Posted on April 16th, 2008 in Daily Stock Market / Economic News - The Real Story
This could be an ultimate ‘Black Swan Event’ if true. THE PLOT THICKENS… This MEGA NEWS, reported this morning in the Journal, is being blown off for all intents and purposes by the financial press today. Probably because the ramifications are so great they don’t understand how to report it. Entire financial systems and infrastructures are based upon LIBOR! If we find out the reported LIBOR pricing is being jacked-around by banks that are afraid to report how much they are paying for short-term loans and how desperate they are for cash and that LIBOR pricing is deemed unreliable, the consequences could be devastating. It essentially means that everyone with a loan based upon LIBOR is paying artificially lower rates! No puny Fed or ECB cuts or new auction facilities would be able to fix this problem.
The exposure is in the TRILLIONS and this is something that is NOT ON THE RADAR of the financial markets until now. Scott Peng at CITI said "the long-term psychological and economic impacts on the financials markets are incalculable and if banks told the truth about their borrowing costs, the 3-month LIBOR would be as much as 0.3% higher." Millions of mortgages around the world are based on LIBOR…talk about resets!
Very few knew or even considered that this may have been happening. Banks lying because they are scared to tell how much they have to pay for cash would be a mega-event that would have swift and immediate consequences. If proven true, it could create an event and ripple effect that would make the Bear Stearns event look like just another day…on scond through the Fed made it seem that way anyway. Stay tuned, I have a feeling this story will grow large in the next couple of days. – Best, Mr Mortgage
Or, in this brave world of ‘the Fed will fix everything’, will they just blow this off as well.