Thursday, September 20, 2012
They pulled the numbers out of their asses.
The latest reports on the LIBOR rate manipulation does not look good. According to the International Organization of Securities Commissions, many of the benchmarks used in the financial industry have no more basis in reality than does LIBOR.
The same lack of oversight that enabled traders to manipulate the London interbank offered rate plagues other benchmarks around the globe, according to a group of international securities regulators.Kind of scary that the shakiest numbers are those that require judgement.
Fewer than half of the benchmark interest rates surveyed in the U.S., Europe and Asia were based on actual transactions, according to a confidential International Organization of Securities Commissions discussion paper obtained by Bloomberg News. Instead, the rates were calculated by methodologies that were unclear, not transparent and only rarely subject to specific regulatory standards or obligations, the group said...
According to the discussion paper, about 80 percent of benchmarks were either compiled by associations or private entities. For survey-based benchmarks like Libor, the criteria for submitting data was not always objective and called for judgments about rates and prices, according to the discussion paper. Even in benchmarks that are based on actual transaction data, the compiling bodies retain discretion in producing the actual rates or prices.
“The risk of manipulation will be greater where participants in the process have both incentive and opportunity to submit inaccurate data or apply a methodology inaccurately,” the authors said in the paper. “Furthermore, where judgment is required in determining the data to be submitted, the problem is particularly acute.”
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