The LIBOR rate is a lot like your water heater: You never think or hear about it unless something has gone terribly wrong.
LIBOR (which stands for London Interbank Offered Rate) is the price banks charge to lend each other money overnight. During the 2008 financial crisis, LIBOR spiked to 6.88%, essentially halting all lending between banks. Bankers wouldn't even lend to each other for a few hours overnight, for fear that they wouldn't get their money back in the morning. In the case of Lehman Brothers, they were right.
And you surely remember the LIBOR scandal of 2012, when a cadre of banks were accused of manipulating the all-important rate for their own profit. Given that LIBOR rates influence a staggering $360 trillion in financial products, including student loans and mortgages, it's curious that that accusation didn't balloon into the scandal of the century as some experts predicted.
Yes, you can safely assume that if people are chattering about LIBOR, trouble is brewing. Which is why it's notable that LIBOR is back in the news today.
Actually, that's not entirely accurate.
What's in the news is SHIBOR—the Chinese equivalent of LIBOR (substitute "Shanghai" for "London"). SHIBOR spiked to a mind-numbing 25% in late June—yet unless you reside in the Far East, are a financial junkie, or both, you probably didn't hear anything about it. ...