- The Large Hadron Collidor (LHC) was built to effectively find the hypothosized Higgs boson, the god particle, at a cost of 7.5 billion dollars. They ‘think’ they’ve found it.
- Libor (London Interbank Offered Rate) on the other hand was developed as a reference rate for financial products such as syndicated and variable rate mortgages.
Libor effectively touches 800 trillion dollars, yes, 10 times the real economy. Trillion… Think stars. 10 trillion in mortgages, a trillion or two in credit card debt, and 300 + trillion in swaps, etc… Ok so where’s the Libor connection? You have a select group of large banks proposing interest rates, and the average of their propositions become Libor. Libor is the interest rate setting god particle, it’s the part of your mortgage equation which you never see, because nobody really knows what IT is. Atleast not until 11am London time, after exchanging a few emails.
Manipulating the god partical, as you can imagine, can lead to all sorts of crazy conclusions, serious profit, and potential irreversable risk: we might all just get swallowed up in a giant black hole and risk planetary oblivion, for example. Seriously, here’s just one of many examples.
Now back to Libor which has been estimated, averaged, manipulated, and constructed upon since 1984 for the well-being of the entire world economy. Here’s a WSJ marketbeat spin.
These are the banks involved in the serious scientific Libor interest rate research which our financial markets are based upon. I’ve highlighted 2 of the banks which are in deep sh*t because of pre-crisis Libor manipulation.
I sincerely hope we don’t get sucked into a great black hole, but it looks like the Libor scandal might (white) dwarf Corzine and Bernie.
3 of the banks are US:
- Bank of America
- JP Morgan
16 are non-US:
- Bank of Nova Scotia
- Bank of Tokyo-Mitsubishi UFJ Ltd
- Barclays Bank plc
- BNP Paribas
- Credit Agricole CIB
- Credit Suisse
- Deutsche Bank AG
- Lloyds TSB Bank plc
- Royal Bank of Canada
- Société Générale
- Sumitomo Mitsui Banking Corporation
- The Norinchukin Bank
- The Royal Bank of Scotland Group
- UBS AG
Besides the L acronym which got me thinking about these two experiments, my guess is that the other banks on this list are going to find themselves under the microscope very soon.
Here’s an interesting commentary on why this Libor scandal is a non-event. Agree or not Cullen Roche makes a few good points.