping at four-way intersections (an odd arrangement that doesn't exist in Australia, but consists of four stop signs and requires drivers to stop and then give way to the right).
All up, 12 per cent of drivers cut in front of other drivers. The proportion was significantly higher for cars deemed of a higher social class, such as Mercedes, BMWs, etc.
In another study, participants in a laboratory experiment were rewarded with a jar of lollies and told they could share them with children in a nearby lab. People of higher social class took more lollies from the jar before handing it over to the children - literally stealing candy from a baby.
Upper-class individuals have fewer interactions with others in their daily jobs, are more likely to have the resources to deal with financial penalties, express a more positive attitude towards greed, and, tellingly, are more likely to have studied economics. ''The pursuit of self-interest is a more fundamental motive among society's elite, and the increased want associated with greater wealth and status can promote wrong-doing.''
A glimpse into the financial universe's dark heart.
-------------------------------------------------------------
This is why the beloved "financial market" needs to burn, it is corrupt to it's core! It is a money laundering scheme, nothing more, let it collapse, let it all burn. Fark the rich.
Chook.
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