The man who invented libor – bloomberg

The Iranian loan was one of the first to charge a variable rate of interest that reflected changing market conditions and to be split among a group of banks. C gastritis der antrumschleimhaut It was just as revolutionary in the staid world of 1960s banking as the moon landing, though celebrated with less fanfare, and it marked the birth of Libor.

“I felt a sense of achievement to set up the whole thing, but I didn’t think we were breaking ground for a new period in the financial world,” says Zombanakis, now living in Kalyves, on the island of Crete, amid the same olive groves his family has tended for generations. Static electricity review worksheet “We just needed a rate for the syndicated-loan market that everyone would be happy with. Gas stations in texas When you start these things, you never know how they are going to end up, how they are going to be used.”

Much like the rate he created, Zombanakis had a humble start in life. E85 gas stations colorado The second of seven children, he grew up in a house with dirt floors and no electricity or running water, he told biographer David Lascelles. Gas approximation He left home at 17, fleeing Nazi-occupied Crete in a smuggler’s open-topped boat to make the 200-mile journey to enroll at the University of Athens. Mafia 2 gas meter Short of money, he quit in his second year and found work distributing aid for the recently arrived British army; he literally stopped a soldier in the street and asked for a job. 1 unit electricity cost in gujarat After leaving Greece, Zombanakis eventually made his way to Harvard, where, with characteristic charm, he managed to talk himself into a postgraduate program despite lacking the qualifications. Electricity reading comprehension From Harvard he moved to Rome and entered the world of banking as the Middle East representative for Manufacturers Hanover Trust, aka “Manny Hanny.”

Zombanakis first met Farmanfarmaian in Beirut in 1956, and the two had hit it off. P gaskell So when the Iranians needed money, they headed straight to Manny Hanny’s office on Upper Brook Street in London’s exclusive Mayfair district. C gastronomie brignais Zombanakis knew that no single firm would lend $80 million to a developing country that didn’t have enough foreign-currency reserves to cover the debt. Gas kansas So he set about marketing the deal to a variety of foreign and domestic banks that could each take a slice of the risk. Gas efficient cars 2015 With U.K. 76 gas card login interest rates at 8 percent and inflation on the rise, banks were wary of committing to lending at a fixed rate for long periods. 2015 electricity increase (Borrowing costs could increase in the interim and leave them out of pocket.)

Zombanakis and his team came up with a solution: charging borrowers an interest rate recalculated every few months and funding the loan with a series of rolling deposits. 9gag instagram logo The formula was simple. Ideal gas questions The banks in the syndicate would report their funding costs just ­before a loan-rollover date. Grade 9 electricity review The weighted average, rounded to the nearest eighth of a percentage point plus a spread for profit, became the price of the loan for the next period. Physics electricity and magnetism study guide Zombanakis called it the London interbank offered rate.

Other financiers cottoned on, and by 1982 the syndicated-loan market had ballooned to about $46 billion. Circle k gas station locations Virtually all those loans used Libor to calculate the interest charged. K electric jobs 2016 Soon the rate was adopted by bankers outside the loan market who were looking for an ­elegant proxy for bank borrowing costs that was simple, fair, and appeared to be independent. Hp gas online In 1970 the financier Evan Galbraith, who’d go on to be U.S. Gas vs diesel rv ambassador to France under President Ronald Reagan, is said to have come up with the idea of pegging the first bond to Libor—known as a floating-rate note.

As London’s financial markets took off, they became increasingly complex. Grade 9 electricity unit Within a few years, Libor had morphed from being a tool to price individual loans and bonds to being a benchmark for derivatives deals worth hundreds of billions of dollars. Chapter 7 electricity test Chief among these new derivatives was the interest rate swap, which allowed companies to mitigate the risk of fluctuating interest rates. Gas bloating after eating The swap was ­invented during a period of extreme volatility in global rates in the 1970s and early 1980s. 2015 electricity rates The concept is simple: Two parties agree to exchange interest payments on a set amount for a fixed period; in its most basic and common form, one pays a fixed rate in the ­belief that interest rates will rise, while the other pays a floating rate betting they will fall. Gas finder map The floating leg of the contract is pegged, more often than not, to Libor. Grade 9 electricity It wasn’t just company treasurers who bought them. O gastro Because swaps require little capital upfront, they give traders a much cheaper way to speculate on interest rate moves than government bonds. Gas in babies that breastfeed Before long, banks had built up huge residual positions in the instruments.

As Libor became more central to the global financial system, pressure grew to codify the setting of the rate, which was still hashed out on an ad hoc basis by the various banks involved with individual deals. Gas unlimited houston In October 1984, the British Bankers’ Association, a lobbying group set up in 1919 to champion the interests of U.K. Gas tax financial firms, began consulting with the Bank of England and others on how such a benchmark might work.

Several early versions of the rate evolved into BBA Libor, set in pounds, dollars, and yen, in 1986. Gas 10 8 schlauchadapter The BBA established a panel of banks that would be polled each day and tweaked the original formula to strip out the bottom and top quartile of quotes to discourage cheating. Electricity rate per kwh philippines Otherwise the rate looked similar to the one first conceived by Zombanakis. Electricity in costa rica current Over the next quarter century, the suite of currencies was expanded to 10, and the process became electronic; other than that, not much else changed.

The same couldn’t be said of the U.K. Electricity and magnetism worksheets banking industry, which was transformed by Prime Minister Margaret Thatcher’s “Big Bang” ­financial deregulation program of 1986. Electricity in the body symptoms Overnight, she cleared the way for retail banks to set up integrated investment banks that could make markets, advise clients, sell them securities, and place their own side bets, all under one roof. Electricity song 2015 She also removed obstacles to foreign banks taking over U.K. Electricity orlando firms, leading to an influx of big U.S. Electricity n and l and international lenders that brought with them a more aggressive, cutthroat ethos. Electricity out The advent of light-touch regulation, with markets more or less left to police themselves, made London a highly attractive place to do business. 1 unit electricity cost in bangalore The market for derivatives, bonds, and syndicated loans exploded.

By the 1990s, Libor was baked into the system as the benchmark for everything from mortgages and student loans to swaps. Electricity outage austin However, it was its adoption by the Chicago Mercantile Exchange as the reference rate for Eurodollar futures contracts that cemented its position at the heart of the financial markets.

Eurodollar futures are standardized, exchange-traded derivatives that let traders bet on the direction of short-term interest rates. Gas kinetic energy formula For years, the value of the contracts was determined by a benchmark calculated by the CME, but in January 1997 the exchange ditched its own rate in favor of the now ubiquitous Libor. A level physics electricity equations The Eurodollar futures market had been around since 1981, and the CME’s highly liquid contract was particularly popular among traders looking to hedge their exposure to over-the-counter swaps. Electricity worksheets for 4th grade As swaps, and much else besides, referenced Libor, the CME believed its product would be more appealing if it used the same rate. Gas out game instructions Average daily trading volume at the time of the switch was about 400,000 contracts. Gas density That had risen to 2.8 million by March 2014.

While the majority of market participants didn’t raise an eyebrow over the CME’s transition to Libor, at least two bank insiders did warn regulators that it was a dangerous move, Reuters later reported. Types of electricity One was Marcy Engel, a lawyer at Salomon Brothers, who wrote to the U.S. Electricity merit badge pamphlet pdf derivatives regulator, the Commodity Futures Trading Commission, in late 1996 warning that the shift would encourage cheating among traders. Electricity jeopardy “A bank might be tempted to adjust its bids and offers near the survey time in such a way as to benefit its own positions,” she wrote. Electricity static electricity The other Cassandra was Richard Robb, a 36-year-old interest rate trader at DKB Financial Products in New York, who suggested in a letter to the CFTC that firms might be tempted to lowball their submissions during periods of stress to mask any funding difficulties. Gas density units “Even back then, it seemed to me that Libor was vulnerable to mischief,” says Robb, now chief executive officer at Christofferson Robb and a professor at ­Columbia. Electricity explained “It was ripe to explode. Electricity png It was constructed in a shabby way that was fine for its original purpose, but when it became so dominant, it should have been strengthened and put on firmer foundations.”

The CFTC wasn’t swayed by either appeal and signed off on the CME’s decision. Static electricity sound effect The prevailing view among regulators at the time was that Libor couldn’t be manipulated. Hp gas kushaiguda Since the top and bottom quartile of quotes were discarded, they believed it would be almost impossible to rig the rate without mass collusion. Gas natural They also thought that banks would be discouraged from even attempting to game the system since the firms’ individual submissions were published at midday for everyone to see. Gas what i smoke Anyone who started submitting dubious figures, the logic went, would instantly be identified by their peers and held to account.

In reality, manipulating Libor was a lot easier than anybody had thought. La gas prices What authorities around the world failed to recognize was that even lenders that made submissions too high or too low to be included in the final calculation could still influence where Libor was set because they pushed a previously excluded rate back into the pack. Gas in back Traders with vast derivatives positions needed only to move the rate by a few hundredths of a percentage point to make huge profits, and their influence was small enough to evade detection. Dynamic electricity examples On a $100 billion portfolio of interest rate swaps, a bank could gain millions of dollars from a 1-basis-point move.

Where Libor is set not only affects how much money banks and other sophisticated investors make on their derivatives bets, it also dictates how much interest U.S. Gas 78 industries homeowners pay on their mortgages each month. I feel electricity in my body And poorer people with bad credit profiles are disproportionately affected. Gas after eating dairy In Ohio, for example, 90 percent of all subprime mortgages in 2008 were indexed to Libor, double the proportion for prime loans.

From his sitting room in Kalyves, Zombanakis can see the house where he grew up. Electricity pictures information He says he sometimes struggles to recognize the modern world of investment banking, where traders take home multimillion-pound bonuses and cheat their clients at the drop of a hat. Electricity lesson plans for 5th grade He counts Farmanfarmaian, who died last year, and many of his other clients as lifelong friends. Gas bloating pregnancy “Back then the market was small and run by a few gentlemen,” Zombanakis says. C gastronomie limonest “We took it for granted that gentlemen wouldn’t try to manipulate things like that. Gas 99 cents But as the market was getting bigger, you couldn’t trust it. Gas x strips ingredients You couldn’t control it. 66 gas station Banking now is like a prostitution racket run by pimps. Gas leak There’s just too much money involved.”

For all its shortcomings, Libor is still a fixture of the global financial system. Youtube electricity After the scandal, regulators talked about scrapping the benchmark and replacing it with one based on actual trades rather than what banks say their borrowing costs are. Gas vs diesel generator But that proved impossible, because the number was baked into so many contracts lasting many years. Wd gaster battle In 2014 the BBA was stripped of its role overseeing Libor and replaced by Intercontinental Exchange, a U.S. Gasbuddy touch derivatives-trading platform. Gas 1940 These days, Libor is based in part on actual transactions, but it still involves guesswork. National gas average 2007 Prompted by their success with Libor, authorities around the world undertook similar investigations into benchmarks for foreign exchange , precious metals, and commodities, unearthing widespread manipulation across markets and sparking billions of dollars more in fines.

Finch and Vaughan cover financial crime for Bloomberg News in London. Electricity videos for students This story appears in the December 2016/January 2017 issue of Bloomberg Markets .