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EURIBOR RIGGING: the context & incentive. “lack of understanding is absolutely no excuse”

In December 2008 financial market liquidity (in Europe) disappeared altogether, vanished according to the ECB FSR June 2010 . For monetarists like me this massive disappearance precedes & probably causes the massive GNP collapse of 3 quarters later; visually the 2 collapses have close to identical shapes.

Rigging LIBOR or EURIBOR Macroeconomic Implications / asymptotix

version 4

 

In the midst of this LIBOR / EURIBOR scandal I thought I would share some references to LIBOR & its role in world capital markets from asymptotix. One would not generally reference LIBOR or EURIBOR explicitly since that would be far too arcane even for us!! Most of my references to LIBOR are in “asymptotix papers” which are long pdf documents; developed with the sole purpose of boring you to death! 

About this running LIBOR rigging story, unravelling this weekend; a ‘friend’ said

“What they've caught onto is barely the tip of the iceberg. Eventually, the part below the surface might be revealed...”

 Why are LIBOR & EURIBOR so important? They are the foundations, the technical-basis of the TERM STRUCTURE of interest rates; a crucial concept in Macroeconomics (& in banking risk management); in summary the 'term structure' is the PIVOT between MONEY & (real economic) ACTIVITY. LIBOR (or EURIBOR for Euro demoninated transactions) is the base, the lowest value of the 'term structure' vector (what is sometimes called the 'ratchet'). The technical phrase ‘Yield Curve’ can be used interchangeably with ‘Term Structure’. I give some colorful articulation of that relationship between Monetary conditions and the real economy in the references here on this page (but particularly in the paper below);-

Visualising 'Crowding Out' The Macro Perspective

all charts from the European Central Bank Statistical Data Warehouse : http://sdw.ecb.europa.eu/

a long way to climb

euribor spread sept09b

Yield curve spot rate, spread between the 10-year and 3-month maturity

ECB 10 year 3mth spreadDataset name Financial market data - yield curve
Frequency Business
Reference area Euro area (changing composition)
Currency Euro
Financial market provider ECB
Financial market instrument Government bond, nominal, all triple A issuer companies
Financial market provider identifier Svensson model, continuous compounding, yield error minimisation
Financial market data type Yield curve spot rate, spread between the 10-year and 3-month maturity

Euro Yield Curve Government bond, nominal, all triple A issuer companies Svensson model, continuous compounding, yield error min

Euro Yield Curve Government bond, nominal, all triple A issuer companies Svensson model, continuous compounding, yield error min

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