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

Libor, long the most important number in finance, dies at 52

nytimes.com

Post reply on HN
Print view View original

81–90 of 184 posts

Re: Libor, long the most important number in finance, dies at 52

#81

Post by pjc50 »

erichocean wrote: post #65
JackFr wrote: post #35

Earlier quoted context omitted.

It measures the answer to the hypothetical question "If a another bank with good credit came to you right now to borrow (overnight/1W/1M/3M) in (USD/EUR/GBP/CHF/JPY) what rate would you offer them?" Which is a proxy for the banks' willingless to lend. (It had a less quoted counterpart, LIBID the London Interbank Bid Rate, where would you borrow at.)

ELI5 Why not simply measure the actual trading activity for exactly those activities the previous day?

That's a day old. And the market may not be very active. Besides, I don't think they are centrally cleared? (Or perhaps in the early days they weren't, it was certainly pre-digitization)

The market - interbank rates - is quite small in terms of participants. I think the problem is the number was incredibly useful even if it wasn't accurate.

Re: Libor, long the most important number in finance, dies at 52

#82

Post by willcipriano »

decafninja wrote: post #68
throwmeaway666 wrote: post #58

Earlier quoted context omitted.

>we were part of the cost cutting measures. >the event that lead to my eyes being opened to the world of Silicon Valley tech companies I found that being aware of whether you will be part of the cost center or profit center in a company is very useful when deciding where you should work.

Agree with this 100%. I now make it a point to avoid any companies where tech is an unrespected cost center, which unfortunately does rule out the overwhelming majority of companies out there. That said, even companies where SWEs and tech are the profit center are certainly capable of laying you off, so profit vs cost center isn't really any insurance to avoid that sort of fate. Even at the banks I've worked at the t…

I have one primary question that I'm trying to figure out during job interviews. "Will my boss understand what I produce and the difficulty involved in producing it?" if the answer is no, the job is going to suck.

Re: Libor, long the most important number in finance, dies at 52

#83

Post by twic »

hardtke wrote: post #63
yufeng66 wrote: post #59

Earlier quoted context omitted.

legally the new definition of 3 month Libor is sofr + 26.161bps

I'm tied to the 1 year LIBOR -- do you know what that will be?

0.71513%

https://assets.bbhub.io/professional/sites/10/IBOR-Fallbacks...

Re: Libor, long the most important number in finance, dies at 52

#84

Post by [deleted] »

dmurray wrote: post #17
HarryHirsch wrote: post #13

Earlier quoted context omitted.

So - considering that LIBOR was not an observed number, but a made-up number that was nonetheless useful, what did the LIBOR actually measure?

Bankers' consensus of what the overnight interest rate should be for a well-capitalized, creditworthy bank.

[deleted]

Re: Libor, long the most important number in finance, dies at 52

#85

Post by tlb »

SkyMarshal wrote: post #79
fanzhang wrote: post #45

When I first heard about LIBOR in 2002, I was surprised that the number is just based on a survey of bankers. Surely there would be accuracy issues with that? But at that time I was young and had no finance experience, so though that the adults in the room knew best. Turns out not! I don't think the base problem is that people shaded their numbers one way or another, it's that the system is designed wrong.

The more I've learned of the banking system, the more examples of this I see. It seems that much of the banking system was designed by bottom-line-oriented, non-systems-thinkers, who just wanted an immediate, good-enough solution to a problem. Accuracy, reproducibility, scalability, systemic integrity, and similar concerns often weren't a factor.

It evolved from a small system where the people all knew each other and went to the same few public schools where everything also ran on the honor system. It wasn't a bad design for its original scale & context.

Those dumb bankers. We computer scientists would never design something that failed to scale through 5 decades.

Re: Libor, long the most important number in finance, dies at 52

#86

Post by WanderPanda »

catothedev wrote: post #73
xtracto wrote: post #61

Earlier quoted context omitted.

Completely tangentially related: I love basis points. Up until I started working in the FinTech I could not grasp the need for it... but after much repeating "x% plus 3%" and then having to clarify that is 300 basis points and not x*1.03, it got my eyes opened.

It's also useful for negotiating rates. Saying you want a rate to be .2% lower is awkward and wordy. Saying 'can we take it down 20 bips?' sounds much more pro ;).

Your expressions are not equivalent

Re: Libor, long the most important number in finance, dies at 52

#87

Post by fourseventy »

ambrozk wrote: post #71
erwincoumans wrote: post #27

From the title it seems like Mr. or Dr. Libor died. For a paragraph, it is cute to have Libor personified. Doing it until the end of the story feels a bit artificial to me.

I enjoyed it, and I'm happy when writers practice their craft with a bit of humor.

It was confusing to me because I had no context on what/who Libor was.

Re: Libor, long the most important number in finance, dies at 52

#88

Post by cromulent »

fanzhang wrote: post #45

When I first heard about LIBOR in 2002, I was surprised that the number is just based on a survey of bankers. Surely there would be accuracy issues with that? But at that time I was young and had no finance experience, so though that the adults in the room knew best. Turns out not! I don't think the base problem is that people shaded their numbers one way or another, it's that the system is designed wrong.

The Corruption Index is similar - it’s based on how corrupt people think a nation is. Nothing to do with how much actual corruption exists.

Re: Libor, long the most important number in finance, dies at 52

#89

Post by erosenbe0 »

csdvrx wrote: post #32
Hjfrf wrote: post #25

Earlier quoted context omitted.

I worked at a European bank ten years ago, and libor was at least one leg of effectively every product offered. Interest rate swaps, credit, loans, fixed income, exotic derivatives, CDO, whatever. You have to hedge the interest rate risk somewhere or get stuck with huge collateral requirements/XVA. Cryptocurrencies don't solve the problem since they're largely traded on opaque exchanges and other l2 solutions even le…

I think the parent poster meant that the actual going prices on multiple exchanges could be used for data inference. While there are rumors of wash tradings on some exchanges, the price at which such trades would be going will be constrained by the larger network, and the risk of triangular trade will limit the possible divergences to a larger spread (instead of going one direction only) Add enough data, and you may…

Ummm the whole point is that it is a measure of relatively unregulated dollar for dollar transactions not subject to any clearinghouse, exchange, or blockchain regulation or visibility. LIBOR is supposed to be the benchmark of dollars anywhere, so to speak. So you're talking about apples and oranges

Re: Libor, long the most important number in finance, dies at 52

#90

Post by stanleydrew »

hardtke wrote: post #6

I have an adjustable rate mortgage based on LIBOR and the lender still has not said what they plan to do. The presumed replacement rate (SOFR) seems to be pegged near 0% which would be good.

If you read your mortgage contract I'm pretty sure you'll find a clause related to what your rate is based on if LIBOR is no longer available.
Post reply on HN