Libor is an extremely important figure in international finance, tied to some $500 trillion in transactions. It certainly would be advantageous to derivatives traders if they could game the number to benefit their trading positions. So that part of the motivation to influence the submissions is clear.
But Libor is also extremely hard for a single institution to manipulate.
Libor is the outcome of a complex submission process. For the biggest dollar and euro Libor contracts, 16 banks submit estimates of their own borrowing costs to Thompson Reuters. The highest four figures and lowest four figures are dropped, and the central 8 averaged. This means that a bank attempting to throw in a low-ball figure would usually fail to manipulate the final number at all, producing no gains for its traders.
In fact, many who work in credit and derivatives trading are convinced that there is no way for Libor to be consistently manipulated for trading gains. Every single one of the traders I've talked to thinks the procedure is just too robust, despite the lack of regulatory oversight, for any individual bank or trading group to "move the needle."
But we have the stubborn fact that Barclays traders apparently believed they could move the needle. Were they delusional? Or had they figured out something other traders missed?
Let's start with the basics. Banks do have incentives to typically understate their borrowing costs. In a crisis, for example, a bank might want to conceal from the market and regulators the fact that its borrowing costs are rising. (This is what most of the Libor scandal coverage related to Barclays has focused upon.) But a bank misreporting its borrowing costs for this reason doesn't really care about the ultimate Libor number. It's not really trying to manipulate Libor at all. It's trying to manipulate the perception of its financial health.
Banks also have another institutional reason to misreport Libor. The balance sheets of many banks are counter-intuitively skewed to profit from lower interest rates in a non-inflationary environment. Although we usually think of interest revenue as being important for banks, modern banks make money in ways quite apart from charging interest on loans. In fact, the largest banks typically have large interest-rate derivative portfolios and interest-rate trading desks that can create financial incentives to misreport rates.
Economists Connan Snider and Thomas Youle, of UCLA and the University of Minnesota, respectively, examined bank exposure to Libor and found powerful incentives to manipulate. Bank of America, Citigroup and JPMorgan Chase, for example, each have huge derivative portfolios tied to Libor and each reported huge profit increases while Libor fell in the first quarter of 2009. Because each bank provides so little transparency about the source of the earnings, however, it is impossible to tie the rising profits directly to falling Libor. But the circumstantial evidence is quite strong.
Snider and Youle explain:
"Given the large notional values, if their portfolio had just a net exposure of 1% to the Libor this could contribute significantly to their net interest income. J.P.Morgan, for example, possessed a notional value of over $54 trillion in interest rate swaps in the fourth quarter of 2008. If their swap position had just a 1% net exposure to the Libor, then their costs on their contracts would be proportional to $540 billion. It then follows if they were to succeed in modifying the Libor by 25 basis points in a quarter they would make 1=4 540 :025 = 0:337 or $337 million in that quarter. If they had a 10% net exposure they could make $3.37 billion
So a small change in Libor could result in potentially large profits, depending on portfolio composition.
But, again, is it possible to manipulate Libor? Certainly, if there were a cartel of banks who secretly agreed to push down (or up) Libor, it would be possible. But there's no evidence of any such cartel. What's more, traders would be tempted to break from the cartel to create surprise swings in Libor and damage their competitors.
Youle and Snider present a more nuanced method of manipulating Libor. They note that Libor submissions, which happen every day, are highly predictable. Typically, each bank's quote is close to or exactly the same as the day prior. We can add to this that the submitters often make use of back-channels—talking to other traders, data collectors, analysts—to predict if the market has moved overnight.
A bank armed with the ability to predict the Libor submissions of others could aim its own Libor submission at a "pivot point" at the bottom of the central two quartiles. This would weight the average downward.
Youle and Snider discover that the actual submissions of many banks follow this pattern. Bank submissions are bunched around the pivot point, implying banks are trying to manipulate Libor downward.
This still doesn't really explain, however, what it was the derivatives traders at Barclays thought that they were accomplishing by requesting changes to the submissions on particular days. It still should have been all but impossible to move Libor by very much. Were the traders just deluded?
( CNBC )
Starbucks has spruced up its Android app for U.S. users with a tie-up with PayPal. The new feature lets you top off your electronic Starbucks card with funds from your PayPal account, a facility that iOS users began to enjoy in April this year. Starbucks is also releasing the Android app with PayPal functionality outside the U.S. for the first time--to caffeine lovers in Canada. A version of the Android app without PayPal functionality is also launching in the U.K., where Britons already have access to Starbucks' daily iTunes offers.
Amazon Announces GameCircle With Handy Features For Kindle Fire Gamers
Amazon has just announced GameCircle, a new set of APIs for Kindle Fire game developers. GameCircle's offerings include an achievements feature, so you can keep track of the badges and awards you collect within a game, and a leaderboard system for competing against other gamers. But the most interesting GameCircle feature is a sync option that saves your current game to the cloud if you have to switch Kindle Fire devices or restore a deleted game.
It's an interesting and necessary play on Amazon's part--Apple provides many of the same features in its Game Center for iOS players, and it's another way Amazon can keep hold on its share of the tablet market, especially in the wake of Google's recently launched Nexus 7 tablet, which costs an identical $199. And if the rumors are true that an Amazon smartphone is on the way, it's easy to see why the company is making sure developers have the option to build seamless cross-device game experiences.
Proposed EU Bill Could Boost Digital Music Sales In Europe
The EU is considering changing its regulations on music licensing which could ultimately benefit online music stores owned by Apple, Amazon, Google, and others by unifying the market place versus the complex layers of national rules that exist. The New York Times, which got wind of the proposed bill before its official release today, explains that the new measures could speed up the rate at which royalties are collected across the EU. This means owners of copyright on music may get paid more reliably, and quicker. Michael Barnier, the internal market commissioner and proposer of the new bill, hopes the changes will help dissolve licensing barriers between countries.
Twitter Finds A Feature Phone Partner In MediaTek
Twitter and MediaTek have announced a new partnership that will integrate Twitter with feature phones worldwide. Facebook already has a deal with the Taiwanese chip maker, the alliance being part of the social network’s plan to grow quickly in swelling mobile markets in places like India. For Twitter, it’s the latest in their push to polish up their mobile lineup--just yesterday, Twitter published a substantial update to their iOS and Android apps. The slew of new features include push notifications, an ability to view expanded tweets, easier navigation to Twitter profile pages, all capped off with the new Twitter bird icon.
Nokia Adds Three More Patent Suits To Lineup Against RIM
Nokia has filed three more patent suits against RIM in Munich, Germany. Foss Patents spotted the additional three filings, which adds to Nokia’s existing cases against RIM (and others), which the company filed earlier this year. It’s the latest blow in a rough week for RIM--yesterday, it held its annual investor conference where the company’s executives faced some rough questions from shareholders.
Satellite Launcher LauncherOne Joins Virgin Galactic's Fleet
Virgin Galactic's target passengers aren’t just space tourists anymore, the company is also signing up space-faring satellites.The newest addition to the Virgin Galactic fleet is the LauncherOne, a satellite launcher. Richard Branson announced plans for the new craft at the Farnborough Airshow in the U.K. today, saying that the goal is to make satellite launching (comparatively) affordable for private organizations and laboratories, even universities and schools. Virgin Galactic has been developing the launcher along with a low-cost satellite builder Surrey Satellite Technology Limited (SSTL) for some time now.
Virgin Galactic already has investment from four companies: Imaging technology builders SkyBox Imaging and GeoOptics, satellite builder Spaceflight Inc., and everyone’s favorite asteroid mining company, Planetary Resources. Together, they’ve paid up for “a total of several dozen launches,” Virgin Galactic noted in a press release. The company anticipates that commercial flights on the LauncherOne will begin in 2016.
Another British spacecraft, the Skylon, also got a bit of the limelight at the Farnborough Airshow, when UK Science minister announced that the government would be looking into using the craft. Reaction Engines, a private company, has been testing a new engine inside the Skylon, which aims to cut down cross-continental flight time and also power the craft’s space adventures.
Android Game Console OUYA Raises $2.5 Million On Kickstarter
Unusual new gaming console OUYA, a tiny peripheral based on Android and targeted at a $99 launch price, has now raised over $2.5 million on Kickstarter at the time of writing and still has 28 days of funding yet. Speaking to VentureBeat, founder Julia Uhrman said that she and her team hadn't anticipated such a runaway success, and now has enough extra development cash to think about enhancing the gaming experience before the product launches in March 2013. OUYA enters a crowded gaming console market, but offers a significantly cheaper price and may be able to leverage the thousands of existing Android apps available for smartphones and tablets. Apple, with a similarly compact $99 TV device that as yet does not play games, has long been rumored to enter the same space.
Amidst this flurry of additions and improvements one long running Twitter feature has suddenly gone missing - the embeddable widgets. Twitter is now redirecting users from its widgets pages to its logo and brand page.
While the existing widgets embedded by users on their blogs and websites are still functional, Twitter isn't currently allowing creation of new widgets. Twitter allowed users to create widgets for profiles, search, lists and favorites.
Even the page for the much used Twitter buttons has also been redirected. The widgets and the buttons pages were accessible till Tuesday.
Has Twitter shut down its embeddable widgets or is it only in the process of giving it a makeover, quite like much else on the site? Seems unlikely, more so for the very popular Twitter buttons that have become ubiquitous across the Web.
Nielsen’s Global Consumer Confidence Survey on investment attitudes shows 48 percent of consumers in the Asia Pacific region said they were invested in the markets or used investment services. That compares to just 27 percent in North America, 21 percent in the Middle East and Africa, 16 percent in Europe and 13 percent in Latin America.
Asia’s appetite for risk is also seen in investors’ ability to withstand market volatility. Oliver Rust, the Managing Director of Nielsen says Asian investors tend to trade more aggressively and more frequently than their European counterparts.
More than half (57 percent) of Asia Pacific consumers say they’re willing to accept fluctuations of more than 10 percent. Only half of investors in the U.S. will stomach those swings and just 45 percent in Europe.
Rust says Asian investors tend to have a higher proportion of disposable income allowing them to take more risks.
Disposable incomes in Asia are higher because a growing working population has led to more households with singles, or couples without children in Asia, according to a report by Euromonitor. In fact, it says disposable income per household from 1995 to 2010 grew 13.2 percent in the U.S., while in China it surged 230 percent.
Mark Konyn, Chief Executive of Cathay Conning Asset Management says Asia's risk-taking also has to do with attitudes. “In a Western context, taking risk is often viewed as speculation, rather than investment. In Asia’s high growth economies, investors typically look for higher return opportunities and tend to have shorter time horizons.”
Shan Han, a sales trader at IND-X securities adds that inflation is another factor. He says “higher inflation has also meant that hoarding cash has not been a good strategy for savings because of negative real deposit rates,” prompting Asian consumers to seek higher returns.
Han cites Hong Kong as an example. During most of the 1990s, annual inflation averaged 8.5 percent, while 12-month bank deposit rates averaged 6 percent. That means investors who stashed their cash in the banks were losing 2.5 percent of their savings each year.
Within Asia, Hong Kong consumers tend to be the biggest risk takers. 55 percent of Hong Kong consumers are financial investors, outweighing the global average of 33 percent.
Rust says that has to do with “new money”. “First generation wealth holders tend to focus on capital growth, whereas second or third generation wealth holders tend to focus more on capital preservation,” he says.
That explains why a larger number of Asian consumers pick stocks as opposed to other asset classes such as precious metals and bonds. Almost three-quarters of respondents in Asia picked equities, even though they’re often seen as the riskiest assets class. In North America, only two-thirds picked stocks, and in Europe, less than half did.
( CNBC )
The Bad Date Rescue app, which was launched by the dating website eHarmony.com this week, lets users arrange for a call to appear on their iPhone to graciously allow them to bow out if a date isn't going well.
The free app includes several ways to set up a rescue. Users can pick a number from their address book for the call, for example from their mother or a friend. It the person's picture is stored on the app it will appear on the screen when the call comes through.
Scripts are available giving the reason for the call, such as a neighbour calling about a leaky pipe; a mother informing that a sister just had a baby; or a boss saying he needs help immediately.
The free app can be pre-set before the date to call at a specific time and there is a quick rescue that can be triggered on the spot to ring in a few seconds or minutes.
The game, “Defend the Diaoyu Islands,” which had been available on the Chinese-language version of the App Store, was no longer listed Wednesday. The company that made the game, Shenzhen ZQGame Network Co., said it was given no explanation for the move, the China Daily newspaper reported today.
The company apologized to players and is in negotiations with Apple over the game, China Daily said.
In the game, players defend the islands by unleashing various attacks on the invaders, which include soldiers carrying Japanese flags, ninjas and sumo wrestlers. The game plays music from “Tunnel Warfare,” a Chinese movie about the Second Sino- Japanese War.
Apple’s terms of service say that games on its App Store “cannot target a specific race, culture, real government or corporation or any other real entity,” China Daily said.
Apple’s Beijing-based spokeswoman Carolyn Wu didn’t immediately return calls to her office and mobile phones, or respond to an e-mailed request for comment.
The islands, known as the Senkaku in Japanese, are about 140 kilometers (87 miles) north of Japan’s Ishigaki Island between Taiwan and Okinawa. Sovereignty over the area would give the holder control of undersea natural gas and oil fields.
( Bloomberg )
Ad agencies usually create advertising for their clients. Interone of Germany went one step further: It created advertising and a new product idea.
To generate buzz for lingerie maker Beate Uhse at a recent convention, Interone devised the Face Bra. It's a sexy, lacy number in the shape of a bra -- but it's a sleep mask.
Beate Uhse was so impressed that it may produce the Face Bra as a complement to its line of sex toys and naughty wear.
"When we saw the idea we knew this would be something nice to do," Beate Uhse spokeswoman Doreen Schink told The Huffington Post on Monday. "If you see the product, this can be a huge success."
Schink said the company is still in the "decision-making process." We say go for it. The last popular stab at a "face bra" was actually a bra to support the face. And it appeared in fiction. The secretary played by Jane Krakowski on "Ally McBeal" invented one to stop women's faces from jiggling when they jogged. It made her look like a cross between a mummy and Hannibal Lecter.
Interone's Face Bra was originally distributed to travelers on planes, trains and buses to this year's Salon De La Lingerie in Paris, and from there it gained momentum. The tagline on the packaging reads, "Sweet Dreams."
Now 40 winks can come with a wink.
( Huffington post )
Terms of the deal were not disclosed.
San Francisco-based Involver, founded in 2007, provides tools for developers to create advertising campaigns on social media networks such as Facebook.
"Companies are looking to harness the full potential of social media to increase brand loyalty, connect with potential customers and anticipate buyers' needs," Oracle said in a statement.
Oracle, the world's No. 3 enterprise software provider, has aggressively fleshed out its social media capabilities in recent months, beginning in May with a deal for Vitrue, a social media engagement service. The following month, Oracle acquired Collective Intellect, a social media analytics company.
Even though Facebook's troubled IPO in May cast some doubt over consumer social media, deals in the enterprise sector have continued at a scorching pace.
Salesforce.com Inc snapped up social media advertising firm Buddy Media in a $689 million tie-up in June, while Microsoft Corp acquired workplace collaboration software maker Yammer for $1.2 billion in July.
