If you are like most Americans, you’ve probably heard the term LIBOR. But if you are like like most Americans, you do not realize the impact this tiny particle of the economy has on everything we do on a daily basis.
What has happened is the financial world has been playing games with LIBOR. LIBOR stands for “London InterBank Offer Rate”. In essence it is the interest rate banks can charge other banks for loans. The reason it is important is the Commodities Futures Trading Commission (CFTC) has estimated over $800 trillion in financial instruments are pegged to LIBOR. By contrast the world’s annual economy is about $52 trillion.
The financial instruments subjected to LIBOR includes items like your home mortgage and auto loan but it also includes inventory notes for things like food basics such as gasoline, corn, wheat, rice, sugar, coffee, paint, clothing and medicines. It even affects the rates of the interest your savings earn. So LIBOR backdoors it way into all aspects of our living standard and the big boys have been rigging the game.
This time the problem can be traced to one of the more prestigious firms in the world, Barclays of London. In a New York Times article on July 9, 2012, the House Financial Services Committee asked the New York Branch of the Federal Reserve for transcripts of all phone calls between Fed officials and Barclays for 2007-2008.
During the past dozen years we have had law after law passed designed to “protect the consumer.” Accompanying those laws have been a veritable mountain of regulations. More than 600,000 pages of regulations have gone into effect over the past 18 months alone. But the curious thing about LIBOR is laws that were in effect and regulations which were supposed to be enforced in all financial markets were not.
In the early 1990s, the Fed suspended its watch over primary dealers (akin to posting “Beware of Dog” signs being posted when there is no dog). As we know all too well, problem after problem has arisen since then with failures threatening to bring down the world economy.
This is the heart and soul of the problem with all the world’s fiat currencies. Financial wizards have managed to produce something out of nothing. How else do you explain the hundreds of trillions of ”value” in listed assets based on derivatives and swaps. How can anyone have any sense of confidence in the coin of the realm jingling in their pocket when there is nothing backing it up but a prevailing perception it has some value?
To be fair, the majority of the attention in the LIBOR scandal thus far has centered in England. But it is quickly evolving in America’s banking system. There are questions now being raised about how big of a factor the rigged rates were in aiding the collapse of entities such as Countrywide, MF Global, Lehman Brothers and Bear Stearns. Firms like United Bank of Scotland, JPMorgan, Bank of America, MorganStanley and Citigroup are also being looked into. If there isn’t a bank on Wall Street or London not involved, it’ll be a shock.
The original problem surfaced when the United Kingdom’s Parliament received testimony from Barlclays executives. In their testimony the executives “hinted” that their LIBOR practices were approved or at least tacitly condoned by the Bank of England, the equivalent of our Federal Reserve. Why this is very important in America is those same Barclays’ executives are designated by our Federal Reserve as one of its primary dealers. Primary dealers are those select firms which can deal directly with central banks around the world. Central banks control 100% of all currency in the world.
There are indications these bankers dabbled into the gold market the same way, causing the price to dip by extending short positiones even while the price was surging. Since they have the ears of central bankers who cannot say the central banks didn’t abet this effort to prop up the perceived value of the currency they represent?
What is particularly suspect as to Central Banker collusion with the fixing scheme is the Federal Reserve was aware of irregularities in LIBOR back in August 2007 and DID NOTHING! British authorities notified the New York Fed at that time of its investigation and the implications but the reports were ignored.
Could it be that the Fed was already beginning to feel the implosion to our economy from the housing market (which officially hit in November 2007) and had more important things to handle or could it be the Fed simply didn’t care?
Whatever the answer to that question, one is compelled to come back to the assumption the Fed feels it must preserve the “faith of the people that the fiat of the United States, the almighty dollar, stays secure.”
Is this then what our government has come down to: passing laws to “protect the consumer” on the face only to be destroying them with double-talking regulations or selectively enforced regulations that don’t accomplish the original purpose?
LIBOR is the very heart of the financial world everyone deals with in some way daily but if the average person cannot trust LIBOR to be fair what can anyone trust in the world of finance or the government that must regulate it openly and fairly for all?
Depressingly, the answer is a single word–”NOTHING”.
This is the double-dealing that has led to the rise of distrust of government. It is this kind of deceit in applying the rules that is sustained by our government’s efforts to pick winners (Goldman Sachs) and losers (Lehman Brothers and Bear Stearns) through bailouts. It is also why the 99% distrust the 1% so thoroughly.
Unnoticed and unloved by the majority, LIBOR may be the straw that breaks the global economy’s camel.
“I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man.”–Thomas Jefferson
Today’s Rant was based on articles from the New York Times, Yahoo! Finance and Wall Street Journal from the week of July 9-13, 2012.