Monday, June 17, 2013

Yes, the Markets Are Rigged: How to Survive the Shark-Infested Waters

From Yahoo Finance: If you were shocked (shocked!) to discover last summer that the LIBOR market was being rigged, prepare to be flabbergasted: Regulators are investigating a number of global markets that appear to be subject to manipulation.

“The probe of Libor manipulation is proving to be the tip of the iceberg,” Bloomberg reports, noting that various regulators are investigating markets including:

What all these markets have in common is a feature whereby levels are set, at least in part, by prices submitted by traders using the “honor system” vs. actual verified trades. As Henry Blodget and I discuss in the accompanying video, it should really surprise no one that traders would manipulate markets if given the opportunity because the motives to do so are so compelling. And while these markets may seem arcane, they do have real world impact: LIBOR is the global benchmark for interest rates, including those on mortgages and auto loans, and Brent Crude is the global benchmark for energy prices.

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