Li-what? June 28, 2012 at 7:22 am
If Libor isn’t just a trimmed average of some numbers that some banks tell someone from Reuters every day, then it is … the risk-free rate? The unsecured borrowing rate for AA banks? The unsecured borrowing rate for an actual assortment of disparately rated, often barely investment grade, rather tarnished banks that mostly don’t actually lend to each other?
Don’t worry, though, there are only a few hundred trillion dollars worth of contracts linked to Libor. Bob is handing back his bonus, and that is an act that one can applaud. But there are more serious issues here than an attempt to move the rate – like what happens to all those swaps that reference 3 or 6 month Libor in a world where there is little or no 3 or 6 month unsecured borrowing by banks.