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.
A challenge based on four words of the law amounts to little more than politics dressed up as a legal argument.
The Supreme Court is about to decide another blockbuster case arising under the Affordable Care Act (ACA). The specific issue is whether federal-tax subsidies are available to people who purchase health insurance from exchanges operated by the federal government or instead whether such subsidies are available only from exchanges established by the states. A decision in favor of the plaintiffs in King v. Burwell would most likely cripple the ACA in over thirty states and deprive millions of people of health insurance.
That the Supreme Court even agreed to hear the case is the result of an improbable conjunction of events. Two committed opponents of the ACA seized upon four words of the law out of almost 1000 pages, and through their persistent and energetic work, created a powerful soundbite that appealed to die-hard opponents of the ACA. They then took that sound bite and dressed it up in highly technical arguments about statutory interpretation that might well change how healthcare is paid for in the United States. But the soundbite is inaccurate, and the technical window dressing shouldn’t obscure the fact that the argument is based on a faulty reading of the text of the entire law as well as a misleading account of how and why the law was passed. At bottom, King v. Burwell is a political challenge to the ACA dressed up in legal garb.
Some spoiler-y speculation on the final three episodes
With only three episodes left to go, Game of Thrones looks as though it once again has a lot of ground to cover before wrapping up a season. And so, for the curious and impatient among you, I’ll do my best to offer some quasi-informed speculation about what we might reasonably expect in these final weeks.
Note: I haven’t seen any of the remaining episodes, but I have read the books. The first five items below are spoiler-y, but the predictions in them do not derive from the George R. R. Martin novels. Rather, they’re guesswork based on what’s already happened on the show and on tidbits scattered across the web: a behind-the-scenes photo here, a close-read of a trailer there. (They could all, of course, turn out to be completely wrong.) The last four items, however, are based at least in part on events that take place in A Feast for Crows and A Dance with Dragons, so non-book-readers may want to skip them. And obviously anyone, book-reader or not, who’d prefer to go into these final episodes without preconceptions—who doesn’t want to know at least some of what will (probably) happen—should stop reading now.
People look to Amy Schumer and her fellow jokers not just to make fun of the world, but to make sense of it. And maybe even to help fix it.
This week, in a much-anticipated sketch on her Comedy Central show, Amy Schumer staged a trial of Bill Cosby in “the court of public opinion.” Schumer—her character, at any rate—played the role of the defense. “Let’s remind ourselves what’s at stake here,” she argued to the jury. “If convicted, the next time you put on a rerun of The Cosby Show you may wince a little. Might feel a little pang. And none of us deserve that. We don’t deserve to feel that pang.”
Her conclusion? “We deserve to dance like no one’s watching, and watch like no one’s raping.”
Ooof. This is the kind of thing that gets Inside Amy Schumer referred to as “the most feminist show on television,” and her act in general called, in a phrase that reveals as much about her craft as about Schumer herself, “comedy with a message.” But while Schumer’s work is operating at the vanguard of popular comedy, it’s also in line with the work being done by her fellow performers: jokes that tend to treat humor not just as an end in itself, but as a vehicle for making a point. Watch like no one’s raping.
We're all going to die and we all know it. This can be both a burden and a blessing.
In the heart of every parent lives the tightly coiled nightmare that his child will die. It might spring at logical times—when a toddler runs into the street, say—or it might sneak up in quieter moments. The fear is a helpful evolutionary motivation for parents to protect their children, but it's haunting nonetheless.
The ancient Stoic philosopher Epictetus advised parents to indulge that fear. “What harm is it, just when you are kissing your little child, to say: Tomorrow you will die?”he wrote in his Discourses.
Some might say Epictetus was an asshole. William Irvine thinks he was on to something.
“The Stoics had the insight that the prospect of death can actually make our lives much happier than they would otherwise be,” he says. “You’re supposed to allow yourself to have a flickering thought that someday you’re going to die, and someday the people you love are going to die. I’ve tried it, and it’s incredibly powerful. Well, I am a 21st-century practicing Stoic.”
To be far from home in a major, diverse metropolis such as New York or Los Angeles is one thing. But those who have landed in small cities across the Midwest face a whole other sort of isolation.
CINCINNATI—When they were deciding where to settle down and raise a family, Lorena Mora-Mowry, a lawyer from Venezuela, and her husband Paul, a mechanical engineer from California, performed extensive research. Based on reports they read in magazines and brochures, they decided that Cincinnati, with its low cost of living, access to arts and the outdoors, and strong schools, would be a good place to live. They moved here in 1995.
It was a difficult transition from (relatively) open-minded, Latino-heavy Southern California to Cincinnati, where just about everybody was either white or black, and where immigrants were a rarity. Mora-Mowry tried to speak to people in stores, but they could never understand her accent, and she hated the long, cold winters.
Caves and tunnels have always been part of human life.
Caves and tunnels have always been part of human life. We've grown more adept at shaping these underground shelters and passages over the millennia, and today we dig for hundreds of reasons. We excavate to find both literal and cultural treasures, digging mines and unearthing archaeological discoveries. We use caverns for stable storage, for entertainment, and for an effective shelter from natural and man-made disasters. And as the planet's surface becomes ever more crowded, and national borders are closed, tunnels provide pathways for our vehicles and for smugglers of every kind. Collected below are more recent subterranean scenes from around the world.
The danger of uploading one’s consciousness to a computer without a suicide switch
Imagine a supercomputer so advanced that it could hold the contents of a human brain. The Google engineer Ray Kurzweil famously believes that this will be possible by 2045. Organized technologists are seeking to transfer human personalities to non-biological carriers, “extending life, including to the point of immortality.” My gut says that they’ll never get there. But say I’m wrong. Were it possible, would you upload the contents of your brain to a computer before death, extending your conscious moments on this earth indefinitely? Or would you die as your ancestors did, passing into nothingness or an unknown beyond human comprehension?
The promise of a radically extended lifespan, or even immortality, would tempt many. But it seems to me that they’d be risking something very much like hell on earth.
This week, we have photos of the oppressive heatwave in India, a high walkway made of musical glass planks in China, an aerial view of Chicago at night, rescued baby iguanas in Costa Rica, the 88th annual Scripps National Spelling Bee, and much more.
Can a political system be democratically legitimate without being democratic?
The flaws in China’s political system are obvious. The government doesn’t even make a pretense of holding national elections and punishes those who openly call for multiparty rule. The press is heavily censored and the Internet is blocked. Top leaders are unconstrained by the rule of law. Even more worrisome, repression has been ramped up since Xi Jinping took power in 2012, suggesting that the regime is increasingly worried about its legitimacy.
Some China experts—most recently David Shambaugh of George Washington University—interpret these ominous signs as evidence that the Chinese political system is on the verge of collapse. But such an outcome is highly unlikely in the near future. The Communist Party is firmly in power, its top leader is popular, and no political alternative currently claims widespread support. And what would happen if the Party’s power did indeed crumble? The most likely result, in my view, would be rule by a populist strongman backed by elements of the country’s security and military forces. The new ruler might seek to buttress his legitimacy by launching military adventures abroad. President Xi would look tame by comparison.
The former speaker of the House is charged with lying to federal agents and evading financial reporting requirements in what appears to be a case of blackmail.
Former House Speaker Dennis Hastert has been indicted on charges of lying to FBI agents and evading federal financial-reporting requirements.
Hastert, an Illinois Republican, was speaker from 1999 to 2007. BuzzFeed’s John Stanton, who first reported on the indictment, notes that there were several high-profile congressional scandals in those years. Illinois is also a notorious hotbed for political corruption, as Roland Burris, Rod Blagojevich, George Ryan, and Jesse Jackson Jr. can attest.
But reading between the lines of the indictment against Hastert suggests a darker story than political corruption. In or about 2010, according to the indictment, Hastert—a former high-school teacher and coach—met with an unnamed individual from Yorkville, Hastert’s hometown. They “discussed past misconduct by defendant against Individual A that had occurred years earlier.” In effect, Hastert fell victim to blackmail, the indictment alleges: He “agreed to provide Individual A $3.5 million in order to compensate for and conceal his prior misconduct against Individual A.” (Since leaving the House, Hastert has become a highly paid lobbyist.)