Confused as to what all the fuss around this LIBOR scandal is about? Well you’re not the only one.
That being said, it is significant and effects every American who pays taxes, uses a hospital, and knows someone who goes to public school. We found two infographics that might make this whole ordeal, what some are calling the biggest financial scandal of all-time, a little easier to understand.
This first infographic describes how the LIBOR’s vast scope and how it effects the average citizen.
This second inforgraphic explains in more detail how the LIBOR is determined and how officials at Barclays and other banks manipulated it to their benefit.
For more in-depth analysis, an article by Kapitall’s Danny Guttridge about the LIBOR Scandal from earlier this week is below.
It appears that the Libor-rigging scandal involving Barclays only leads further down the rabbit hole. What exactly happened, and why is it such a big deal? First, it’s important to understand what the Libor is, and how it was rigged.
Libor is an acronym that stands for “London Interbank Offered Rate”, which is the rate at which banks borrow from each other. Banks submit their own interest rate, and Thompson Reuters, on behalf of British Bankers’ Association, publishes a trimmed average of all of the rates. Basically, when the Libor is high, it shows a lack of confidence the banks have in each other, which means they could have troubled financial health. A large percentage of the world’s variable-rate investments rely on the Libor.
So how was it rigged? If banks were doing poorly, but wanted to make themselves look better, they would raise the rate they submit. With the amount of financial products relying on the rate, trillions of dollars would be affected.
What did Barclays do then? They artificially lowered their interest rate submission to make the industry as a whole look stronger. Normally, Barclays’ rate was higher than most other banks because they were reporting the real numbers, while all of the other banks were lying, according to their former CEO.
This is the scary part: an email from October 29, 2008 was released outlining a conversation between former Barclays CEO Bob Diamond and the Bank of England deputy governor Paul Tucker. The email was Diamond’s explanation to his Chairman and COO that Tucker encouraged him to rig the Libor lower by lowering their submitted rates.
Even scarier, Diamond’s email implies that Tucker was only relaying orders from senior members of the British government, and that their goal was to maintain an appearance of the country’s financial stability. Right now, it is only Diamond’s word that this occurrence is true, but if it is, then it implies that all other banks were leading the manipulation scandal, and that Barclays was the last to oblige.