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Rigging of the Libor Was a Costly Affair for Housing and Mortgage Markets

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Mortgage Professional America | 21 Dec 2012, 09:44 AM Agree 0
Repercussions of the the London Interbank Offered Rate (Libor) scandal were deeply felt by government-sponsored mortgage investing companies Fannie Mae and Freddie Mac, which may have lost more than $3 billion.
  • William Matz | | 02 Jan 2013, 12:00 PM Agree 0
    The LIBOR-rigging scandal preseents an interesting case of opposite results to different folks. So far it appears that banks were understating their interbank borrowing costs in order to make theselves look healthier. That means that borrowers on LIBOR-based credit likely paid a little less than they would have if rates were reported accurately.

    However, investors were then short-changed by a comparable amount. That is why the GSEs are now suing for those damages.

    The larger question is whether anyone -borrower or investor- would have entered into a LIBOR transaction had he known that the rate could be manipulated. That seems doubtful, as the power to manipulate down includes the power to manipulate up. Given that this key information was not disclosed to borrowers or investors, there is a good case that LIBOR debt is not enforceable according to its terms.
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