141–150 of 184 posts
Earlier quoted context omitted.
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.
It seems overwhelmingly likely that "how corrupt people think a nation is" does have "[something] to do with how much actual corruption exists".
Earlier quoted context omitted.
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
Well, you do with what you have (and the prices of apples may be correlated enough with the price of oranges to act as a proxy if you can't get the price of oranges), and the pros of "resilient to rigging" might be worth more than the cons.
Maybe the big players could agree to record a decent portion of the transactions transparently across a clearinghouse or blockchain that would be audited manually or cryptographically. Then you have real-time approximation of rates.
The salient info buried at the end: "Libor is survived by several successors, each making a claim to its crown. The Secured Overnight Financing Rate, or SOFR — a rate produced by the Federal Reserve Bank of New York that is based on transaction data, not estimates — has already been embraced by many banks in the United States and has the endorsement of the Fed. Others, like the American Interbank Offered Rate, or Ame…
It’s a pretty painless substitution though
The salient info buried at the end: "Libor is survived by several successors, each making a claim to its crown. The Secured Overnight Financing Rate, or SOFR — a rate produced by the Federal Reserve Bank of New York that is based on transaction data, not estimates — has already been embraced by many banks in the United States and has the endorsement of the Fed. Others, like the American Interbank Offered Rate, or Ame…
This has kept lawyers busy for past the few years. The "LIBOR fallback language" was created and then inserted into existing contracts, to address this question. It's like a pull request for a patch. Most of the legacy contracts out there have been "patched" with the "fallback language" at this point, and as of Jan 1, 2022, no new LIBOR contracts are allowed.
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.
Note that when SOFR starts to fluctuate, you wont know your actual interest payment before the end of each payment period, since these rates are applied on a daily basis, in arrears.
[1] https://www.cmegroup.com/market-data/cme-group-benchmark-adm...
Earlier quoted context omitted.
legally the new definition of 3 month Libor is sofr + 26.161bps
I know they will use a fallback spread to convert 3 month Libor to SOFR. But is the spread really a constant?
Earlier quoted context omitted.
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.
It seems overwhelmingly likely that "how corrupt people think a nation is" does have "[something] to do with how much actual corruption exists".
Earlier quoted context omitted.
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.
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.
legally the new definition of 3 month Libor is sofr + 26.161bps
What you're talking about is the credit spread adjustments from the ARRC formulation of the LIBOR replacement language (11.448 bps for 1 month, 26.161 bps for 3 months and 42.826 bps for 6 months) [0]. In reality, the credit spread adjustments for Term SOFR are still moving and the market has been all over the place - I've seen 10/15/25 bps at 1mo/3mo/6mo tenors (the most common formulation in the leveraged space right now) or a 10 bps flat adjustment (generally viewed as aggressive).
[0] https://www.newyorkfed.org/medialibrary/Microsites/arrc/file...
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.