The Libor cheating scandal shows there is still something rotten in the state of banking.
What if I told you that Wall Street banks set the most important interest rate in the world by telling us what they think their borrowing costs are? You'd probably say that sounds like a bad idea. Why wouldn't they just lie? And collude?
Shock of the century: That's exactly what happened.
The big revelation -- and I use that term lightly -- is that Barclays deliberately manipulated Libor from 2005 through 2009. It's already cost the Barclays Chairman, CEO, and COO their jobs -- and they're trying to drag Bank of England (BOE) officials down with them. But the rot likely doesn't end there. A handful of other big banks -- including JPMorgan, Citibank, UBS, Royal Bank of Scotland, HSBC, Credit Suisse and Deutsche Bank -- are under investigation as well.
Okay, obvious question time. What is Libor, why does it matter, and what does this mean? Let's tackle these in turn.
Libor -- which stands for the London Interbank Offered Rate -- is supposed to be the interest rate banks can borrow for from each other on an unsecured basis. In other words, it's how much a bank has to pay to get a loan from another bank. There are different Libor rates for different currencies and over different time frames, but they're all set the same way. Each morning a panel of banks tells the British Banking Association (BBA) what they think they could borrow for. The BBA throws out the high and low answers, and then averages the middle. Voilà, Libor.
There are roughly $360 trillion reasons you should care about this. That's the total value of contracts that use Libor as a reference rate. Everything from mortgages to student loans and all sorts of derivatives depend on Libor. When it comes to loans, their interest rates change with Libor; when it comes to derivatives, their payouts change with Libor. But there's another big reason to care about Libor -- you might say it's worth another $700 billion or so. (Remember, that was the original size of TARP). Libor should tell us about the health of the financial system. Banks can't exist without confidence. If banks don't have the confidence to lend to each other, banks won't exist -- as was nearly the case in 2008.
There's an obvious flaw with Libor. The banks have to be honest. Barclays wasn't. From 2005 to 2007, Barclays manipulated its Libor submissions to benefit its traders. There are emails -- oh so many emails -- that prove this. If you like your fraud colored with sentences like "Done...for you, big boy" or "Dude, I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger," then I highly recommend you click the link above. The basic idea was simple. Sometimes Barclays traders needed Libor to be higher or lower for their bets to pay off. So they asked for their bank submitter to help them out -- and the bank submitters did!
Things changed in late 2007. That's when the credit crunch hit. Banks started to not trust each other. And so banks began to systematically understate Libor. Again, the basic idea was simple. Banks wanted to look healthier than they actually were. So they said they could borrow for less than they could. But there was a problem. These were fairly obvious lies -- obvious enough that the financial press could figure it out from publicly available information. Gillian Tett of the Financial Times noticed that Libor was not what it should have been back in September 2007. Carrick Mollenkamp and Mark Whitehouse of the Wall Street Journal came out with a study in May 2008 that showed that banks were indeed low-balling Libor estimates.
But there was a perverse peer pressure to it all. Banks that didn't cheat looked riskier to investors because their Libor numbers were higher. Barclays actually seems to have been one of the last big banks to start lowballing their Libor numbers -- at least in 2008. Up through the end of October, Barclays' Libor submissions were routinely on the high end of the spectrum. Then they were less so. Ex-CEO Bob Diamond has offered up a self-serving story that the BOE basically told him to reduce their estimates -- which, while plausible, lacks any corroboration. As Felix Salmon pointed out, it's just as plausible that the BOE was just doing its job as a regulator, and things were so rotten in the state of Barclays that they interpreted that as an invitation to start lying again. Regardless, it seems like many, many other banks were even more in on the scam than Barclays during the height of the crisis. More heads will come a-rolling.
It sounds silly, but the biggest victim in all this is the financial system itself. It's unlikely this manipulation really affected ordinary borrowers. The cheating wasn't big enough to push interest rates up much, if at all, for borrowers with loans tied to Libor. And cheating of the lowballing variety actually helped borrowers. But that doesn't mean this manipulation was irrelevant. Wholesale lying is a problem in an industry that relies on trust. The big banks have taken whatever shreds of credibility they had left and lit them on fire. If Barclays will lie about something as fundamental as Libor to profit on its trades, how can clients trust them on anything?
This is an existential crisis for the big banks. Do they serve clients or their own balance sheets? Haha, forget I asked that. The answer is obvious. What's less obvious is why anyone who doesn't work at a bank would think the status quo is acceptable.
Some fans are complaining that Zack Snyder’s envisioning of the Man of Steel is too grim—but it’s less a departure than a return to the superhero’s roots.
Since the official teaser trailer for Batman v Superman: Dawn of Justice debuted online in April, fans and critics alike have been discussing the kind of Superman Zack Snyder is going to depict in his Man of Steel sequel. The controversy stems from Snyder’s decision to cast Superman as a brooding, Dark Knight-like character, who cares more about beating up bad guys than saving people. The casting split has proved divisive among Superman fans: Some love the new incarnation, citing him as an edgier, more realistic version of the character.
But Snyder’s is a different Superman than the one fans grew up with, and many have no problem expressing their outrage over it. Even Mark Waid, the author of Superman: Birthright (one of the comics the original film is based on), voiced his concern about Man of Steel’s turn toward bleakness when it came out in 2013:
New research confirms what they say about nice guys.
Smile at the customer. Bake cookies for your colleagues. Sing your subordinates’ praises. Share credit. Listen. Empathize. Don’t drive the last dollar out of a deal. Leave the last doughnut for someone else.
Sneer at the customer. Keep your colleagues on edge. Claim credit. Speak first. Put your feet on the table. Withhold approval. Instill fear. Interrupt. Ask for more. And by all means, take that last doughnut. You deserve it.
Follow one of those paths, the success literature tells us, and you’ll go far. Follow the other, and you’ll die powerless and broke. The only question is, which is which?
Of all the issues that preoccupy the modern mind—Nature or nurture? Is there life in outer space? Why can’t America field a decent soccer team?—it’s hard to think of one that has attracted so much water-cooler philosophizing yet so little scientific inquiry. Does it pay to be nice? Or is there an advantage to being a jerk?
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
Changing neighborhoods may be a class issue, but in America, that means it's also a racial one.
Ask city-dwellers to describe what, precisely, gentrification is you’ll get an array of answers. The term is a murky one, used to describe the many different ways through which money and development enter poorer or less developed neighborhoods, changing them both economically and demographically.
For some, gentrification and gentrifiers are inherently bad—pushing out residents who are often older, poorer, and darker than the neighborhood’s new occupants. For others, a new group of inhabitants brings the possibility of things residents have long hoped for, better grocery stores, new retail, renovations, and an overall revitalization that often eludes low-income neighborhoods.
Rebel groups that employ terror in civil wars seldom win or gain concessions—but they tend to prolong conflicts, a new paper finds.
Nearly 14 years into the war on terror, there are signs of terrorism all around us, from Memorial Day tributes to the victims of the wars in Iraq and Afghanistan to the raging Congressional debate over reauthorizing the PATRIOT Act.
Yet some of the most basic information about terrorism remains surprisingly elusive. For example: Does it work?
There have been some attempts at answering the question, but many of them are either largely anecdotal or geographically constrained. Other studies have focused on international terror. But as political scientist Page Fortna of Columbia University notes, the vast majority of terrorism isn’t transnational—it’s localized, fought in the context of civil wars and fights for territorial control. Many of the intractable conflicts the U.S. is fighting today fit this definition: ISIS, Jabhat al-Nusra, and other groups in Iraq and Syria; Boko Haram in Nigeria; Al-Shabaab in Somalia and Kenya; Yemen’s civil war; and the Israel-Palestinian conflict. Is terrorism an effective tool when used in those conflicts?
In an interview, the U.S. president ties his legacy to a pact with Tehran, argues ISIS is not winning, warns Saudi Arabia not to pursue a nuclear-weapons program, and anguishes about Israel.
On Tuesday afternoon, as President Obama was bringing an occasionally contentious but often illuminating hour-long conversation about the Middle East to an end, I brought up a persistent worry. “A majority of American Jews want to support the Iran deal,” I said, “but a lot of people are anxiety-ridden about this, as am I.” Like many Jews—and also, by the way, many non-Jews—I believe that it is prudent to keep nuclear weapons out of the hands of anti-Semitic regimes. Obama, who earlier in the discussion had explicitly labeled the supreme leader of Iran, Ayatollah Ali Khamenei, an anti-Semite, responded with an argument I had not heard him make before.
“Look, 20 years from now, I’m still going to be around, God willing. If Iran has a nuclear weapon, it’s my name on this,” he said, referring to the apparently almost-finished nuclear agreement between Iran and a group of world powers led by the United States. “I think it’s fair to say that in addition to our profound national-security interests, I have a personal interest in locking this down.”
Advocates say that a guaranteed basic income can lead to more creative, fulfilling work. The question is how to fund it.
Scott Santens has been thinking a lot about fish lately. Specifically, he’s been reflecting on the aphorism, “If you give a man a fish, he eats for a day. If you teach a man to fish, he eats for life.” What Santens wants to know is this: “If you build a robot to fish, do all men starve, or do all men eat?”
Santens is 37 years old, and he’s a leader in the basic income movement—a worldwide network of thousands of advocates (26,000 on Reddit alone) who believe that governments should provide every citizen with a monthly stipend big enough to cover life’s basic necessities. The idea of a basic income has been around for decades, and it once drew support from leaders as different as Martin Luther King Jr. and Richard Nixon. But rather than waiting for governments to act, Santens has started crowdfunding his own basic income of $1,000 per month. He’s nearly halfway to his his goal.
The former secretary of state jettisons sweeping rhetoric, and focuses on specific policies.
Hillary Clinton has been an official candidate for president for five weeks, and she still hasn’t done the thing most candidates do on day one: given a speech laying out her vision for America. Nor is she planning on doing so anytime soon. Politicoreports that Hillary’s “why I’m running for president,” speech, initially scheduled for May, has now been delayed until June, or even later.
There’s a reason for that: The speech is unlikely to be very good. Soaring rhetoric and grand themes have never been Hillary’s strengths. That’s one reason so many liberals found her so much less inspirational than Barack Obama in 2008. And it’s a problem with deep roots. In his biography, A Woman in Charge, Carl Bernstein describes Hillary, then in law school, struggling to articulate her generation’s perspective in an address to the League of Women Voters. “If she was speaking about a clearly defined subject,” Bernstein writes, “her thoughts would be well organized, finely articulated, and delivered in almost perfect outline form. But before the League audience, she again and again lapsed into sweeping abstractions.”
Why agriculture may someday take place in towers, not fields
A couple of Octobers ago, I found myself standing on a 5,000-acre cotton crop in the outskirts of Lubbock, Texas, shoulder-to-shoulder with a third-generation cotton farmer. He swept his arm across the flat, brown horizon of his field, which was at that moment being plowed by an industrial-sized picker—a toothy machine as tall as a house and operated by one man. The picker’s yields were being dropped into a giant pod to be delivered late that night to the local gin. And far beneath our feet, the Ogallala aquifer dwindled away at its frighteningly swift pace. When asked about this, the farmer spoke of reverse osmosis—the process of desalinating water—which he seemed to put his faith in, and which kept him unafraid of famine and permanent drought.