What Went Wrong with Libor Rate

The Libor Scandal began in the year of 2012. In 2003, a major outbreak investigation started due to reliable banks being a prime source of manipulation of interest rate, affecting many in the benefit of

Page 3: Introduction to the Financial System Page 7: Commercial Banks Page 12: The Share Market and the Corporation Page 15: Corporations Issuing Equity into the Share Market Page 19: Investors in the Share Market Page 24: Short-term Debt Page 28: Medium- to Long-term Debt Page 32: Interest Rate Determination and Forecasting Page 37: The Foreign Exchange Market Page 40: Factors that Influence the Exchange Rate Page 42: Futures Contracts and Forward Rate Agreements Page 47: Options

The LIBOR manipulation took place during economic upswing (2005-2009) and global recession (2007-2009). Before crisis the rates were manipulated on the both sides, lower and upper. The traders requested to increase as well as to decrease the rate depending on their bets. If the traders managed to get the rates higher before the financial crisis then the consumers suffered.

The responsibilities of the mortgage brokers to the borrowers, lenders, and investors were to promote the subprime mortgages to these groups of people in order for them to take out a loan. Although they did fulfill their responsibilities of promoting and having people sign up for it, they mishandled on how people should be granted for a mortgage loan. These brokers were to desperate about earning huge amount of money due to the expanding market that they ignored the proper precaution that they should have taken when they

In 2007, the financial crisis began. It was the most intense period of global financial strains since the Great Depression. It had led to a prolonged global economic downturn. The Federal Reserve took exceptional actions in response to the financial crisis to help stabilize the United

When doing that, interest rates rose higher than anyone has seen since the Civil War. Not only did interest rate rise, the lending rate rose also. It rose from 6.8 percent all the way to 21.5 percent in five years. Everyone in every part of the world was effected one way or another by this disaster, but farmers and rural bankers were especially hurt.

Both the company was providing loans at the lower rates which are against the regulations. The effect was they were bankrupt and there was misutilization of the investor’s money and taxpayer’s money. In the year 2010, the company held huge amount of mortgages which is more than 50% of the America’s mortgages. The effect is that they have sanctioned the loans without following the regulations and the result was that that they were bankrupt and government supported them huge amount of money and other incentives.

Once the US housing market collapsed, it created a credit crisis and crunch in the wider financial markets. Due to the complexity of CDOs many people had no idea how much they were really worth. Many of the CDOS were worthless and it was almost impossible to find the value of them (7). This led to a moral hazard problem whereby there was an overall caution of banks because many had no idea if they were even bankrupt. Inevitably, the interbank lending system crumbled whereby some banks stopped lending to each other and to corporations altogether or only lent with very high interest rates. Many banks who relied on interbank lending for money were heavily affected by this including Northern Rock. Inevitably, depositors of these banks become dubious of their banks financial situation and were provoked into withdrawing their money.

On the 11th of January 1929, the Wall Street Journal published an article addressing the probably effects of an increase in the discount rate. The article titled “Rise In Discount Rate Unlikely Soon” emphasized on the fact that a rise in the discount would most likely diminish the money supply. Banks would be less inclined to borrow money from the Federal Reserve due to the high discount rate and therefore would restrict the amount of money loaned to customers. The article also touched briefly on the effect of the increase on London stating “An increase in rates here, without an increase in London, unquestionably would attract gold from London” the outcome of which would

One of the primary factors that can be attributed as to have led the recent financial crisis is the financial deregulation allowing financial institutions a lot of freedom in the way they operated. The manifestation of this was seen in the form of:

“Since 2007 to mid 2009, global financial markets and systems have been in the grip of the worst financial crisis since the depression era of the late 1920s. Major Banks in the U.S., the U.K. and Europe have collapsed and been bailed out by state aid”. (Valdez and Molyneux, 2010) Identify the main macroeconomic and microeconomic causes that resulted in the above-mentioned crisis and make an assessment of the success or otherwise of the actions taken by the U.K government to resolve the problem.

I well remember two men who lived in our part of the county when I was a boy. One was rich (at least we thought he was) and the other was a share-cropper. One day the rich man drove by in a new automobile and the other said, “There goes a dishonest man.” And he may have been; I don’t know, but the idea was, “I’m honest and I don’t have a new automobile and so that means that he is dishonest.” But that is not necessarily so.

The U.S. subprime mortgage crisis was a set of events that led to the 2008 financial crisis, characterized by a rise in subprime mortgage defaults and foreclosures. This paper seeks to explain the causes of the U.S. subprime mortgage crisis and how this has led to a generalized credit crisis in other financial sectors that ultimately affects the real economy. In recent decades, financial industry has developed quickly and various financial innovation techniques have been abused widely, which is the main cause of this international financial crisis. In addition, deregulation, loose monetary policies of the Federal Reserve, shadow banking system also play

Housing prices in the United States rose steadily after the World War II. Although some research indicated that the financial crisis started in the US housing market, the main cause of the financial crisis between 2007 and 2009 was actually the combination of housing bubble and credit boom. The banks created so much loan that pushed the housing price to the peak. As the bank lend out a huge amount of money, the level of individual debt also rose along with the housing price. Since the debt rose faster than people’s income, people were unable to repay their loan and bank found themselves were in danger. As this showed a signal for people, people withdrew money from the banks they considered as “safe” before, and increased the “haircuts” on repos and difficulties experienced by commercial paper issuers. This caused the short term funding market in the shadow banking system appeared a

The purpose of the review is to inform the reader about the possible dangers geopolitical risks might have on the financial industry when the industry does not look after them. I was intrigued by this dark side of modern communication and the effect it has on the safety of the banking sector.