LIBOR Scandal is a Difficult Civil Suit to Value

This does not mean that shareholders will not suffer, but it does offer some hope that money outflows will be contained; which is why I bought a little more JPM.

For all the complaining going on about this, the fact remains that LIBOR is an average of some number of banks which is determined by throwing out the 4 lowest and 4 highest submissions.  Who knows where any one bank's submission stood in that process on any given day?

Then, who was damaged by this?  Municipalities are complaining that they paid too much in interest because of these submissions, but if LIBOR was set too low by the erroneous submissions, then they paid less than they should have.  The same goes for any borrower who paid a LIBOR based rate on their debt.  Investors in floating rate notes might have been damaged but to prove damages they will have to know which banks submissions were too low, what days they specifically contributed to the actual setting of LIBOR, and then match those days to the exact days that the coupons were set on their security.  And they will have to produce proof that they owned these securities for specific time periods.

Derivative holders will be in mix, but most derivatives holders have a mix of long and short positions.  Again finding out the exact value of damage will exceedingly tedious and time consuming and may well prove to not be worth the effort.

It is clear that when a systemic crisis hits the banking system, the flaws in the LIBOR setting mechanism become apparent.  But the original purpose of LIBOR was to make sure that loan pricing covered the banks' funding costs.  Submitting too low a funding cost actually harmed the banks that did so because they were understating their exact cost.  The banks were harmed.  And it is not clear what legal obligation there is between the banks' LIBOR process and the securities/derivatives where harm may have been caused because LIBOR is simply used a reference rate.  Only the Judicial System can determine if that creates a legal obligation.

I wish the authorities well in creating a more transparent reference rate, but I wonder how they will do so and not create another method for manipulation.