RIGGING THE RATES; Libor, the Scandal That You Forgot by Lynette Zang

Blog Apr 19, 2018

The first earning season after the tax changes is upon us. Earnings have not disappointed with many corporations posting the expected 20% earning surge YOY. While the stock market is a bit higher, volatility continues to whipsaw the markets with intra-day swings in the triple digits. With the stock markets off their recent high and earnings surging, who is buying? With volume declining, wall street is asking this same question. It might be easier to tell you who is NOT buying.

Insider selling more than doubled this past week, with extreme selling seen in the Utility, Health Care, Industrial, Finance and Technology sectors. It appears they may be getting out near a top, if this choppy market action continues. Who will be left holding the bag?Â You get one guess.

Letâ€™s talk about the quintessential insiders. The Too Big To Fail Banks and the 2012 LIBOR scandal, because itâ€™s not over yet.

Short term thinking can be handy for those executing longer term strategies

These days we are being constantly bombarded by headlines, with a new scandal being exposed almost daily.Â In this environment, itâ€™s easy to forget, particularly when the media goes quiet. That may be OK in some instances, but it might quite dangerous to forget others.

The LIBOR scandal that erupted in 2012 and is one that must be remembered because $370 Trillion in fiat money contracts are tied to LIBOR.

What is LIBOR?

LIBOR stands for London Inter Bank Offer Rate. In other words, the cost to banks to borrow, short term, from each other. Itâ€™s supposed to serve as an indicator of levels of demand and supply in all financial markets and is the most widely used for setting rates on derivatives, mortgages, bonds, student loans as well as, retail and commercial loans etc.

How LIBOR works

Every day, eighteen of the worlds biggest banks submit data about the interest rates they â€œbelieveâ€ they would pay IF they were to borrow from another bank. The rates were not based on actual or real data, but rather on opinions.

Initially, the guessing likely occurred because interbank lending collapsed starting in 2008. But once wall street realized how easy this rate was to manipulate and how much money they could make from this manipulation, it was off to the races.

In 2012 this fraud came to light and it was determined that the LIBOR was dead, and a new interest rate benchmark was required. Then almost all went quiet on the LIBOR front other than a few announcements.

In June 2017 fifteen (15) banks, many that were caught in the scandal, voted on a replacement based on the Treasury repo rate. Thought this too is a set rate.

In July 2017 the FCA (Financial Conduct Authority) announced the end date (2021) they would require banks to submit their â€œexpertâ€ opinion on rates. Today, submissions based on â€œexpert judgementâ€ or opinion, make up 70% of the daily LIBOR submissions.

The expectation that the LIBOR would die then. The problem is all the contracts tied to this rate, particularly those that come due AFTER 2021. This issue will be examined in Part 2 of the series on Hyperinflation. What happens to contracts.

Beginning to see the problem?

What can you do?

Physical gold and silver in your possession is the safest place to be because there is ALWAYS demand. As automotive technology continues to advance, the need for both gold and silver in manufacturing this new technology expands, simply because no laboratory has been able to duplicate the rare qualities of either metal.

Looking at the charts, Spot silver sits right on the upper trend line in a wedge formation. We may know today, if there was a breakout above the trend line. Spot gold continues to form a second cup formation inside the current long-term trend.

Remember, a cup formation indicates that smart money is quietly building their position. Are you with the smart money?