Week InReview: August 18, 2017

Someone told Matt Taibbi how Libor works. "I mean, he's not exactly sweating the details -- 'If LIBOR rates are high, it means bankers are nervous about the future and charging a lot to lend' -- but he did read a Bloomberg article about how Libor is not really based on market transactions, and had a downright existential panic:

'Think about this. Millions of people have been taking out mortgages and credit cards and auto loans, and countless towns and municipalities have all been buying swaps and other derivatives, all based on a promise buried in the fine print that the rate they will pay is based on reality. '

Since we now know those rates are not based on reality -- there isn't a funding market -- that means hundreds of trillions of dollars of transactions have been based upon a fraud. Some canny law firm somewhere is going to figure this out, sooner rather than later, and devise the world's largest and most lucrative class-action lawsuit: Earth v. Banks.'

Matt Levine

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