LIBOR is the reference rate for 70 percent of the U.S. futures market, most of the swaps market, and nearly half of U.S. adjustable-rate mortgages. LIBOR, undoubtedly can be called the world’s most important number. It was conceptualized to meet a certain need, i.e. “what rate should be used for a floating rate note? “. Primarily it was used in the payoff computation of Eurodollar futures and subsequently it was used in interest rate swaps, derivatives on interest rate swaps, basis swaps, mortgages etc. The fact that LIBOR became a rigged rate was known to a few people in the financial world, i.e. rate traders, derivative traders, hedge fund managers, agencies that published LIBOR every morning. However it was known to a far wider audience after the 2008 WSJ article that screamed, “Emperor is naked ”. The title of this book is apt as it describes the situation before the regulatory agencies took action. Everybody knew what’s going on but nobody said anything. Too much was at stake.

The book reads like some crime thriller based in some fictional land; the only difference is that it is a true story and the victims are state governments, municipalities, rail transport authorities, and many other institutional investors who have lost billions of dollars. The perpetrators in the story are yet to given punishment. Yes, some of them have quit their jobs but NOBODY is yet behind bars! The most saddening aspect of the story is there have been merely a few cosmetic changes made to LIBOR and it is still being used as a reference rate in market place. The book talks about few people who singlehandedly tried to fight against LIBOR. Sadly, their voices were squashed as there were too many people who wanted status-quo. Several traders are going to be tried in 2015 and the author hopes that some justice would be doled out.

By the end of the book, a reader is left with an uneasy feeling about financial markets. If LIBOR can be rigged, what other benchmarks are currently being rigged? Is ISDAFIX being rigged? Is there a currency-fixing scandal waiting to be uncovered?

If you are curious to know the answers to any of the following questions, then the book might be worth a read.

  1. How did two WSJ journalists uncover the fact the LIBOR was rigged? Why did they analyze Credit Default Swap market?
  2. What were the political and economic conditions that led to the flourishing of Eurodollar business?
  3. How was LIBOR computed by British Bankers Association?
  4. LIBOR was set by primarily UK based banks. So, why was it being used as a reference rate for student loans, mortgage loans in US?
  5. What role did interbank brokerage companies play in manipulating LIBOR?
  6. Did Bank of England know about the fact that LIBOR was rigged?
  7. Did U.S Treasury know about the fact that LIBOR was rigged?
  8. What was modus operandi for manipulating LIBOR rate?
  9. How did Tom Alexander William Hayes, Yen-LIBOR trader, manage to rig LIBOR?
  10. Why did banks quote artificially low offer rates when polled every morning?
  11. What was the role of Barclays bank in the whole affair? Why did Bob Diamond resign after the scandal erupted?
  12. Why did British Banker’s association try to cover up the whole affair after WSJ article? What was their motive?
  13. If there were no subprime crisis in US, do you think LIBOR sham would have been exposed? Why or Why not?
  14. Why didn’t the regulators act ?
  15. Who were the major hedge funds involved in the controversy ?
  16. Why did Gensler, the former chairman of CFTC, fail in his mission of abolishing LIBOR?
  17. Interest rate swaps are complicated to value. So, why did municipalities, railways etc. fall in to the trap of investing in them?
  18. Why did Charles Schwab file suit against Wall Street banks?
  19. What happened to traders implicated in LIBOR and EURIBOR scandals?
  20. Post LIBOR scandal, what changes have been made to compute LIBOR?
  21. Is ISDAFIX benchmark rigged too?
  22. Should IR swaps be traded on an exchange? Why did Gensler’s effort in pushing reforms for IR swaps trading, go in vain ?
  23. Was LIBOR waiting to be rigged? Could there have been a better mechanism to capture reference rate?
  24. People have lost faith in benchmark rates and increasingly we are seeing manipulation is not the exception but the rule. Does the author have any suggestions for restoring investors’ faith in benchmark rates?