Libor, long the most important number in finance, dies at 52 • Hacker News Board

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

#11

Post by TameAntelope » Thu, Jan 20, 2022, 5:09 PM UTC

> It turned out that bankers had been coordinating with one another to manipulate the rate, pronounced “LIE-bore,” by skewing the number higher or lower for their banks’ gain.

The authors must be very pleased with themselves about this one...

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

#12

Post by ddlatham » Thu, Jan 20, 2022, 5:11 PM UTC

There's a great Planet Money episode explaining the story

https://www.npr.org/transcripts/1044598674

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

#13

Post by HarryHirsch » Thu, Jan 20, 2022, 5:13 PM UTC

siliconlotus wrote: post #8

When I worked in investment banking, all our debt models were pegged to LIBOR. Rest In Peace! God bless the IB analysts scrambling to plug their models with replacement rates and weird hardcodes!

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

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

#14

Post by epa » Thu, Jan 20, 2022, 5:13 PM UTC

Unfortunately the replacement of SOFR is a collateralized rate where as LIBOR is non-collateralized. Adoption of SOFR has been slow because its not 1:1. Plus, LIBOR is not dead yet, still a lot of contracts that need to go through maturity before the rate truly dies.

Interesting history on LIBOR, was created related to an Iran loan in the 1960s. Doesnt seem that long ago but that is pushing 50 years now. Imagine apple told you that mouse will no longer be supported on OSX, please everyone switch to touch screen -- the adoption would be slow at best.

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

#15

Post by divbzero » Thu, Jan 20, 2022, 5:14 PM UTC

Past HN discussions on the LIBOR scandal —

[2012]: https://news.ycombinator.com/item?id=4224873 "Lies, Damn Lies and LIBOR"

[2015]: https://news.ycombinator.com/item?id=9426247 "Deutsche Bank to Pay Record $2.5B to Resolve Libor"

[2017]: https://news.ycombinator.com/item?id=13497578 "Libor: the bankers who fixed the world’s most important number"

[2017]: https://news.ycombinator.com/item?id=14075230 "Libor: Bank of England implicated in secret recording"

[2017]: https://news.ycombinator.com/item?id=14994122 "Is LIBOR, Benchmark for Trillions of Dollars in Transactions, a Lie?"

[2018]: https://news.ycombinator.com/item?id=16418629 "The brazenness of the LIBOR scam"

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

#16

Post by gadders » Thu, Jan 20, 2022, 5:14 PM UTC

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're in the US and the mortgage is dollar-based I would expect you to be transitioned to a SOFR-based loan, possibly with a credit adjustment spread.

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

#17

Post by dmurray » Thu, Jan 20, 2022, 5:14 PM UTC

HarryHirsch wrote: post #13

siliconlotus wrote: post #8

When I worked in investment banking, all our debt models were pegged to LIBOR. Rest In Peace! God bless the IB analysts scrambling to plug their models with replacement rates and weird hardcodes!

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.

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

#18

Post by tomc1985 » Thu, Jan 20, 2022, 5:15 PM UTC

Man I'm glad I don't work for a fintech right now, there's a lot of very complicated code with LIBOR as an input

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

#19

Post by wsc981 » Thu, Jan 20, 2022, 5:16 PM UTC

tomc1985 wrote: post #18

Man I'm glad I don't work for a fintech right now, there's a lot of very complicated code with LIBOR as an input

Think about all the job security. You'll be set for many years!

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

#20

Post by tomc1985 » Thu, Jan 20, 2022, 5:17 PM UTC

HarryHirsch wrote: post #13

siliconlotus wrote: post #8

When I worked in investment banking, all our debt models were pegged to LIBOR. Rest In Peace! God bless the IB analysts scrambling to plug their models with replacement rates and weird hardcodes!

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

LIBOR is often part of the formula for calculating loan interest rates. Last time I saw such code it looked something like:

LIBOR + bank's minimum interest rate + a rate based on creditworthiness = your offered interest rate

Planet Money recently had a really good episode on how some banks are deciding on a replacement rate: https://www.npr.org/2021/10/08/1044598674/libor-pains