Why are sub prime mortgages linked to libor, ( Uk rate ), why ? The libor is a UK rate, not a USA rate, so why link the sub prime to libor ???
It is not just sub-prime, many adjustable rate mortgages use Libor as the index to set the interest rate. http://www.cnbc.com/id/20603568
Actually, I have been pondering about this question for many days now. It's not just the sub-prime mortgages. Many prime mortgages are linked to LIBOR also. It just boggles my mind that the financial security of this country would be in the hands of a few British banks. As a result, the Fed has had no luck trying to lower the LIBOR. WTF? Is there a conspiracy to put this country back in the control of British Empire? There should be a Congressional investigation into this question.
The US rate curve is so fvucked up ...that anyone would use LIBOR to jack with rates..... it's the first to jump even without 500 bill of juice.... Big Ben said TAF auctions go on forever...
so OK will you'll give me a loan for 30 yrs..on my cider block dump basis US 10 yr..??? the line forms here................
UK has the safekeeping of all the real gold. Seriously; the rate is linked cause that is where the liquities are plentful and has the support.
Calm down nut jobs - the LIBOR rate people usually talk about in the context of subprime lending is the US Dollar LIBOR rate. It's the average rate that major banks will lend each other dollars at various terms for. Obviously ,there's a also a huge swaps market based on it. There's a seperate LIBOR rate for the sterling and also a ERIBOR. The dollar LIBOR is what's liquidly traded and its yield above the treasury rate (usually in the 50-150bps context) defines the risk of AA financial institutions (including US banks). No conspiracy here. Just an big international money market.