News about the Libor debacle is coming faster and hotter than first tuesday can keep up with. Here’s the latest:

  • Barclays CEO, Robert Diamond, has resigned;
  • Barclays has agreed to pay a $450 million settlement to U.S. and U.K. regulators;
  • the former CEO has admitted to manipulating key interest rates affecting Libor; and
  • the former CEO has accused both regulators and other banks of being complicit in the rate manipulation, fueling ongoing inquiries into JPMorgan Chase, UBS and Citigroup.

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first tuesday take

It appears that Mr. Diamond isn’t following the time-honored Wall Street protocol of the CEO falling on his own sword. Rather, he seems intent on fingering everyone involved. But make no mistake, in this den of thieves, no one is innocent.

Although it has taken more than four years for someone in the banking industry to be held personally liable, the handling of Barclays will ensure the public and interested professionals affected by rate manipulation (that means you dear reader) will get the full picture of how corrupt and unethical (to put it lightly) the banking industry has become. Although much could be said about the nefarious activities of Barclays and the specifics surrounding Libor, the real issue at hand here is one of global magnitude — a dire need to reform the self-interested practices of all institutional lenders.

Barclays, just like all of the big U.S. banks, is a financial institution that holds assets for its depositors all with a government guarantee. Operating under the safety of these grand guarantees, Barclays and the rest of the big banks use these deposits to speculate in financial markets on their own account — if they win on their bets, they keep the profits; if they lose, the loss is shifted to the government to be borne by the taxpayer. In other words, they privatize the gains and socialize the losses — a brilliant little sleight of hand for those at the top.

This win we keep, lose you pay standard is quite clearly a conflict of interest, one that was recognized some 80 years ago and reformed with the now dead Glass-Steagall Act. Now we have the Volcker Rule, which sounds hard-hitting but has presently been lobbied into impotence by K Street­­­­. With the ability of lenders to gamble on their own behalf with their depositor’s guaranteed money, the incentive for cheating and excessive risk-taking is very high. This stacked-deck temptation has lead to a pervasive culture of doing what is best for the bank, rather than what is best for the depositors and the taxpayers who pledge their money to cover the government guarantees.

Now that we are all beginning to see under the magician’s skirt, how many buyers’ agents will continue to place homebuyer’s in Libor-indexed adjustable rate mortgages (ARMs)? How many have noticed that, ARMs aside, the proper spread on fixed rate mortgages (FRMs) of 1.4% is currently running closer to 2%, and thus despite “historically low mortgage rates” everyone is still being overcharged some 30 to 60 basis points, a massive fortune shifted to, well, the mortgage lenders.

In what is touted as the best time in history to acquire a mortgage, are homebuyers still being – dare we say it – ripped-off? Let us know what you think in the comments section below.

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Market Charts: Interest Rates Affecting Real Estate Transactions

re: “Barclays’ ex-chief spreads the blame in rate rigging scandal” form the New York Times