Tag: interest rates

Fortune Mag Focuses on Mondawmin Mall to Illustrate Libor Impact

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Courtesy Citybizlist – Fortune Magazine writer Katie Benner penned a recent article headlined, “Baltimore: the city that sues the banks.”

She was trying to ascertain the impact of the Libor scandal (where some banks are alleged to have manipulated interest rates) on cities and municipalities.

“One might think that low rates would help a borrower, just as they help a mortgage or credit card holder, but in this case the opposite is true. Baltimore is not a rich town. The triple punch of the credit crisis, housing crash, and recession has forced the city to choose. Fire departments or afterschool programs? Police or libraries? As the first municipality to seek reparations in response to this alleged scheme, Baltimore was my destination to see how the Libor scandal was playing out.”

Baltimore City Sues Over a Dozen Banks for Rate Rigging

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Baltimore city is among several plaintiffs in a lawsuit against a slew of banks (including Bank of America, Citibank, and HSBC) accusing them of conspiring to rig interest rates, specifically, the London Interbank Offered Rate (Libor).

But the weird thing about the Libor is “it’s basically generated using the honor system.”    According to an article in The Sun, “a panel of banks report daily to the British Bankers Association…what rate they would expect to pay if they borrowed from another bank.” After throwing out the outliers all the numbers are averaged together. My point is, what’s the difference between conspiracy and standard operating procedure when banks are shouting a bunch of arbitrary numbers at each other that represent their subjective expectations?

The lawsuit claims that banks were setting the rate arificially low, which means that investments tied to the Libor were returning less money to investors. But interest rates are a double-edged sword; if it’s true, then debtors were given a little artificial relief.

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