Counterparties: The Libor scandal expands

December 13, 2012

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“People are setting to where it suits their book. Libor is what you say it is.”

That’s the ontological musing of the man in charge of RBS’s Libor submissions; it comes from a 2007 phone conversation in a seemingly massive set of documents obtained by Bloomberg. One adviser to the OECD said that this is part of what “has to be the biggest financial fraud of all time”. (It’s a common refrain.)

In June, Barclays paid a record $450 million fine to settle Libor-fixing allegations for what Matt Levine called “biased guessing”. It wasn’t destined to remain a record. Today, we learned that UBS could face a fine of some $1 billion to settle similar charges with US and UK authorities. (RBS is said to be working on its own settlement).

It’s not going to end there. On Tuesday, three men were arrested in London over the Libor probe, including a former UBS trader. Bloomberg reports that the EU could could impose fines equal to 10% of banks’ annual revenue. Nine banks have received subpoenas in a joint investigation by New York and Connecticut AGs over how investors, states and cities have been affected. And Baltimore is already suing a group of big banks over Libor.

British regulators have put forth a sensible plan to fix Libor, but in an appearance this week outgoing BoE governor Mervyn King seemed to suggest that misleading Libor bids may just be inevitable:

We know there will be times when markets will be so thin, liquidity will dry up, that it will simply be impossible for people honestly to report quotes for LIBOR. It just won’t exist. That’s really what happened in September 2007 and September 2008.

King’s preference would be for regulators to come up with a set of Libor-submission principles from which the  “market can choose”. This summer, his successor suggested Libor may have to be abandoned altogether. Ryan McCarthy

On to today’s links:

Steve Cohen, the Lance Armstrong of investing? – Jesse Eisinger
The biggest lie that investors tell themselves: more information helps – Mark Dow

One less excuse to not leave your house: Google Maps for the iPhone is back – Verge

EU Mess
Europe takes one big step toward a banking union – Quartz

The Fed
The Fed’s “mandate is strong but the tools are weak” – Grep Ip

A hilarious satirical reading of The Economist’s “The World in 2013″ issue – Mark Leibovich

Crisis Retro
$40 billion in losses and thousands of foreclosures later, Angelo Mozilo has “no regrets about how Countrywide was run” – Bloomberg

The UN has declared 2013 “The International Year of the Quinoa” – United Nations

Says Science
Paper towels > air dryers – Conversable Economist

“Mr. Zuckerberg, tear down this wall” – Wired

Condoleezza Rice, venture capital advisor – Fortune

Sad Declines
Unions small, now – Matt Zeitlin


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