The Biggest Financial Fraud of All Time - $300 Trillion Rigging of Libor(news.slashdot.org)
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The Biggest Financial Fraud of All Time - $300 Trillion Rigging of Libor
http://news.slashdot.org/story/13/01/29/2326242/the-biggest-financial-fraud-of-all-time
2 comments
This is something to be concerned with, it ruins the global economy and might even lead some nations to an economic collapse. $300 trillion USD stolen in this way really hurts. The money could have been used for good and helping people instead of making the wealthy even more wealthy.
It's only a small fraction of $300 trillion USD stolen. $300T of contracts and loans were affected but the banks were only skimming a small part of the loans.
$300T would be 30 times US's total production output for a year, or over 4 times total production of output for the entire world. Basically that means 4 times anyone has ever made over the past year. No way banks can steal that much.
$300T would be 30 times US's total production output for a year, or over 4 times total production of output for the entire world. Basically that means 4 times anyone has ever made over the past year. No way banks can steal that much.
I've been meaning to comment on this for a while, e.g. on Slashdot, but the thought of arguing this with some of those guys sends shivers down my spine. I've been impressed by some the discussions on HN so I'll share this with you, let's see what you think.
First of all, this is cleary fraud and those responsible should punished harshly. The whole concept of Libor is also flawed, mainly because it's not based on actual transactions and so is sensitive to manipulations like these.
Now having said that, let's make a couple of things clear:
1. $300 trillion is not the amount of money that has been 'stolen'. If the total amount by which the rate was skewed from what it would otherwise have been was 0.01% (which probably isn't wide of the mark) then it's $30 billion per year. A lot of money still, for sure.
2. $300 trillion doesn't mean what you thin it means. This assumes that one group of people 'loaned' another distinct group of people $300 trillion. But this isn't what happens, the number doesn't take into account that vast majority of these 'loans' are netted against each other. So at any given time the total amount 'lent' is a relatively small proportion of that, say $1 trillion (I think this is roughly true). So I think a better estimate of what was 'stolen' was about $100 million per year, within an order of magnitude.
3. It's not clear who stole this from whom. There are two main types of manipulation that have been reported:
a) Individual traders or desks manipulated submissions for personal gain. It's not clear that this actually skewed the rates in any particular direction over time, they might have increased one week and decreased the next (and so traders were perhaps paid higher bonuses for one year). In this case one trading desk or trader 'stole' from another trader or trading desk, perhaps even within the same firm.
b) During the recent crisis, the industry as a whole submitted Libor rates that were lower than the otherwise should have been, because they didn't want to look weak (and we know what happened to those who looked weak). This would have benefitted borrowers at the expense of lenders.
First of all, this is cleary fraud and those responsible should punished harshly. The whole concept of Libor is also flawed, mainly because it's not based on actual transactions and so is sensitive to manipulations like these.
Now having said that, let's make a couple of things clear:
1. $300 trillion is not the amount of money that has been 'stolen'. If the total amount by which the rate was skewed from what it would otherwise have been was 0.01% (which probably isn't wide of the mark) then it's $30 billion per year. A lot of money still, for sure.
2. $300 trillion doesn't mean what you thin it means. This assumes that one group of people 'loaned' another distinct group of people $300 trillion. But this isn't what happens, the number doesn't take into account that vast majority of these 'loans' are netted against each other. So at any given time the total amount 'lent' is a relatively small proportion of that, say $1 trillion (I think this is roughly true). So I think a better estimate of what was 'stolen' was about $100 million per year, within an order of magnitude.
3. It's not clear who stole this from whom. There are two main types of manipulation that have been reported:
a) Individual traders or desks manipulated submissions for personal gain. It's not clear that this actually skewed the rates in any particular direction over time, they might have increased one week and decreased the next (and so traders were perhaps paid higher bonuses for one year). In this case one trading desk or trader 'stole' from another trader or trading desk, perhaps even within the same firm.
b) During the recent crisis, the industry as a whole submitted Libor rates that were lower than the otherwise should have been, because they didn't want to look weak (and we know what happened to those who looked weak). This would have benefitted borrowers at the expense of lenders.