The Bankwatch

Tracking the consumer evolution of financial services

More on the selective memory surrounding LIBOR

The real truth about LIBOR as I spoke about earlier is coming out now.  Here is a Yale Professor speaking articulately about the fallacy of LIBOR as a legitimate benchmark rate.

Libor: Three Scandals in One | Foreign Affairs  [emphasis mine]

The fundamental principle underlying floating rates is to allow the market to determine borrowing costs. Customers who borrow on a floating-rate basis, if they are sensible, and institutions that loan money on a floating-rate basis, if they are ethical, therefore expect two things from a benchmark interest rate. First, the benchmark should reflect actual conditions in the financial markets. That means no random fluctuations — money costs what it is worth.

Written by Colin Henderson

July 27, 2012 at 00:46

Posted in Uncategorized

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