The California Public Employees’ Retirement System (CalPERS), the largest public pension in the country, is considering legal action against banks that fraudulently fixed the Libor rate. Quite a few other large, deep pocket firms, pension funds, brokerages, and municipalities are considering doing the same.
Libor is the central interest rate for the world financial system. Other interest rates, as well as mortgage rates, are based on Libor. The market in interest rate derivative contracts is an astonishing $550 trillion. Several large banks have already admitted to rigging the Libor rate with more certainly to come. This scandal is occurring at the heart of the financial system and its effects are felt everywhere. Given the scope and magnitude of the Libor rigging, it will take time for events to play out. But play out they will, and the effects will prove devastating to the banks involved.