FDIC legal action to punish banks for flying under (and over) the LIBOR Radar
If the Federal Deposit Insurance Corp. (FDIC) wins its London interbank offered rate (LIBOR) lawsuit against a number of big banks, then the big banks have a moral responsibility to refund least two thousand dollars to every person on earth, at least.
The first law of thermodynamics explains why FDIC is looking to punish the large banks for allegedly fixing the LIBOR.
According to the first law of thermodynamics energy cannot be created within a system. Energy can be transformed from one form to the next but it cannot be created. In physics you can’t fudge that but in commerce, is seems the banks have found a way to thumb their nose at physics.
Airline pilots understand not to disrespect the laws of physics. Those that forget these rules pay dearly. If the banks were airplanes their alleged manipulation of the LIBOR would have driven them to fly into the ground.
Remember Air Transat Flight 236?
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On August 24, 2001 Air Transat Flight 236 was a commercial flight bound for Lisbon, Portugal from Toronto, Canada that lost all power while flying over the Atlantic Ocean. The Airbus A330-243 suffered a complete power loss due to a fuel leak caused by improper maintenance and pilot errors. The pilots flew the plane to a successful emergency landing in the Azores saving all 306 people (293 passengers and 13 crew) on board. But the pilots had overlooked the first law of thermodynamics: energy (like money) couldn’t be created.
The problem started with a maintenance error a technician installed the wrong hose in an engine. During flight the engine began losing fuel. In turn the pilots, ignoring the rate at which fuel was being used pumped fuel from the uncompromised engine to the leaky engines. Instead they should have realized their fuel consumption rate was too high. They should have turned back, landed in Halifax and gotten the plane fixed while enjoying lobster dinners. Instead they ignored physics to run out of fuel over the Atlantic Ocean and crash landed into the Azores.
The same realization happened to the global economy after the subprime mortgage crisis: we had a whole lot less fuel than we thought because there was a leak that was overlooked, presumably by conspiracy among banks.
LIBOR should have gone up when loans defaulted as in the case of subprime mortgage loans (fuel is being pumped to backfill the leak). In this case, the banks found (allegedly) that it was convenient to ignore the leaks. With the LIBOR still low, there was no indication that we were running out of fuel — and so the economy crashed.
But you can also over-evaluate the LIBOR. What happens if you overestimate the fuel consumption? The airline will charge a premium to travelers.
LIBOR is a lending rate that is the basis for hundreds of trillions of dollars worth of consumer loans and savings rates around the world. It’s a number, calculated and released daily by banks in London, that is supposed to show the rate at which they are lending money to each other for short-term loans. It’s seen as a broad proxy for the strength of their finances, which is itself an indicator for the global economy.
The LIBOR affects $800 trillion worth of financial products, including adjustable rate mortgages, credit cards, and auto loans.That’s because banks use LIBOR to set interest rates for these products, usually charging a point or two above LIBOR, which is usually 1/10th of a point above the Fed Funds rate. Since LIBOR went as high a full point above the Fed Funds rate as a result of the subprime mortgage crisis, it created an additional $8.0 trillion in additional interest that could be charged to borrowers. Under the right terms this is all profit to the banks. Do the math: there are 7.2 billion people on earth.This means a little over a thousand dollars a head. And this is only the easiest of the measures we can use to assess the rate. What about the bailouts? Double that amount to a conservative two thousand dollars a head.
Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>