A Good Laugh!

Barclay's cracks me up. They're such blatant liars that I should take another look at shorting them. What started me laughing was a rather innocuous sounding article from Bloomberg entitled: "Libor Fix May Prove Elusive as Banks Offer Solutions."

The article gets interesting in the second paragraph with this announcement:

The BBA plans to announce after 5 p.m. today the first changes to Libor in 10 years after the Basel-based Bank for International Settlements suggested in March that some lenders were misstating borrowing costs to avoid speculation that they were in financial straits.

First of all, the BIS did more than suggest. It offered indirect proof in the form of published CB borrowing rates higher than LIBOR rates. Borrowing from the CB's is safer than borrowing from another bank, so the banks were lying when they said that they were paying less to borrow from each other than from the Central Banks. QED. Proof, not suggestion.

Here's where the article gets better: the lying banks are asked for their opinions on how to keep them from lying in the future. (Is there a conflict of interest here?)

Morgan Stanley, the second-biggest U.S. securities firm by market value, says Libor should be based on trades rather than a survey. Credit Suisse, Switzerland's No. 2 bank, suggests increasing the number of U.S. participants. Zurich-based UBS, the world's largest wealth manager, advocates calculating the rate later in the day, while Barclays Capital says rates should be based on anonymous quotes.

Let's go right to Barclays: if the banks were allowed to submit their lending costs anonymously, what's to keep them from lying even more blatantly? This would be an invitation for rampant fraud and manipulation. I can't believe that they can say this with a straight face. I'm laughing my ass off right now!

UBS wants to calculate quotes later in the day. Exactly how this keeps banks honest, I don't know. Maybe they think it's bad luck to start lying in the morning. Morgan Stanley has the best solution: the banks should not be taken at their word. They should back up their words with actual trades. Sounds good to me.

Here's an indication as to how bad the lying was:

When the BBA threatened on April 16 to ban banks that misquoted rates, the cost of borrowing in dollars for three months jumped 18 basis points in the next two days, its biggest increase since before the start of the credit squeeze in August, BBA data show.

Let's hope they fix this. In the meantime, lets bring in some lawyers to sue the banks for manipulating LIBOR upwards and collecting loan interest payments higher than they should have been.