Libor Fixing was “Fixed”

A short story

London has always been the center for the Euro dollar deposit market, but most banks had NY operations that also made markets in Euro depos. For a time, I sat on one of those desks.

This was way before the Internet and live-streaming prices. Brokers communicated market prices over squawk boxes that were piled up on every desk. There was constant drone of background noise. I can still hear the voices:

I’m 7/8th bid sixes, looking for an offer

I’m an 1/8th around the figure 4 on threes. Looking to do business in the middle.

Last at three daughters (3/4%) on the offer in twos, buyer wants to build.

I have size spot-next to go, looking for a bid.

Looking for 3 large spot a week.

I have balances to go in threes and fours, I need balances over sixes.

Anyone have an offer on a year?

Now several eighths (1/4%) bid in nines, who wants to dance?

I need a bid in “Tom-next”, somebody please, talk to me.

Mostly we just called the players in the market and told them where we were bidding/offering strong. We even sent out faxes and telexes (I was in charge of the faxes).

One day the desk got short six-month money and had to pay up to get it back. So the calls (and my faxes) went out. About an hour later the “Big Boss” comes out to the desk and says:

I heard that you are bidding ¼ over the Libor fix for six-month money. What the fuck is that about?

Someone mentions that there was demand and that the Libor “fix” was not the price that cleared the demand, so we had to pay a higher price. The boss responds:

That’s your fucking problem. Don’t make it mine. Don’t show prices to the street that are over the fixing. It makes us look stupid or desperate.

The only thing interesting about this story is that it’s 30++ years old. People have been sandbagging Libor quotes since the concept of Libor was originated.

I don’t believe that there is a money pro on either the buy or sell side over the past thirty years who didn’t understand that the Libor Fixing was “fixed”. If they claim to be “shocked” today, they are either lying or stupid. The same goes for every central banker and treasury official that knows the way to the bathroom.

As far as any consumers who took out a Libor based loan are concerned; they have no claim at all. If Libor hadn’t been “fixed” all these years they would have paid substantially more on those loans. Libor has always been jimmied down, not up.

The world has been looking for an excuse to hang some bankers (and a few regulators). Liborgate looks like it could be the opportunity for the bloodletting. I’m convinced that this is the wrong issue to bring out the nooses.