82,976
edits
LIBOR rigging: Difference between revisions
no edit summary
Amwelladmin (talk | contribs) No edit summary Tags: Mobile edit Mobile web edit Advanced mobile edit |
Amwelladmin (talk | contribs) No edit summary |
||
| Line 18: | Line 18: | ||
With LIBOR the banks could then set the rates for their deposits and calculate a suitable fixed rate for new term loans . Happy, dull stuff, carried out by happy, dull people: We din’t want to run the LIBOR people down, but pre 1997 this was the after-school chess club: all the cool kids were out shagging, smoking weed and shorting structured credit. | With LIBOR the banks could then set the rates for their deposits and calculate a suitable fixed rate for new term loans . Happy, dull stuff, carried out by happy, dull people: We din’t want to run the LIBOR people down, but pre 1997 this was the after-school chess club: all the cool kids were out shagging, smoking weed and shorting structured credit. | ||
It is one of JC’s axioms that market catastrophe will | It is one of JC’s axioms that [[Air crashes v financial crashes|market catastrophe will happen where you least expect it]]. This is because success in financial services is in large part about [[edge]], and you find the most [[edge]] where no-one else is looking for it. | ||
Tom Hayes was a cool kid. | Tom Hayes was a cool kid (''metaphorically'': he doesn’t seem to have been ''literally'' cool in the slightest). But he hung out in the chess club. He, and a bunch of other grooves, found some edge there, where no one was looking for it. No one bothered them and they didn’t do any harm — at least, not that anyone has been since able to point to. But they sent lots of embarrassing emails | ||
As per the basic model, to manage their structural interest rate risk, banks ''generally'' would want LIBOR low — but deposits are not the only show in town. Some banks — principally those that were | As per the basic model, to manage their structural interest rate risk, banks ''generally'' would want LIBOR low — but deposits are not the only show in town. Some banks — principally those that were swap dealers — had exposure to the interest rate market through swaps. | ||
Here, the bank “swaps” interest rates with its customers: it might pay one customer a fixed rate and receive from it a floating rate; with another it might swap floating for fixed. | Here, the bank “swaps” interest rates with its customers: it might pay one customer a fixed rate and receive from it a floating rate; with another it might swap floating for fixed. | ||