World’s biggest banks accused of rigging rates

The Federal Deposit Insurance Corp. has sued the British Bankers Association and 16 of the world’s largest banks for rigging the LIBOR (London Interbank Offered Rate), the rate at which banks supposedly lend each other money.

LIBOR matters because it is the benchmark for setting interest rates on many different kinds of loans around the world.  Bill Black, an expert on financial fraud, wrote that LIBOR is used for setting interest rates for $300 trillion to $500 trillion in outstanding loans at any given time.

The defendants include the three largest U.S. banks, the four largest U.K. banks and the largest banks in Germany and Japan.

http://www.ritholtz.com/blog/2014/03/libor-the-worlds-most-dishonest-number/

Good advice from Iceland (with caveats)

I like and agree with this statement.

I like it even though Iceland’s politicians weren’t necessarily as brave and far-seeing as the statement implies.

Banks were allowed to go hog-wild in the United States and Europe in the years leading up to the 2008 financial crisis, but Iceland’s banks were wild and crazy even by Wall Street and City of London standards.   They collected money from depositors all over the world, and lent out money at high interest rates without thinking about the high risk.   Investors in the United Kingdom, the Netherlands and other countries bought into this risky behavior without considering that there would be a day of reckoning.

When the crash came, it wouldn’t have been possible for Iceland to bail out its banks even if it had wanted to do so.  The banks’ liabilities were equal to eight times Iceland’s GDP (its annual economic output).

Iceland did suffer severely from the recession, and it isn’t out of the woods yet.   Individual Icelanders are struggling economically, Iceland has a big trade deficit and the country is going to take another economic hit when the government lifts exchange rate controls on the Icelandic kroner.   In the last election, Icelanders voted in the political parties whose policies led to the financial crash, which is hard for me to understand.

Still Iceland’s recent history shows that it is possible to give relief to the honest citizen and prosecute the crooked financier, and still survive to tell the tale.