Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

rollingstone.com

Post reply on HN
Print view View original

71–80 of 89 posts

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

#71

Post by phyalow »

clappski wrote: post #58
smallnamespace wrote: post #51

Earlier quoted context omitted.

> Like the fed funds rate [2], it's only quoted for one tenor: overnight. That's not quite true -- for example, 3m OIS swaps have fixings that are essentially the 3m average of FF over the period in question. In fact, this is mathematically a bit cleaner. If you construct an interest yield curve off of compounded 1m LIBOR vs. 3M LIBOR, you get rather different answers, whereas OIS yield curves constructed from differ…

As an aside, as someone that works in this space (yield curve construction, pricing, risking etc), does anyone know of a forum where news items have this sort of discussion?

Nuclearphynance and quant stack overflow are basically it. Otherwise best discussed on the trading floor!

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

#73

Post by MichaelBurge »

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.

What stops your criticism from being a fully general counterargument against any community with an opinion?

The EFF is biased in favor of free speech and encryption, and markets to cyber-punk programmers. So all arguments in favor of free speech made by any EFF member in any EFF-related article can be immediately discarded.

"dogruck on HN" is biased against rollingstone.com; and gathers upvotes by appealing to people who dislike rollingstone.com(which, separately, is ineffective); so we should discard his opinions.

In fact, because you seem to know about biases, you may actually be more prone to them: http://lesswrong.com/lw/he/knowing_about_biases_can_hurt_peo...

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

#74

Post by pjdorrell »

Surely some borrowers and lenders make decisions about making and taking loans based on the actual interest rates on the actual loans? In which case it doesn't matter so much if the rates are calculated based on a fictional assumption about something. At the end of the day every borrower or lender in the market makes their own decision about which lending contracts they take part in.

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

#75

Post by amygdyl »

clappski wrote: post #58
smallnamespace wrote: post #51

Earlier quoted context omitted.

> Like the fed funds rate [2], it's only quoted for one tenor: overnight. That's not quite true -- for example, 3m OIS swaps have fixings that are essentially the 3m average of FF over the period in question. In fact, this is mathematically a bit cleaner. If you construct an interest yield curve off of compounded 1m LIBOR vs. 3M LIBOR, you get rather different answers, whereas OIS yield curves constructed from differ…

As an aside, as someone that works in this space (yield curve construction, pricing, risking etc), does anyone know of a forum where news items have this sort of discussion?

Wilmott may be your best bet

https://forum.wilmott.com

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

#76

Post by JumpCrisscross »

cm2187 wrote: post #59
JumpCrisscross wrote: post #46

Earlier quoted context omitted.

> they're against OIS instead OIS stands for overnight indexed swap [1]. Like the fed funds rate [2], it's only quoted for one tenor: overnight. In the United States we're somewhat spoiled with having a deep, reliable, market-based yield curve calculated every business day: the Treasury yield curve [3]. But if you want to approximate the cost of a bank borrowing for a given term on the wholesale unsecured market, Lib…

I think you are mixing overnight index and overnight index swap. Derivative discounting is based on the index referenced in the CSA, which is typically an overnight index (Fed Fund in USD). To build a forecast curve for this index (and therefore a discount curve) you need to use swaps paying that index, ie OIS, hence the term OIS discounting. You can have any tenor you want for an OIS. When people refer to an OIS and…

> It would be better if there was an index they can observe directly

Agree. Even for sophisticated clients, throwing a direct reference into a contract is cleaner than translating a mathematical construction into legally-binding text.

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

#77

Post by twic »

JumpCrisscross wrote: post #10
zzalpha wrote: post #3

For folks who feel like they knew about this story already: read the article. LIBOR fixing is one thing. But the realization that there is no market that LIBOR measures is truly astonishing! 2021 will be an interesting year...

> there is no market that LIBOR measures Except that's not true. Interbank lending is still a $70 billion market in the United States alone [1]. Small compared to banks' balance sheets and less than the $500 billion from as recently as February 2008, but material nonetheless. Good rule of thumb in finance is to ignore Matt Taibbi. [1] https://fred.stlouisfed.org/series/IBLACBM027NBOG

AIUI, most of that lending is overnight. LIBOR ostensibly measures three-month deposits, which don't see much volume these days.

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

#78

Post by justincormack »

wahern wrote: post #15
lordnacho wrote: post #2

Pretty much everything that has derivatives tied to it is manipulated. Option expiries, FX fixes as well. Or it was when I was looking at it. The thing is there are derivatives that are sometimes non-linear, things with triggers and barriers. When some large enough fish has one of these (eg by taking the other side vs a customer) they have an incentive to move the rate in whatever way they can. Whether it's getting s…

Retail and transactional banking have built-in incentives for honesty, at least with other banks. Banks are repeat players in a millennia old game. The banks primarily profit by charging their clients for their services. There's little upside and tremendous downside for being dishonest. But when investment and retail banking merged, the stable system of incentives disintegrated. Before the merger, retail banking was…

Even the retail banking behaviours broke down, eg look at RBS being sued now for bankrupting its own customers for gain https://www.theguardian.com/business/2016/apr/25/rbs-royal-b...

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

#80

Post by osrec »

Libor is clearly out of date and open to manipulation (as are a lot of measures in finance). It's funny how so much of finance is quite literally opinion, presented as a number attempting to masquerade as fact. Every stock price, every swap rate, every credit rating. They're just herded opinions, often churned out of poor quality models or unstable, easily manipulated processes! As for making libor up, in my opinion, it was pretty made up, even if it's original processes worked as expected. You see, it assumes integrity on behalf of it's contributors, and that assumption is utterly false; every bank has an ulterior motive to optimise in favour of its portfolio. Finance in general needs a rethink; it's full of obvious moral hazard, which has somehow been considered acceptable through the times. The interest rate markets are probably a good place to start shaking things up, as they are likely full of the biggest manipulations.
Post reply on HN