Why You Should Care 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 to determine 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 an “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, and LIBOR made tremendous strides to ensure a scandal like this would not happen again.

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