Libor Update And The Game Of Chicken
We wrote about Libor a short while ago when it appeared the organization responsible for setting this rate, the British Banker's Association, seemed to be admitting without admitting that banks weren't honestly reporting data used to set the rate. Or as someone quoted in today's article states, "The Libor numbers that banks reported to the BBA were a lie.". Or as the Bank for International Settlements stated, some lenders were manipulating the rates to prevent their borrowing costs from escalating. Now why would any bank do that if they were solvent? So, when the BBA threatened to kick banks out of the 'club' who weren't reporting accurate data, guess what happened? Libor rates rose the most since the start of this mess. A sign that there is still great trouble in the banking system. But, then we knew the banks couldn't be coming out of this because credit conditions are just now deteriorating for both corporations and consumers. So, the reality is there is no reason to believe conditions won't get worse over time. In other words, Wall Street still doesn't get it. Phase one was simply self inflicted pain. Banks aren't even close to being out of that phase. In addition, future phases will be market inflicted pain or economic pain. We can all talk happy and hope things will improve but hope is not a strategy.
Alot of Wall Streeters have encouraged investors to buy banks since their precipitous drop. Of course, most were encouraging investors to buy banks before their precipitous drop as well. One well known analyst even said this was the greatest opportunity in a lifetime to own financial stocks. We've heard this recycled message before. We heard it when the technology bubble was popping in 2000. Oh, and we also heard it after the market first broke in 1929. We only saw those markets drop about 80 and 90% respectively. Of course, that was for the companies which actually survived.
Now it appears changes to Libor reporting are in the process of being instituted on May 30th. I wonder how many investors want to be holding banks with new Libor reporting standards and with the SEC about to start forcing banks to disclose their true financial position? Given how irresponsible banks have been and that they are now lying to hide that fact, would you?
Alot of Wall Streeters have encouraged investors to buy banks since their precipitous drop. Of course, most were encouraging investors to buy banks before their precipitous drop as well. One well known analyst even said this was the greatest opportunity in a lifetime to own financial stocks. We've heard this recycled message before. We heard it when the technology bubble was popping in 2000. Oh, and we also heard it after the market first broke in 1929. We only saw those markets drop about 80 and 90% respectively. Of course, that was for the companies which actually survived.
Now it appears changes to Libor reporting are in the process of being instituted on May 30th. I wonder how many investors want to be holding banks with new Libor reporting standards and with the SEC about to start forcing banks to disclose their true financial position? Given how irresponsible banks have been and that they are now lying to hide that fact, would you?
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