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What You Need to Know About the 2008 LIBOR Scandal

LIBOR is a benchmark interest rate that most global banks use as the standard for issuing loans. If you have ever applied to take out a lot from a bank, LIBOR was certainly used. It determines your interest rate and how much money you can take out.

In 2008, amidst the Great United States Depression, major banks allegedly manipulated the LIBOR rates. They did so by filing intentionally low LIBOR rates to keep the entire benchmark rate low. Behind the alleged malpractice, traders were making tremendous profits by holding positions in LIBOR-based financial securities.

But what does this mean for you, especially if you did not take out a loan during this time?

Yes, it is true that you would not have had a “bad” loan. But there are copious side effects to a manipulated benchmark. For example, if your favorite general store took out a loan during this time, they may have recently had to charge higher prices to cover the losses they incurred.

Luckily, malpractice to this extent is not a common occurrence. LIBOR made tremendous strides to ensure a scandal like this would not happen again.

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Everything You Need to Know About he Crash of 2008

Ever watch the movie “The Big Short” and had some questions about the financial crisis that they describe? Need some clarification? First off, we can’t begin talking about the 2008 crash without talking about the housing market and subprime housing defaults. On the very basic level, people with high risks of not paying back loans started to receive loans. Banks thought that if they mixed up high and low risked people and gave them loans, the odds of not getting money back would decrease. However, the bundles of people started to consist of only risky people, and banks didn’t even check because they always thought it was a safe return. The character played by Christian Bale made money off of trading against loans that investors thought were risk-free. He essentially looked into a trend that no one was paying attention to.

The crisis started at the end of 2007...

At the beginning of 2008, GDP growth had decreased and the economy lost 17,000 jobs. Banks had low liquidity and slowly investment banks and big financial services companies started to require government bailouts. This is becuase they were losing so much money. The subprime mortgage crisis threatened Bear Stearns and the Federal Reserve had to save the bank. Fannie Mae and Freddie Mac required government bailouts. But the biggest drop in the Dow was when Lehman Brothers declared bankruptcy. Within the first 15 days of September, money market funds lost over $144 billion. Credit markets, banks, and even the government were in panic mode.

By November of 2008, it was reported that the economy had lost over 240,000 jobs. The AIG bailout was over $150 billion, and the U.S. Treasury had spent over $700 billion in bailouts. By the end of December, the Federal fund rates were at an all-time low at zero percent and the Dow was down over 34%.

At the beginning of 2009, the Obama Stimulus Plan really helped the economic panic to calm down. Also, the Dow finally started to climb. The new administration gave hope and a laid-out plan to make matters better. That is where this crisis stopped even though banks felt the aftereffects long afterward.

About Vola:

Vola Finance can advance you up to $300 at NO INTEREST. Vola Finance can make sure your bank balance does not get too low and alert you before it does so that you don’t pay overdraft or NSF fees. Furthermore, Vola Finance breaks down your spending pattern to help you budget your upcoming expenses and find ways for you to save.

Vola supports over 6000 banks and credit unions and uses one of the nation’s largest bank connection providers to securely establish a link to your account.

Vola is transparent. There are NO HIDDEN FEES Vola operates by charging a subscription fee, there are no other charges. If the features offered by Vola are not compatible with your bank or phone, Vola Finance will refund you your subscription fee. 

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