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View Diary: Libor --- OUTRAGE .... Please!!!! (210 comments)

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  •  The explanation is straightforward... (9+ / 0-)

    but gets confused when people focus on their own impact if they hold, for example, a LIBOR + X loan.  Low LIBOR and they're good, right?  For that instance, yes.

    However, expand your view beyond your loan.  Whenever a price is manipulated, and apparently LIBOR was manipulated high and low, whoever performs or has knowledge of that manipulation holds non-market knowledge that they can use to their own advantage.

    It's rather straightforward to understand on a stock equity side - if you know the price of a stock is going up - you buy it before that happend; by the same token, if you know the price is going down, sell before the drop or short sell.  Either way, you make money on the knowledge.  Same with interest rates and all the dealings with those products.

    Now a key issue with the LIBOR scandal is that apparently Barclays traders did precisely this to enhance their own trading positions to make themselves and Barclays money.

    Keep in mind, if your interest rate is held artificially low, the other side of that trade loses what you gain.  That's the deal with financial markets.  When someone is making money hand over fist, that capital is coming from someone else.  Those folks are losing money hand over fist.

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