By DK Matai
''LIBOR is hardwired into the DNA of financial market instruments and underpins trillions of dollars worth of financial transactions around the world including credit lines, bank over-drafts, mortgages, credit card rates and the value of complex derivatives including interest rate swaps. The LIBOR scandal amplifies the argument of those who feel that the global financial markets are simply a rigged casino game where the house -- also known as the world's largest banks -- always wins. Reading the text messages and emails between traders at Barclays about their often successful attempts to manipulate global benchmarks for interest rates is only likely to reinforce those beliefs. Those traders not only influenced the pricing of LIBOR but that benchmark then may influence or dictate the pricing of up to $650 trillion worth of swaps -- complex derivatives -- according to the Bank for International Settlements (BIS) data and several other key benchmarks between 2005 and 2009. Yes, $650 trillion is written $650,000,000,000,000 and that amounts to more than 10 times the entire world's annual output! A one basis point manipulation in that number is still equal to $65 billion which is written $65,000,000,000! Now there will be offsetting positions as well as back-to-back positions and not all those swaps key off just from LIBOR but it sets the ballpark for the quantum of manipulation involved. In addition, this action sends false market signals and creates a false market in one of the key planks of the global financial system. This is a terrible lapse of the moral compass and contributes in "unknown unknown" ways to cascading risks which produce butterfly effects!''
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