London Banks Seen Rigging Rates Losing Credibility

Every workday morning in London, at about 10 o’clock, representatives from 19 banks make a series of decisions that affect financial transactions around the world, from what homeowners pay on their mortgages to the underlying value of credit-default swaps and corporate bonds.
The bankers’ power is unsettling, says Tim Price, who helps oversee more than $1.5 billion as director of investment at PFP Group LLP, an asset-management firm in London.
“It’s a kind of Wizard of Oz surrealist nightmare,” he says.
It could hardly be more real, Bloomberg Markets magazine reports in its January issue. What the bankers are deciding on is Libor, the London interbank offered rate. Libor is based on what each participating bank says it would have to pay to borrow money from another bank.
The rate, produced under the auspices of the century-old British Bankers’ Association, represents the average of the collected figures, minus several of the highest and lowest quotes.
The resulting benchmark determines interest rates on an estimated $360 trillion of financial instruments around the world, according to the Bank for International Settlements.
Unelected and lightly regulated, the Libor panelists have come under increasing scrutiny from money managers such as Price who say Libor is biased in favor of the bankers who submit the quotes.
“The whole system is rigged,” Price says. “The banks are able to say, ‘Let’s just collude and set rates, and we have the sanction of the authorities to do it.’”
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China Manufacturing May Shrink This Month

China’s manufacturing may contract this month by the most since March 2009 as home sales slide, adding to evidence the world’s second-biggest economy is slowing, a preliminary purchasing managers’ index shows.
The reading of 48 reported by HSBC Holdings Plc and Markit Economics today compares with a final number of 51 last month. A number below 50 indicates a contraction.
Europe’s sovereign-debt crisis threatens to cut export demand just as small businesses complain of a credit squeeze, and Premier Wen Jiabao’s campaign to cool home prices triggered a 25 percent slump in sales last month. Today’s Chinese data indicated easing inflation pressures that leave more room for measures to boost growth after the U.S. yesterday reported a weaker-than-estimated expansion.
“Growth is set to overtake inflation as Beijing policy makers’ top policy concern,” said Qu Hongbin, a Hong Kong-based economist for HSBC. “Should growth and inflation both slow faster than expected, there is an increasing likelihood that Beijing will shift its monetary policy towards an across-the- board easing.”
The Shanghai Composite Index (SHCOMP) fell 0.4 percent as of 1:11 p.m. local time after HSBC said the survey also indicated the sharpest fall in factory production since March 2009. Indexes of prices slid. The central bank may begin cutting lenders' reserve requirements in January, Bank of America Merrill Lynch said today.