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.
I spent a year in Tromsø, Norway, where the “Polar Night” lasts all winter—and where rates of seasonal depression are remarkably low. Here’s what I learned about happiness and the wintertime blues.
Located over 200 miles north of the Arctic Circle, Tromsø, Norway, is home to extreme light variation between seasons. During the Polar Night, which lasts from November to January, the sun doesn’t rise at all. Then the days get progressively longer until the Midnight Sun period, from May to July, when it never sets. After the midnight sun, the days get shorter and shorter again until the Polar Night, and the yearly cycle repeats.
So, perhaps understandably, many people had a hard time relating when I told them I was moving there.
“I could never live there,” was the most common response I heard. “That winter would make me so depressed,” many added, or “I just get so tired when it’s dark out.”
But the Polar Night was what drew me to Tromsø in the first place.
As he prepares for a presidential run, the governor’s labor legacy deserves inspection. Are his state’s “hardworking taxpayers” any better off?
This past February, at the Conservative Political Action Conference (CPAC) outside Washington, D.C., Wisconsin Governor Scott Walker rolled up his sleeves, clipped on a lavalier microphone, and without the aid of a teleprompter gave the speech of his life. He emerged from that early GOP cattle call as a front-runner for his party’s nomination for president. Numerous polls this spring placed him several points ahead of former Florida Governor Jeb Bush, the preferred candidate of the Republican establishment, in Iowa and New Hampshire. Those same polls showed him with an even more substantial lead over movement conservative favorites such as Ted Cruz, Rand Paul, and Mike Huckabee. In late April, the Koch brothers hinted that Walker would be the likely recipient of the nearly $900 million they plan to spend on the 2016 election cycle.
People labeled “smart” at a young age don’t deal well with being wrong. Life grows stagnant.
At whatever agesmart people develop the idea that they are smart, they also tend to develop vulnerability around relinquishing that label. So the difference between telling a kid “You did a great job” and “You are smart” isn’t subtle. That is, at least, according to one growing movement in education and parenting that advocates for retirement of “the S word.”
The idea is that when we praise kids for being smart, those kids think: Oh good, I'm smart. And then later, when those kids mess up, which they will, they think: Oh no, I'm not smart after all. People will think I’m not smart after all. And that’s the worst. That’s a risk to avoid, they learn.“Smart” kids stand to become especially averse to making mistakes, which are critical to learning and succeeding.
In 1908, photographer Lewis Hine traveled across the U.S. to document child laborers and their workplaces. His portraits were used by reformers to drive legislation that would protect young workers or prohibit their employment.
At the start of the 20th century, labor in America was in short supply, and laws concerning the employment of children were rarely enforced or nonexistent. While Americans at the time supported the role of children working on family farms, there was little awareness of the other forms of labor being undertaken by young hands. In 1908, photographer Lewis Hine was employed by the newly-founded National Child Labor Committee (NCLC) to document child laborers and their workplaces nationwide. His well-made portraits of young miners, mill workers, cotton pickers, cigar rollers, newsboys, pin boys, oyster shuckers, and factory workers put faces on the issue, and were used by reformers to raise awareness and drive legislation that would protect young workers or prohibit their employment. After several stalled attempts in congress, the NCLC-backed Fair Labor Standards Act passed in 1938 with child labor provisions that remain the law of the land today, barring the employment of anyone under the age of 16.
This week, there were fires in at least six predominantly African American churches. Arson at religious institutions has decreased significantly over the past two decades, but the symbolism remains haunting.
Updated on July 1, 11:50 a.m. ET
On Wednesday, July 1, a fire was reported at the Mount Zion African Methodist Episcopal Church in Greeleyville, South Carolina. The AP reports that an anonymous federal official said the fire did not appear to be intentionally set, but Winfred Pressley, a division operations officer at the regional Alcohol, Firearms, and Tobacco division, said that the investigation is still ongoing, as did other local investigators. Shanna Daniels, a spokesperson for the FBI, declined to comment on the case, but said that church arson “has been a hot topic over the past few days.”
“What's the church doing on fire?”
Jeanette Dudley, the associate pastor of God's Power Church of Christ in Macon, Georgia, got a call a little after 5 a.m. on Wednesday, June 24, she told a local TV news station. Her tiny church of about a dozen members had been burned, probably beyond repair. The Bureau of Alcohol, Firearms, and Tobacco got called in, which has been the standard procedure for church fires since the late 1960s. Investigators say they’ve ruled out possible causes like an electrical malfunction; most likely, this was arson.
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.
The untold story of the improbable campaign that finally tipped the U.S. Supreme Court.
On May 18, 1970, Jack Baker and Michael McConnell walked into a courthouse in Minneapolis, paid $10, and applied for a marriage license. The county clerk, Gerald Nelson, refused to give it to them. Obviously, he told them, marriage was for people of the opposite sex; it was silly to think otherwise.
Baker, a law student, didn’t agree. He and McConnell, a librarian, had met at a Halloween party in Oklahoma in 1966, shortly after Baker was pushed out of the Air Force for his sexuality. From the beginning, the men were committed to one another. In 1967, Baker proposed that they move in together. McConnell replied that he wanted to get married—really, legally married. The idea struck even Baker as odd at first, but he promised to find a way and decided to go to law school to figure it out.
Mike Huckabee and Ted Cruz are suggesting there might be ways for states and cities to nullify the justices’ ruling. They’re wrong.
The Supreme Court’s decision last week did make gay marriage legal around the nation. Unfortunately for social conservatives, it did not, however, make nullification legal around the nation.
Nullification is the historical idea that states can ignore federal laws, or pass laws that supercede them. This concept has a long but not especially honorable pedigree in U.S. history. Its origins date back to antebellum America, where Southern states tried to nullify tariffs and Northern states tried to nullify fugitive-slave laws. In the 1950s, after Brown v. Board of Education, some Southern states tried to pass laws to avoid integrating schools. It didn’t work, because nullification is not constitutional.
For centuries, experts have predicted that machines would make workers obsolete. That moment may finally be arriving. Could that be a good thing?
1. Youngstown, U.S.A.
The end of work is still just a futuristic concept for most of the United States, but it is something like a moment in history for Youngstown, Ohio, one its residents can cite with precision: September 19, 1977.
For much of the 20th century, Youngstown’s steel mills delivered such great prosperity that the city was a model of the American dream, boasting a median income and a homeownership rate that were among the nation’s highest. But as manufacturing shifted abroad after World War II, Youngstown steel suffered, and on that gray September afternoon in 1977, Youngstown Sheet and Tube announced the shuttering of its Campbell Works mill. Within five years, the city lost 50,000 jobs and $1.3 billion in manufacturing wages. The effect was so severe that a term was coined to describe the fallout: regional depression.
Many authors have been tempted into writing revisionist histories of the 37th U.S. president, but these counterintuitive takes often do not hold up under closer scrutiny.
Every once in a while someone writes a book arguing that Richard Nixon has been misunderstood. These authors tend to focus on some particular aspect of his presidency that, the argument goes, is more important than that Watergate business. They’ve focused on his domestic policy or his foreign policy as achievements that override his flaws and his presidency’s denouement. Nixon’s highly complex persona also has led to books that probe his psyche—a hazardous and widely debunked practice, though that hasn’t discouraged further attempts.
And, as with other major figures, but all the more so given the drama of his time on the national stage, Nixon’s complexity and essentially low repute tempts some authors to offer revisionist approaches to his place in history. Such approaches have to be assessed on their own merits, not accepted merely because they’re counterintuitive or receive a lot of attention, as new assessments of the controversial and fascinating Nixon tend to do. Two major revisionist books about Nixon argued that his domestic policy was so expansive, humane, and innovative that it overrides his unfortunate behavior; their accounts relegate Watergate to a far less important role. The problem with these books is that they don’t stand up to close scrutiny.