Pragmatic Capitalism

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Thoughts on LIBOR Being Made Up

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Matt Taibbi has an article on Rolling Stone that describes LIBOR as being a benchmark used for all loan products but is essentially a lie –

Any thoughts on the validity of this WRT how banks originate loans?

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Posted by Marc Downer
Posted on 08/12/2017 1:44 PM
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Taibbi writes some pretty hyperbolic stuff. See the attached chart of the Fed Funds Rate vs LIBOR. They’re the same basic thing. Maybe banker manipulate LIBOR a little bit here and there for bad reasons (or good?), but they’re not dramatically different and it would be pretty stupid to say that the FFR is “manipulated” or a “lie”. It’s just an overnight rate set by the Fed to clear interbank payments. And LIBOR is pretty much the same thing. I don’t see anything here that’s worth getting too upset about.

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    Cullen Roche Posted by Cullen Roche
    Answered on 08/14/2017 5:26 PM
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      There were definitely scandals relating to LIBOR several years back and those are true, but I agree with Cullen that as a borrower you would never know the difference. Basically they manipulated the rate both up and down to profit. That also means there is an equally likely chance that you benefited if you had a product tied to LIBOR (but again, a very tiny amount).

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      Posted by Ryan McCormack
      Answered on 08/17/2017 1:50 PM
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        LIBOR rate is usually higher than FFR rate since 2008. This is because US dollar is in higher demand in the international market. Since these rate numbers are small, it would be more clear to compare them in difference and difference percentage.

        1. Red line (on left axis) = LIBOR – FFR
        2. Blue line(on right axis) = 100*(LIBOR – FFR)/FFR

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        Posted by pliu412
        Answered on 08/18/2017 2:25 AM
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