It doesn’t sound malevolent. Libor — the London interbank offered rate — is presented as a series of interest rates, which banks use to make unsecured loans to other banks. The use of Libor began in the early 1960s.
Every day, representatives of the world’s biggest banks — the ones that are considered “too big to fail” — meet in London and set the Libor for the next day, week, month and year. It is posted daily. It’s set for 10 different currencies, including the dollar, euro, pound and yen. The rate can be found on the internet or can be obtained through email from a variety of services.
What makes the Libor important is that it is used as a benchmark for interest rates around the world. Some $10 trillion of variable rate mortgages and $350 trillion or so of derivatives are pegged to the Libor. It’s also used as a benchmark for credit card interest rates.
British regulators — who have built a case against Barclays Bank and fined it $450 million for manipulating the Libor — say that as much as $500 trillion of financial instruments are pegged to the Libor.
What the U.S. Commodity Futures Trading Commission established was that Barclays, starting in 2005, manipulated the Libor to improve the bank’s profitability. Since Libor is set by the banks themselves, it was and still is easy for them to manipulate how the rate is set. Regulators paid it no mind until currencies like the euro were stressed.
The CFTC and its British equivalent were so incensed about what Barclays did and how it ripped off other, smaller banks, financial institutions and governments that they forced the resignation of Barclays’ top two executives.
The Libor demonstrates the immense influence and control the “too-big-to-fail” banks have over the world economy. However, the CFTC and its British and European counterparts will never reveal how the Libor has led to millions of foreclosures and bankruptcies worldwide. Untold numbers of working and poor people have been harmed by the exorbitant interest rates on mortgages and credit, which were manipulated by the Libor.
This atrocious theft by the big banks is an intrinsic part of global capitalism. Only socialism can put an end to it.