Associated Editor Gil Smart’s weekly column appears under one title in print - “In this world, banks rob you” and another at the web site - “In Soviet America, banks rob you”.
1) “You might have seen news about something called LIBOR, the London Interbank Offer Rate. LIBOR, as Wikipedia notes, is ‘the average interest rate estimated by leading banks in London’ as to what banks would charge them for a loan.” (NewsLanc Editor - ‘The inter bank rate’)
2) “Bank of You wants a loan for $100 million (hey, the house needs repainting). Those London banks estimate that Bank of You ought to pay, say, 2 percent for that $100 million. The actual loan cost is then based on LIBOR.”
3) “Central banks’ decision to ‘save’ big financial institutions by cutting rates already hammered taxpayers. Then came news last month that the big banks drove in additional nails. British bank Barclays has reached a deal with U.K. and U.S. regulators to pay $450 million and cooperate with investigators looking into allegations that banks rigged LIBOR. “
4) “As Matt Taibbi at Rolling Stone magazine noted: ‘The consequences for this boggle the mind. … Almost every city and town in America has investment holdings tied to Libor. If banks were artificially lowering the rates to beef up their trading profiles, that means communities all over the world were cheated out of ungodly amounts of money.’ ”
Apart from the perplexing reference to a “Soviet America”, here are comments in the order of the excerpts:
1) Okay. Included here for purposes of defining Libor.
2) We think Smart meant to say one of the following two things: (A) Those London banks estimate that Bank of You ought to pay, say, 2 percent over the LIBOR rate for that $100 million. Or (B) Those London banks estimate You ought to pay the equivalent of 2 percent so they set a rate of a certain amount above Libor. Say Libor is at 1 ¼%, they set the fixed portion of the interest rate at ¾% above Libor.
3) It wasn’t the lowering of interest rates to banks by the Central Bank of the USA and elsewhre that “hammered taxpayers.” It was allowing the banks to use the money they borrowed to purchase risk free Treasury Bonds that paid a higher interest rate, thus making billions of dollars in virtual gifts to banks at the expense of the taxpayers.
4) For every dollar that lenders don’t earn because Libor was manipulated lower than it should have been, borrowers save the same amount. So if government owes money on bonds and the understated interest rate is tied to Libor, the government is saving money and tax payers are benefiting. The reverse occurs if the Libor rate is manipulated upwards.
Smart’s article this week reminds us of James Joyce’s novel Ulylsses in that one needs reference guides to figure out what Joyce and Smart are saying.
All that being said, Smart’s basic thesis that banks are “robbing” the public is figuratively accurate in general and literally correct when it comes to Barclay Bank.