The LIBOR rigging scandal. What was it and why was it so significant?
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So a while back an individual (I think it was a Saudi Prince, don’t quote me there) wanted to take out a HUUUUGGGEE loan, much bigger than any one bank was comfortable making. So several large banks got together in London and made a deal with each other to “co-write” the loan and created an interested rate to charge the Prince. It was a clean way of essentially making a super massive loan as simple as possible. The system the banks crafted became known as LIBOR – the London Inter-Bank Offered Rate and it became the unofficial way of determining interest rates in general in much of the world. So everything from Mortgages to Student Loans, personal debt, etc. started falling into the LIBOR system.
Now when you have every bank competing individually to make loans, you get competition on rates, which “helps” the consumer in the same that Best Buy and Target competing to sell you a TV helps you, it keeps rates low and fair.
The problem was the LIBOR was in it’s origin a group banks negotiating *with each other* what the peg everyone’s interest rate at, which is essentially collusion or price fixing. And it turns out that was eventually what started happening, the banks were agreeing behind closed doors to fix interest rates on their loans to benefit themselves and hurt consumers.
The result was basically England pulling the “control” of LIBOR away from the private banks and putting it in the hands of the government and eventually, they did away with the LIBOR system entirely (I believe this happened in 2021)
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