Have Banks Been Manipulating Libor for DECADES?

Investor

http://www.ritholtz.com/blog/2012/07/have-banks-been-manipulating-libor-for-decades/

Recent revelation that LIBOR was rigged to extract higher fees from borrowers is probably not a surprise for some. If you are not watching the news Barclay's bank CEO has recently quit because of this. British FSA (our SEC equivalent) is investigating.

But since LIBOR is used in home loans, car loans etc. during the real estate boom a rigged LIBOR might have become a large source of income for banks. If it can be proved that rigging has been going for decades, class action suits may be looming in the horizon.

msf

Not clear why you feel decades of rigging would be necessary for a class action. If one follows the link in the blog you cite, labeled "huge class action lawsuits", you get to a London Telegraph article, whose first sentence is:

Britain's banks face costs running into tens of billions of pounds from the Libor scandal if US litigants prove they were the victims of four years of mispricing, City experts have warned.

Emphasis added.

Even if the banks had been systematically lowering rates to reduce their costs, and thus reducing (not raising) the cost of borrowing for mortgages and such, for every "winner" there is a loser. So there would still be losers to sue the banks over this manipulation for the past four years. That's consistent with Schwab having filed suit already.

Investor

Reply to @msf: My understanding was that they were raising the LIBOR during the period of less demand by banks for inter-bank to profit more from loans made.

msf

Point taken. There might be a larger class (lots of small borrowers) that suffered if rates were artificially raised rather than lowered.

I think those that suffered in the other direction might be those holding the notes - MBS funds and their shareholders, for example. Not as obvious, and perhaps not as numerous, but still a lot of similarly situated investors.