Do Banks Have the Right to Make Up Interest Rates?
Rochdale Securities bank analyst Dick Bove debates whether Libor is the biggest banking scandal ever.
- Duration 10:41
- Date Jul 18, 2012
Rochdale Securities bank analyst Dick Bove debates whether Libor is the biggest banking scandal ever.
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This transcript is automatically generated
Well we're gonna -- on this topic about Ben Bernanke -- for a moment and his testimony on Capitol Hill the chairman of the Federal Reserve it's called the interest rate fixing scandal.
-- major problem for our financial system in fact he said moments ago that it's appropriate.
To hold banks accountable for the Libor issues just how major problem is that well the biggest banking scandal -- -- this of the suggested.
Which is quite simply a lot of hype.
We have Dick Poe today who's a long time banking analyst now -- rock dale.
Joining us out you wanna pick one of those Decker to -- somewhere in between.
-- let let me let you think about in a different fashion by asking you questions let's assume that you're the chairman of the Federal Reserve in 2008.
And you driving interest rates down because you're in the midst of a financial panic in -- in a situation where -- you think that.
Interest rates have to stay low in order to get the economy to recover yes did you see this Libor out there -- you begin -- you realize.
That the rates on loans in the United States and -- based upon your federal funds rate.
But they're based upon Libor yes Libor is affecting a couple of trillion dollars worth of loans and -- tens to hundreds of trillions with the securities.
It's my he's higher that as the chart we just showed indicate 2000 and it.
Exactly -- right do you say okay.
Let Libor go where it should let interest rates go up on every -- in the United States tied to Libor.
Look through the value of the securities in the United States plummet because interest rates are going higher and let's just wipe out what we've just doesn't he trying to blow a -- that he had this -- -- -- Or the Fed Funds rate.
Or did you encourage big bankers to commit what may be.
The largest securities fraud of all time -- that the other side of it.
Well basically I'm asking you what you would do would you let.
The Libor rate go up and prove that the -- and the Fed is not setting.
Interest rates in the United States or would you simply look the other way which is what the Federal Reserve.
Did so you're -- vending you know -- -- and so has the right thing to do you know.
To look the other way and again encourage what may turn out to be one of the largest frauds of all time if these accusations against all the banks not just -- turn out to -- You think it was one of the largest -- of all time what why what's the basis of arguing that.
You gave this tremendous benefit to the US economy.
You basically allowed mortgage rates come down by getting -- back room and around the country to pay less and interest.
You have selling you're saying that it is bad because everybody in the country paid less on their loans I'm not.
Secondly got an ongoing job based on the facts of the CFTC report and other reports that have come out.
Which basically allege that the big banks Barclays is already -- basically admitted to this and others may down the line who knows that the big banks got.
Behind closed doors and fixed and interest rate.
And you're saying because of the benefits that came from that that it was okay it's basically saying if Barry Bonds hit seventy home runs that is already took steroids.
And everybody else who wasn't cheating it's you know -- are -- -- example why.
Fact of the matter is because banks set interest rates that's what they do right banks tell you.
In other words everybody in the commercial sector sets the price of the product that they sell.
Would you arguing is that banks don't have that right.
No more -- than they do absolutely right that's not true I'm asking a question -- -- -- -- -- I you know -- hate to say that I'm making an argument -- ask you -- question.
Which basically says did the banks have the right to just make up an interest rate that benefits -- regardless of what it does the economy that may benefit then make things look not as bad as it seems which by the way is highly illegal.
To just make something up.
Not based on a marketable based on freeware and it's an item -- make sounding off track no I'm not that's exactly what's alleged here don't know exactly what allegations are here.
Is that makes it definitely is -- -- may not actually market listen if you're just and it's and if you're just gonna talk the whole time I am.
And not allowed to ask a question that's fine you -- do and on another show I'm asking a question which is still haven't answered.
And that is our viewers send our new and since.
The question is -- -- in favor.
Of giving and it's senate to a bank to commit a fraud.
That's a stupid question.
Which -- asking me is these banks have the right to set interest rates banks do have the right.
To set interest rates not -- -- Lockhart -- all the law that's an equally stupid -- so there you go if it were to recommend -- ridiculous scenario and why why don't they have the right to say they don't have the right to make our lives if you -- this is this this is going nowhere.
You can go back and watch it later on.
And I'll even send it -- all the email you the tape I'd say you know what -- -- what and that's.
What's you're saying what he's he's trying to make those characters that aren't being and you try to make.
It's not about whether they have this right to set and it's about the question of whether they have the right to manipulate them to rig the market and make a mop.
He -- answer whether that's okay with you if it benefits the economy that's what you're saying that your argument it makes no sense.
It absolutely is a -- argument as you think my questions are stupid so.
When you wish they just forgetting dominant you're arguing you're arguing that if interest rates go down yes the American public benefits.
That banks in some fashion win not a they don't win they lose.
In other words if the that's a true manipulate lower which is what is what is happened in this situation not a nice change funny.
That's not true in 2000 anti money it 2000 innate again in 2008 -- lower rate.
On Libor benefited the bank says it spiked higher it gave us the indication that they were in big trouble did every incentive to keep it no more then took the banks they have every incentive to keep that rate lower than -- was -- -- we must see.
It was trillions of dollars of loans outstanding in the banking system.
With a rate was artificially manipulated lower right so that consumers made money and banks lost money.
Just leave out to -- low rates the banks lose money they don't make money.
Artificial weight is he arguing that because the consumer made money in the banks lost money that the bank somehow benefit it.
I can't figure out how you can make that argument and I can't figure out how you can make an argument using the phrase artificially manipulated lower.
And then turn around and say that that's OK I hate to be the -- to tell you okay not a lawyer that's how we write to set.
It is not illegal court access the right to set the price of their product.
Just the way General Motors does just the way Google does -- -- away any other company if there was an illegal than Barclays wouldn't given half a billion dollars in settlement that's just nonsense and you know it they paid out.
Half a billion dollars already and other banks to get -- did the same you know why.
Because they don't have the law points -- -- you know I won't don't have the right to set the prices they do are they don't have the right to manipulated -- -- -- -- -- -- -- -- with each other and manipulate that product that's the accusation -- is if -- collusion in setting -- rate that's illegal -- just the bank wants to set the rate will they choose to set it.
That's not illegal it's not improper well one -- your senators here is gonna be tough to prove because of that exact fact that you brought up.
But if they colluded and they got together to do it.
And some of these emails from Barclays c'mon if they got the other banks are involved and -- that is a little -- students -- -- alleged lewd.
That it's illegal if they didn't collude.
They basically have the right to sit interest rates whenever they choose they are selling a product.
And they have the right to price the product price wherever they choose our funding where it has ten point banks.
In this central banks also have the right to set interest rates wherever they choose and in 2008.
United States consumer United States businesses benefited enormously.
But -- the race was set and the banks lost money and it turns out at the rate Swiss.
That the whole thing could have been a very big broad and to bring up the point that the banks lost money you know is only half of the story because the bank stayed in business.
By encouraging or may be manipulating as we've talked about.
That Libor rate lower because if it had a spike as it did started to do in 2008 -- was spiking higher that's an indication of the health of the banking system.
As it went higher and we reported on -- every single day when it ticked up there was more worried that the whole system which is gonna fall apart no way you know that.
So there and every incentive for a lower rate -- -- every incentive to lower the rate.
Well of course -- they like what he's doing that they didn't make money you're seeing in the business did they made money.
They were gonna stay in business anyway I've I think we're not reporting what it was -- it.
They've -- some of the biggest banks in the country went out of business as they are good business sense in.
And turned Goldman Sachs Americas sailing into the bank holding companies they went went under too when you know that to mean this is a -- they wouldn't.
-- -- -- History.
They would not have gone under we had fewer banks go under in this crisis.
We had maybe 15% of the banks go under that one under in the prior crisis with 3000 banks that one on there from 87 to 91.
They -- maybe 450.
That one out.
Despite in this for a period of time don't -- -- net effect is the banking system wasn't stronger condition in this sector in this crisis that it was in the crisis from 87 to 91.
Good job out of the bottle throwing your vote.
-- terrific job they did by doing it illegally and by committee -- again may be the largest fraud of all time.
Kate shouldn't do it illegally saying they did Barclays has already had a positive.
Bank is stay in business because -- cash flow is positive.
They go out of business because they're cash flow is negative setting the rate lower reduces their cash flow.
They stayed in business because they had positive cash flows.
And they recovered very rapidly from the crisis.
Once the US situation stabilized in the financial markets.
Yeah paid back every dime that they took from the government at a huge profits of the taxpayer in that period.
In their profits at the present time are enormous because basically they're very successful.
Companies JPMorgan makes broad money one's gonna -- a -- in the world.
Hey Dick we're going to.
We're gonna run now although I've enjoyed this.
Discussion very much and job I'll pick up some more stupid questions -- the dominant in the near future -- you have some of the dumbest that are very that I will agree at least we agree on that in the answers are equally is well and lightning Dick -- day.
Good to see you.
That's how hot.