Libor and you—a match made in. . .

What’s Libor got to do with it? Learn the origins of the Libor and how it affects California real estate agents and brokers as well as the greater U.S. economy.

What in the world is Libor?

Before the Libor scandal rocked London and Wall Street, sending the global business media into a frenzy, few people had any idea what Libor was, let alone how it affected them in their business dealings and in their daily life. Before we get into any scathing critique of the benchmark rate and its manipulation by Wall Street, let us first explain exactly what Libor is.

The London Inter-bank Offered Rate, known as Libor, is a benchmark interest rate set by the British Banker’s Association (BBA) to estimate the cost of borrowing between banks, which is an essential practice for banks to maintain liquidity and lend funds to consumers. Banks needing money borrow it from other banks that have excess cash and then lend it to consumers, paying one another back and profiting on the additional margin charged to the consumer. Although the Libor is used as a benchmark for setting a vast variety of rates, this is its fundamental purpose.

In all of the discussion of Libor in the media of late, few have explained the progenitors of the mysterious rate, the BBA. The BBA is a trade union for British bankers. It is essentially a collective of nearly every bank and financial services company in the UK that “protects the interests” of the banking organizations.