This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

LIBOR Homeowner Lawsuit: Much Ado Over $1.22?

The methodology of how the LIBOR rate is collected makes it difficult for a single institution or even group of institutions to move the needle on the LIBOR value by much (if at all), either up or down. The final value of LIBOR used for ARMs is constructed by taking submissions from the contributor panel of banks, where the rates are ranked into four groups. The lowest and highest groups are discarded, and the remainder is averaged together to produce a value.

For example, if the contributor panel was 20 banks, the five lowest and five highest quotes would be excluded and the rest of the values would be averaged together.

As LIBOR pertains to the lawsuit, it's important to know that many of these kinds of ARM contracts generally specify the use of the LIBOR value available on the first business day of the month as published in The Wall Street Journal. As such, the value is presented on a one-day-delay basis; that is, a value created on the 31 st of the month is released on the first of the month, and it is the first of the month value used as the basis of adjusting interest rates. If you pick up a today's copy of the Wall Street Journal and look, you will see the value from yesterday, and it is noted by date as such.

We launched our own review of the LIBOR data

While there have been allegations of LIBOR manipulation during the worst of the financial crisis (2007, 2008) banks were arguably quoting LIBOR on the low end, since being able to lend and borrow at low rates is an indicator of financial strength. At the time, and with major banks and financial institutions failing, there was great suspicion about the health of many market players, and if an individual firm was looking to borrow and being presented with high-rate offers, it might appear as if they were less than solvent. As such, the bias of such quotes, if they were manipulated, would have tended to be generally lower than reality would dictate.

2 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs