The Libor scandal is becoming one of the biggest financial news stories today and will likely be regarded as the largest scam of all time. The Libor is the interest at which companies provide loans to one another. It's not only used by inter-bank lending, it is also used as a rate that supports derivatives and is a benchmark for just about any sort of loan anybody might get. It's been estimated that the Libor rate is in place to be an index for more than $350 Trillion us dollars in loans.
Bankers are being investigated for fraudulently influencing interest rates in their favor to look as if their balance sheets were healthier than they in fact were, and in order to generate profits from interest rate spreads with their unique investments while leaving average consumers to flip the bill. There's discussion of producing criminal lawsuits against the perpetrating organizations and regulators and politicians will be reviewing exactly what they should do that will call for accountability.
There is an incentive to ensure that there are safeguards in place so that this doesn't happen again and to fine those banks that have taken part in any possible fraud, but the governments around the world are unlikely to go as far putting something in place that would destroy or drastically change the banking sector itself. Putting in regulations that might harm the banks could further deteriorate an already fragile economy. The banks implicated in the fraud are the very same banks that in the past have been labeled as "too big to fail" so it is unlikely that those institutions won't continue to be defined as critical components of the fabric of the economy.
So what will this really mean for individual investors? As a rule, we know that it is time for us to stay attuned to the banking niche. There'll almost certainly end up being legal cases raised against the banks, as well as perhaps a wave of brand new polices. Anytime there are law suits and also considerable legislative changes, traders establish a perspective and then do business based on those values. It really is at this juncture in time where industries can be unproductive and instead of stock trading on fundamentals, people trade on irrational market psychology.
There is no getting around the fact that the banking sector is critical to every part of the economy. Whether it is financing for purchasing a car, getting a school loan or mortgage, or for a business to finance its operations and pay its employees. Banks are a key component of all of those things for them to work. With that said we expect some volatility in the banking sector, but the banks will ultimately come out this scandal in a stronger position in the long term.
The angle for a value investor would be to look at the health associated with financial institutions, and take note of those that possess a comparatively solid balance sheet. It's likely that some of those banks will start trading at marked down share prices. The very best opportunities may be found through finance institutions which were not part of the Libor scandal but were oversold for the mere fact they're banks.
Bankers are being investigated for fraudulently influencing interest rates in their favor to look as if their balance sheets were healthier than they in fact were, and in order to generate profits from interest rate spreads with their unique investments while leaving average consumers to flip the bill. There's discussion of producing criminal lawsuits against the perpetrating organizations and regulators and politicians will be reviewing exactly what they should do that will call for accountability.
There is an incentive to ensure that there are safeguards in place so that this doesn't happen again and to fine those banks that have taken part in any possible fraud, but the governments around the world are unlikely to go as far putting something in place that would destroy or drastically change the banking sector itself. Putting in regulations that might harm the banks could further deteriorate an already fragile economy. The banks implicated in the fraud are the very same banks that in the past have been labeled as "too big to fail" so it is unlikely that those institutions won't continue to be defined as critical components of the fabric of the economy.
So what will this really mean for individual investors? As a rule, we know that it is time for us to stay attuned to the banking niche. There'll almost certainly end up being legal cases raised against the banks, as well as perhaps a wave of brand new polices. Anytime there are law suits and also considerable legislative changes, traders establish a perspective and then do business based on those values. It really is at this juncture in time where industries can be unproductive and instead of stock trading on fundamentals, people trade on irrational market psychology.
There is no getting around the fact that the banking sector is critical to every part of the economy. Whether it is financing for purchasing a car, getting a school loan or mortgage, or for a business to finance its operations and pay its employees. Banks are a key component of all of those things for them to work. With that said we expect some volatility in the banking sector, but the banks will ultimately come out this scandal in a stronger position in the long term.
The angle for a value investor would be to look at the health associated with financial institutions, and take note of those that possess a comparatively solid balance sheet. It's likely that some of those banks will start trading at marked down share prices. The very best opportunities may be found through finance institutions which were not part of the Libor scandal but were oversold for the mere fact they're banks.
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