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Is LIBOR, Benchmark for Trillions of Dollars in Transactions, a Lie?

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Re: Is LIBOR, Benchmark for Trillions of Dollars in Transactions, a Lie?

#61

Post by cm2187 »

lomnakkus wrote: post #50
smallnamespace wrote: post #6

This is old news for large portions of the interest rate derivatives market, which is quickly moving towards OIS[1] rates instead, based on widely traded liquid instruments. Also, the implication that LIBOR is purposefully a scam is basically untrue. When LIBOR was first developed, it was an improvement on other interest rate benchmarks, and it also reflected current market conditions at the time, as banks actually d…

Just by your terminology, I trust that you know (at least somewhat) what you're talking about, so... is there an ELI5 for this stuff? I'm completely lost in these types of discussions. They seem absurdly complicated for (good|bad) reasons? Are we looking at another complexity bubble that's going to burst in 5-10 years... to the detriment of everyone but the "top execs" who'll be bailed out? My impression after readin…

If you read the market section of the FT every day for a year, you will probably read enough articles with an introduction to all of these concepts to have a good enough understanding. But like any other profession, if you dive into the details, it can get quite complicated very quickly. There are lots of introductary books to each area of finance. For interest rates, the best book I have read is Interest Rate Swaps and Their Derivatives: A Practitioner's Guide by Amir Sadr. It's been written a few years ago and some things have moved on since but that's still an excellent, very practical, not too mathematical introduction to interest rate products.

Re: Is LIBOR, Benchmark for Trillions of Dollars in Transactions, a Lie?

#62

Post by ojosilva »

The Euribor, which governs my mortgage, uses the same interbank lending sources as the LIBOR.

http://www.euribor-rates.eu/what-is-euribor.asp

But I can't say I'm unhappy with it: never have I paid so little interest on anything I've ever owed, Euribor is negative right now and I'm loving it.

Whatever means of calculation or manipulation are being used, they are working out in my favor today. Maybe a stricter regulation would limit the banks abilities to lend competitively, which may not be in neither their, mine nor the government's favor.

Re: Is LIBOR, Benchmark for Trillions of Dollars in Transactions, a Lie?

#63

Post by cm2187 »

JumpCrisscross wrote: post #42
cm2187 wrote: post #21

Earlier quoted context omitted.

Also most banks got badly burned with fines after the Libor scandal and introduced a pretty strict process to ensure that doesn't happen again. The "fantasy" the article is referring to is the fact that large banks have to submit a number for every currency and every tenor every day, even if they didn't fund in that currency and that tenor that day. They will usually interpolate based on other tenors. However this is…

The most substantial change was reducing the number of currencies and tenors Libor is quoted in. Gone are the Australian dollar, Canadian dollar, New Zealand dollar, Danish krone, Swedish krona, 2 week, 4 month, 5 month, 7 month, 8 month, 9 month, 10 month and 11 month Libors [1]. That's an 80% reduction in the number of currency-tenors Libor is quoted in. [1] https://en.wikipedia.org/wiki/Libor#Currency

I wasn't aware they had been dropped. Thanks!

Re: Is LIBOR, Benchmark for Trillions of Dollars in Transactions, a Lie?

#64

Post by jpttsn »

lomnakkus wrote: post #50
smallnamespace wrote: post #6

This is old news for large portions of the interest rate derivatives market, which is quickly moving towards OIS[1] rates instead, based on widely traded liquid instruments. Also, the implication that LIBOR is purposefully a scam is basically untrue. When LIBOR was first developed, it was an improvement on other interest rate benchmarks, and it also reflected current market conditions at the time, as banks actually d…

Just by your terminology, I trust that you know (at least somewhat) what you're talking about, so... is there an ELI5 for this stuff? I'm completely lost in these types of discussions. They seem absurdly complicated for (good|bad) reasons? Are we looking at another complexity bubble that's going to burst in 5-10 years... to the detriment of everyone but the "top execs" who'll be bailed out? My impression after readin…

Good reasons, imho. The complexity is not (purely) a smoke screen thrown by conspiratorial insiders.

Most of the harder tech HN articles would seem just as impenetrable to regular Bloomberg Terminal users.

Re: Is LIBOR, Benchmark for Trillions of Dollars in Transactions, a Lie?

#65

Post by al452 »

tptacek wrote: post #31
Afforess wrote: post #4

This article contains a rather poor explanation of what LIBOR is and the history around it. Matt Levine does a much better job: https://www.bloomberg.com/view/articles/2017-07-27/the-end-o... Back in the 1960s, a Greek banker in London[1] wanted to find a way for banks to make syndicated floating-rate loans. He found a very simple answer: The banks would lend money to a company, charging their cost of funds plus a sp…

Matt Levine is so much better on these topics than Matt Taibbi that one might hope the site would switch URLs. But, of course, accuracy is not the reason people read Taibbi's financial reporting. They're both humorous writers (though in different ways; Taibbi is the better of the two as stylists), but Taibbi is also emotionally satisfying. It would be helpful if people kept providing Levine pieces to accompany Taibbi…

In some ways agree, except that I do not find Taibbi's rage-driven ignorance-fuelled style in any way "emotionally satisfying".

Re: Is LIBOR, Benchmark for Trillions of Dollars in Transactions, a Lie?

#67

Post by heisenbit »

> But beginning in the mid-nineties, banks began to discover that other markets provided easier and cheaper sources of funding, like the commercial paper or treasury repurchase markets. Trading between banks fell off.

The continuous easy money policies have prevented the markets to price credit risks for a long time. This has manifested itself in a series of bubbles. Weaning off will be difficult. Not weaning off will ensure collision with a brick wall eventually.

Re: Is LIBOR, Benchmark for Trillions of Dollars in Transactions, a Lie?

#69

Post by bboreham »

coliveira wrote: post #47
bboreham wrote: post #14

Earlier quoted context omitted.

Central banks actually will lend (or take deposits) at their rate. So in that sense it's not made-up.

Does it matter? Central banks are creating money, so of course they can pay the interest rates they made up from whole cloth.

My point was, if you can act on the number quoted, then market forces will eventually move it back into line with reality.

And history teaches that there is eventually an end to governments' ability to print unrealistic amounts of money. See Zimbabwe, the Weimar Republic, etc.

Re: Is LIBOR, Benchmark for Trillions of Dollars in Transactions, a Lie?

#70

Post by nurettin »

dogruck wrote: post #56
65827 wrote: post #55

Earlier quoted context omitted.

Are you dense? Matt Taibbi is possibly the most informed and important financial journalist of the last several decades.

Thanks for the insult. Matt Taibbi has an unabashed, heavily liberal bias. He sells by appealing to readers like you. I would argue that Michael Lewis is a superior popular finance writer.

So people who oppose the american conservative political view are also against LIBOR?
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