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On…

August 9, 2012

So, here’s a new (half-assed, I bet) series of grey-matter splatter verbiage – “On…” something or other that’s hopefully debate-worthy or at least all controversial and annoying and highly disagreeable to the morally upright. Since the morally upright do enjoy being offended so much. The idea is that when I am buried up to my neck (in sand and dirt. Not metaphorical.) and stoned to death, at least the reason(s) shall be set in digital stone. Unless the MPAA gets its way, of course. Then you’d be looking at a future of taxes for every letter your eyeball lands on.

Onwards.

On… LIBOR.

Yeah, I know right? So fucking boring. Where’s all the blood, gore and crucifixion? Being paid off by the bankers, that’s where.

LIBOR is important. Really important. How so?

LIBOR is exactly what it sounds like – Lie… bore………. Well, actually it’s the London Interbank Offered Rate. Like, Wiki it. Tl;dr? No matter. It’s no big deal.

No big fucking deal? No. It is a fucking big deal. Thing is, LIBOR is like the atomic clock of the financial world. Everybody sets their clocks by it. Or technically, their rates. Rates of every stripe and colour are affected by LIBOR.

No, you say, that’s not right, my mortgage rate is floating (or fixed – which means you are like super smart if you got it in recently) rate adjustable for the next twenty four years. Ask yourself this: my rate is floating… in perspective to what? Hyup.

Maybe you don’t actually deal with LIBOR directly. No matter. But consider this: your bank certainly does. Where does a bank invest their assets? Because like any other company, a bank is a cash flow machine – but in an almost pure (reversed) form. Your loans are their assets – but loans are risky. And in theory, derivatives are what the banks use to reduce (“hedge” is the proper word) risk. So what do derivatives base themselves on? Yeah. LIBOR.

Which is why the LIBOR fixing scandal ain’t just a scandal – banks are bilking other banks. Let me repeat that: the British Bankers’ Association – apparently Barclay’s in particular – have been screwing over the global financial system for a while in this real life Liar Game. But who does it really hurt after all? And why should you care?

Haven’t got much of an answer for you. Thing is, the entire system is pretty damn flawed. The obvious answer is everybody, of course, everybody but the bankers who get million dollar bonuses. But it’s never that simple in real life. Maybe that’s the big problem. Modelling. Computer-assisted trading, sophisticated enough to simulate every possible situation except the one that actually happens. But what’s the alternative – the Stone age? May as well start lighting fires with sticks, then.

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