We always knew that the financial markets were rigged, but this is getting ridiculous. It is now being alleged that 20 major banks have been systematically fixing global interest rates for years. Barclays has already been fined hundreds of millions of dollars for manipulating Libor (the London Inter Bank Offered Rate). But Barclays says that a whole bunch of other banks were doing this too. This is shaping up to be the biggest financial scandal in history, and criminal investigations have been launched on both sides of the Atlantic. What those investigations are likely to uncover could shake the financial markets to their very core. In the end, this scandal could absolutely devastate confidence in the global financial system and it could potentially bring down a number of major global banks. We have never seen anything quite like this before.
What Is Libor?
As mentioned before, Libor is the London Inter Bank Offered Rate. A recent Washington Post articlecontained a pretty good explanation of what that means….
Why Does Libor Matter?
If you have a mortgage, a car loan or a credit card, then there is a very good chance that Libor has affected your personal finances. Libor has been a factor in the pricing of hundreds of trillions of dollars of loans, securities and assets. The following is from a recent article by Maureen Farrell….
That is a number that is hard to even imagine.
Most American consumers do not even know what Libor is, but it actually plays a key role in the U.S. economy as the Washington Postrecently explained….
Who Was Involved In This Scandal?
What Did They Do?
Employees at Barclays (and apparently at about 20 other major banks) were brazenly manipulating interest rates. A recent Yahoo Finance article described how this worked…
Many in the financial world have been absolutely horrified by the details of this scandal that have been emerging.
One recent CNN article declared that “the stench” coming from London is now “overwhelming”….
You can read many examples of the kinds of emails that were exchanged between traders in New York and traders at Barclays in Londonright here.
What Does This Scandal Mean For The Future?
This scandal is making the global financial system look really, really bad. Confidence in global financial markets has already been declining, and these new revelations are not going to help at all. The following is how an article in the Huffington Post put it….
In addition, we are undoubtedly going to see a huge wave of lawsuits come out of this scandal. Those lawsuits alone will gum up the financial system for a decade or more.
So needless to say, this is a very big deal.
Sadly, the revelations that have come out about Barclays in recent days are probably just the very tip of the iceberg. Before this is all over, we are probably going to find out that most of the major global banks were involved.
At a time when the global financial system is already on the verge of a major implosion, this is not welcome news.
This financial scandal is just another reason to be deeply concerned about the second half of 2012. The house of cards is starting to look really shaky, and nobody knows exactly when it will fall, but anyone with half a brain can see that things are progressively getting worse.
A “perfect storm” is rapidly developing, and when it strikes it is going to be very, very painful.