LIEBOR Scandal Widens
Evokes mid 80s Prime Rate Lawsuits
Jackie Kleiner sure knew how to scare the shit out of bankers back in the mid 80s. Seems banks had forgotten to change their definition of the Prime Rate in the loan docs. They called it the rate they lend at to their best customers. That was true until it wasn't. To keep up with the Joneses (European banks) US banks started moving away from Prime as the base rate. They started lending to large corporate credits using LIBOR as the base rate which just happened to be hundreds of basis points below prime. Hence they were lending to their best customers like Coca Cola at LIBOR plus 50bp say 7.5% when Prime was 13% to the 99%: the bankers held Prime artificially high just because they could milk the average cow dry. This definitely came back to bite them in the ass when a small time attroney figured it all out and sued the sons-a-bitches.
Maybe the LIBOR police should take a look at history repeating. Attorney Generals, time rev up your engines.
http://www.nytimes.com/1984/02/03/business/suit-tests-prime-s-definition.html