When I first heard about LIBOR in 2002, I was surprised that the number is just based on a survey of bankers. Surely there would be accuracy issues with that?
But at that time I was young and had no finance experience, so though that the adults in the room knew best. Turns out not!
I don't think the base problem is that people shaded their numbers one way or another, it's that the system is designed wrong.
The more I've learned of the banking system, the more examples of this I see. It seems that much of the banking system was designed by bottom-line-oriented, non-systems-thinkers, who just wanted an immediate, good-enough solution to a problem. Accuracy, reproducibility, scalability, systemic integrity, and similar concerns often weren't a factor.
It evolved from a small system where the people all knew each other and went to the same few public schools where everything also ran on the honor system. It wasn't a bad design for its original scale & context.
Those dumb bankers. We computer scientists would never design something that failed to scale through 5 decades.
I'd suggest that most of society still runs on the honor system (especially finance and law), it's just more abstracted away from interpersonal relationships than it used to be. The existence of things like encryption often deceives us hackers about what the real foundation is.
Every day when I pass through the lobby of my apartment building, I think about the fact that our lettermail gets locked up tight in individually-keyed mailboxes, but — due to our building not being "large enough to qualify" for a parcel dropbox — large high-value parcels instead just get left lying on the lobby floor beside the mailboxes, with the matter of not stealing other people's parcels left entirely up to the honor system. (And yes, this is the same lobby that arbitrary guests will walk through to the elevator if buzzed in by any tenant who hears the word "Amazon" muttered vaguely through their phone.)
Of course, the locks of those individually-keyed mailboxes are also probably rakeable or bumpable or some other two-second attack. But at least that deters people who never bothered to look into how locks work.
Here (Canada), "passports, birth certificates, bearer bonds", etc. all get sent as registered mail with receiver identification required for release — which means they get held at the nearest post office for you to go pick up, rather than coming to your mailbox. (Instead, a notice card gets delivered to your mailbox, telling you to go get the thing.) Surprised that's not a thing in the US(?). Is that why long-term identity fraud is so common there? Birth certificates and other legitimate primary identity documents just being stuffed into insecure outdoor mailboxes where anyone could grab them?
Also, while many parcels are just purchases from companies, a parcel could very well be a priceless heirloom sent by a relative. Or, say, a live reptile.
The postal system bakes old assumptions into it, where ordering goods for delivery didn't used to be nearly so common, so a much larger fraction of parcels used to be of this personal variety. Which makes it even more curious that they're generally handled in such a blasé manner.
My only guess is that shipping parcels is expensive by itself, so almost nobody bothers to pay double to have their parcel handled securely as registered mail.
> When I first heard about LIBOR in 2002, I was surprised that the number is just based on a survey of bankers. Surely there would be accuracy issues with that?
Traditionally the banking community of London was super close and built on reputation. People do huge deals based on people's word and people were expected to be honorable. That might sound naieve in the 21st century when global trade is much bigger but it worked for hundreds of years.
Secondly LIBOR really was pretty accurate, people talk a lot about how it could have been manipulated but the evidence is isn't so solid. Yes in aggregate a few bps adds up to a lot of money but for individual parties it doesn't really make a difference.
Just how much corruption is known. Even if you make the assumption that people in aggregate can generally assess whether corruption exists somewhere, it'd be harder to measure the 'severity' that way. I actually think you're probably correct that people's perceptions of corruption have some connection to reality, but I think the more fundamental problem with such a scale is boiling a complicated reality like corruption into a single corruption number, which seems pretty silly on its face.
Up to a point. A lot of these indexes are PR and the people who answer them have motives to rate one way or the other (e.g. you are an opinionated journalist and you want the current government to look bad).
There's usually something weird going on with some of these indexes if you compare statistics with opinion-survey-based stats.
The big secret you learn about central banking pretty early in adulthood is that “we” (society) is still figuring it out, tweaking it, and making it up as we go, and it’s not so old as to have this huge body of proven method that we’re all led to think it does. The systems are brittle, prone to manipulation, and every once in a while we manage to avert a crisis and keep from going completely off the rails. It’s not a bad endeavor, but it’s nowhere near the level of perfection and stability that like to imagine.
Apparently a lot of the "university rankings" that you see are based a similar method -- faculty/staff at various universities are asked to rank (other) universities and their results summarized. So, for example Harvard is the #1 US university because many people at other universities think it is! There are other attempts at rankings that try to be more objective (such as number of papers published, number of Nobel Laureates on faculty, etc.) but those of course focus more on the research output of the university rather than teaching.
>> I was surprised that the number is just based on a survey of bankers
The numbers that LIBOR is measuring ultimately represent a human’s opinion. Well, it’s the opinions of several humans then the highest and lowest opinions get discarded and the rest averaged.
It’s not measuring a value derived deterministically from some inputs, so how else could you capture it?
We’re not producing cola anymore, everyone should use water instead.
SONIA is just one rate - last nights GBP overnight rate. LIBOR benchmark currencies have tenors, the future borrowing rates at different maturities.
They’re different things - so different that a “synthetic LIBOR” rate is now produced in order to help transition instruments that can’t rely only on the historical overnight rate like SONIA.
It’s true that LIBOR is being replaced (although a level 1 submission to ICE LIBOR was already based on value weighted averages from eligible transactions - it’s just that a level 3 expert judgement could override it) - but it’s not being replaced by something comparable. It’s being Replaced by an entirely different benchmark, it’s impossible to change some contracts to use the new benchmark because the new benchmark measures something different and lacks sufficient information to do everything that libor did.
Source: i inherited ownership of the system used to submit libor at one of the libor panel banks when i previously worked there.
This was also my impression learning about it as I was starting to learn about global finance in high school. Even them it seemed ridiculous. I wonder how many more systems currently in place are based on such foolish promises and easily exploited foundations of trust.
Trust is central to the financial system, for better or worse. The whole thing is based on trust - whether it's trust in the person on the other end of the phone, trust in the big-name bank that person works for, or trust in that bank's regulator.
This seems stupid to some tech people, who try to disrupt it by creating trustless systems such as distributed ledgers. But trust keeps on creeping back into the system. There are crypto custodians, crypto brokers, crypto exchanges, all of whom you have to trust to some extent. There is crypto lending. I wouldn't be surprised if we eventually have the Bitcoin Interexchange Offered Rate decided by a handful of the biggest exchanges.
Why not Trust, but Verify? Why wasn't there a central set of individuals requiring documentation for self-reported rates and sanity-checking them? I agree that the chain eventually comes down to trust somewhere but it seems like central banking has really lacked the transparency and checks and balances a system needs to stay consistent and trustworthy externally.
Fiat currency is based on trust - so was the gold standard to a degree. Trust is an important part of society. We rip trust away in our societal institutions and we are left in a terrible existence.
If you boil everything down - trust a critical function. Your day is filled with trust of functioning. Without it you would live in pure chaos. I find these arguments facile.
I traded LIBOR instruments that were probably manipulated, and there was suspicion at the time. Same with FX, there was a cartel manipulating that as well, and people in my firm also wondered at times why things were moving around at the exact wrong time.
It's probably best that the LIBOR system goes in favor of something more transparent. But I have a friend who is involved in the transition at a bank, and it's incredibly complex to move over such a huge mass of contracts to this new thing. Definitely a lot of work for a lot of people.
I have an adjustable rate mortgage based on LIBOR and the lender still has not said what they plan to do. The presumed replacement rate (SOFR) seems to be pegged near 0% which would be good.
If you're in the US and the mortgage is dollar-based I would expect you to be transitioned to a SOFR-based loan, possibly with a credit adjustment spread.
In my previous job we sold LIBOR (and Euribor) mortgages, so I have been wondering what the lender would do about those, since as I understand it the LIBOR element was written into the 25+ year mortgage contracts. I guess I found out - nothing!
Note that when SOFR starts to fluctuate, you wont know your actual interest payment before the end of each payment period, since these rates are applied on a daily basis, in arrears.
CME Term SOFR contracts exist to address this. 1M, 3M, 6M, and 1Y Term SOFR rates are published [1]. A typical 3M LIBOR contract can just substitute it with 3M SOFR without impacting the basic mechanisms, like knowing in advance how much interest you will owe over the next period.
That's not how mortgages work, at least in the US.
There's a limit to how often the rate changes, etc.
Just looking at one now, and it's set up as follows:
1. Rate is allowed to change only on the 1st day of every 6th month (after the initial flat-rate period ends).
2. On that day, the new rate is set to a spread + the max of 0 and the value of the 30-day Average SOFR Index (as published by the NY Fed) as of 45 days before the day when the rate is changing.
Not quite - legally it's whatever is in the agreement and those have been (and still will be) subject to negotiation. In credit agreements without replacement language (e.g., pre 2018 agreements), a Borrower may very well be forced to borrower in prime, for instance.
What you're talking about is the credit spread adjustments from the ARRC formulation of the LIBOR replacement language (11.448 bps for 1 month, 26.161 bps for 3 months and 42.826 bps for 6 months) [0]. In reality, the credit spread adjustments for Term SOFR are still moving and the market has been all over the place - I've seen 10/15/25 bps at 1mo/3mo/6mo tenors (the most common formulation in the leveraged space right now) or a 10 bps flat adjustment (generally viewed as aggressive).
Completely tangentially related: I love basis points. Up until I started working in the FinTech I could not grasp the need for it... but after much repeating "x% plus 3%" and then having to clarify that is 300 basis points and not x*1.03, it got my eyes opened.
It's also useful for negotiating rates. Saying you want a rate to be .2% lower is awkward and wordy. Saying 'can we take it down 20 bips?' sounds much more pro ;).
26bps was the recommended adjustment based on historical analysis at the time. The actual spread in the market is not a constant, and has been below 26bps for a long time. The current LIBOR-SOFR spread is around 12bps. It's all negotiated, so people who earn interest are arguing it should be 26bps and people who pay interest are arguing it should be 12 bps. The market seem to be settling on 3M LIBOR = 3M SOFR + 15-20bps.
Why is this purely up to the lender? And if it is, of course they'll add something. You can't have individuals borrowing money interest free now, can we? (Institutions...that's more than fine, its expected.)
It's not "purely up to the lender." It's agreed upon in a mortgage contract, which the borrower signed. Both parties decided that it was a good idea, otherwise there wouldn't have been an agreement.
> It turned out that bankers had been coordinating with one another to manipulate the rate, pronounced “LIE-bore,” by skewing the number higher or lower for their banks’ gain.
The authors must be very pleased with themselves about this one...
"Libor is survived by several successors, each making a claim to its crown.
The Secured Overnight Financing Rate, or SOFR — a rate produced by the Federal Reserve Bank of New York that is based on transaction data, not estimates — has already been embraced by many banks in the United States and has the endorsement of the Fed. Others, like the American Interbank Offered Rate, or Ameribor, and the Bloomberg Short-Term Bank Yield Index, or BSBY, have their adherents. In Britain, the Sterling Overnight Index Average, or SONIA, seeks to inherit Libor’s place as the do-it-all benchmark."
My only remaining question is, since we used to have a single reference rate, and now we have multiple reference rates - how does this impact existing contracts?
This has kept lawyers busy for past the few years. The "LIBOR fallback language" was created and then inserted into existing contracts, to address this question. It's like a pull request for a patch. Most of the legacy contracts out there have been "patched" with the "fallback language" at this point, and as of Jan 1, 2022, no new LIBOR contracts are allowed.
For any new lending the contracts get replaced with new ones referencing Sonia. Even existing debt facilities that get drawn down - the banks don’t want more lending under libor.
Quote from earlier linked article explaining why it took so long after the scandal to do this:
> The transition to a post-Libor world would not be painless. Remember those $190 trillion of Libor-linked derivatives? Hardly any of those instruments — essentially contracts between two parties — provide a workable option for what to do if Libor were to vanish.
> In a worst-case scenario, banks and their customers would effectively have to negotiate how to end Libor-based contracts over the phone, said Darrell Duffie, a Stanford University finance professor. For a sense of what is at stake, Lehman Brothers was a party to more than 900,000 derivatives contracts when it went bankrupt in 2008, according to research published by the Federal Reserve Bank of New York.
> “It’ll be really nasty in terms of costly, difficult workouts,” he said.
When I worked in investment banking, all our debt models were pegged to LIBOR. Rest In Peace! God bless the IB analysts scrambling to plug their models with replacement rates and weird hardcodes!
It measures the answer to the hypothetical question "If a another bank with good credit came to you right now to borrow (overnight/1W/1M/3M) in (USD/EUR/GBP/CHF/JPY) what rate would you offer them?" Which is a proxy for the banks' willingless to lend. (It had a less quoted counterpart, LIBID the London Interbank Bid Rate, where would you borrow at.)
Good question. I suspect this was because when the rate was defined in the 1980s, collecting that data would have been difficult.
After the LIBOR scandal, the EU brought the benchmarks regulation (BMR) which says that interest rate indexes have to be based on actual transactions, just as you say. Euribor, the equivalent of LIBOR for lending in euros, was reformed to be based on transactions:
But in the end, US and UK regulators decided just to abolish it, in favour of overnight indexes based on real transactions (SONIA for pounds, which already existed, and SOFR for dollars, which was created for this purpose).
I believe this divergence happened because of differences in the lending markets. In the euro area, there is still a lot of unsecured term lending, which is what Euribor measures. But in the UK and US, this kind of lending has largely dried up, but there is a lot of overnight lending, so they chose rates which measure that. I don't know why the euro area is different to the US and UK here. It's possible that the euro market will evolve to be more like the US and UK, in which case Euribor will stop being credible, and the euro will also move over to its overnight rate, ESTR.
Another fun quirk is that SONIA and ESTR measure unsecured overnight lending, whereas SOFR measures "repo", which is essentially lending secured with government bonds as collateral. There is a sterling overnight repo rate, RONIA, but i don't think it's used much. I think repo volumes are higher than unsecured lending volumes; if that difference gets stark enough, perhaps sterling and euro regulators will force another switch, to the repo indexes.
That's a day old. And the market may not be very active. Besides, I don't think they are centrally cleared? (Or perhaps in the early days they weren't, it was certainly pre-digitization)
The market - interbank rates - is quite small in terms of participants. I think the problem is the number was incredibly useful even if it wasn't accurate.
1) easier said than done - in general these are often OTC markets without clearing houses - that being said not insurmountable difficulties but not zero-cost either. 2) the previous days trades are backward looking, not forward looking. What’s the big deal you say, it’s just a day? We’ll think about driving by using your rear view mirror — you do fine until to hit a turn then things get a little sketchy, and a sharp turn can kill you.
It measured the consensus for what LIBOR should be, a rate that the banks as a whole were happy to use. Your question is a bit like asking what dollars are actually worth how that we've left the gold standard.
That's also what it measures, as measured by the people doing the estimation of creditworthiness, who are the experts in understand how to measure that value.
If anyone else was more accurate at this measurement, then they had arbitrage against those using the measure, giving those doing the initial measurement incentive to get it as right as is humanly possible, since they usually worked at places that use LIBOR to price things.
Since LIBOR underlied hundreds of trillions in assets, there are ample papers on all aspects of LIBOR, including those trying to see how well it was computed versus post outcomes.
> It turned out that bankers had been coordinating with one another to manipulate the rate, pronounced “LIE-bore,” by skewing the number higher or lower for their banks’ gain.
It's rare to see shade thrown so overtly in the Times, because it's so rare it can be done this deniably, and always makes me chuckle when it does.
The Libor scandal ripped off just about every person who held any kind of debt. And yet it's STILL barely known. When I got my mortgage I asked my banker agent what she thought about it. She had no clue what Libor was, let alone the scandal.
Did it? Wasn't the scandal part about manipulating it up or down very slightly on a per-day basis? Shouldn't that have basically no effect on a normal person?
Transitioning from LIBOR has been a huge project in the finance industry. I would say most banks' in-house legal departments have been living and breathing this stuff for the last two years. Most contracts drafted after the scandals broke (when it became clear that LIBOR's days were numbered) were drafted with fallback language language built in, so that upon the cessation of LIBOR the contract would automatically switch to a successor rate. But there were a lot of longer-dated contracts that required manual intervention.
For derivatives, it wasn't so bad because ISDA (the industry association for derivatives users) published an IBOR fallback protocol which counterparties could adhere to. All contracts between two adherents to that protocol were deemed amended so as to include market-standard fallback language.
There was no such neat solution for bonds and loans, so banks had to look at them pretty much one-by-one. The economic and legal terms of the amendments required to replace LIBOR were mostly standardised across the market, so they typically didn't involve any tough negotiation - the issue was more the operational burden of amending many thousands of contracts.
In a simple bilateral loan the process is straightforward: bank reaches out to borrower, borrower and bank sign amendment agreement, done. But bonds which are widely held through clearing systems posed a much bigger problem, because material amendments typically need the consent of at least half (or sometimes two thirds or three quarters) of bondholders.
A single bond issuance can be held by thousands of (ultimate) investors, and ownership can be heavily intermediated: an investor might hold her bonds in an account with her broker, that broker might hold the bonds in an account with a custodian, that custodian holds them in an account with a securities depositary, etc. The issuer does not know who the ultimate holders are; it can only send out a consent solicitation through the clearing systems. Even if that solicitation manages to work its way through the ownership chain to the end investors, most of them will probably just ignore it.
So a lot of consent solicitations fail even for routine, unobjectionable amendments. When this happens (or is likely to happen), issuers need to look at other ways to push the amendments through, like asking the security agent (who basically represents the bondholders as a class) to consent to the amendment without first receiving the consent of the underlying bondholders. Most deal documents allow security agents to do this where the proposed amendments are not materially prejudicial to bondholders, but security agents are very reluctant to make that determination.
> In 1986, at age 17, it hit the big time: Libor was taken in by the British Bankers Association, a trade group described later by The New York Times as a “club of gentlemen bankers.”
What are the chances that this "club of gentlemen bankers" always intended to manipulate Libor to some extent?
I know finance and banking is very complicated; maybe someone will come along who happens to have been a banker in London in 1986 and will set me straight. Otherwise I find it hard to limit my cynicism when enormous amounts of money are involved.
LIBOR grew out of the same ecosystem that created Eurodollars. Originally a Eurodollar was simply a dollar held in a non-US domiciled bank, in particular a bank outside of the Federal Reserve System. The story, at least partly true, is that the Soviet Union was making a ton of money selling oil. Thanks to OPEC, the market for oil is denominated in dollars. Soviet oil companies didn't mind the dollars, but they didn't want money in US banks, and so the Eurodollar was created. In the USD money market (the interbank lending market for terms < 12 months) the most riskfree rate is the Fed Funds rate -- that is the rate which banks lend to ach other within the Fed system. In the money market for USD, everything was quoted in terms of Fed Funds, e.g. Fed Funds + 50 etc. Banks with EuroDollar deposits couldn't partake in the Fed system, but they needed something similar, and so LIBOR was created.
Well, then it grew. US banks got involved in EuroDollars and foreign banks got US subsidiaries and everything kind of ballooned.
But the big change was the invention of interest rate swaps. Interest rate swaps create a linkage between the Money Market (terms < 12 months) and the Capital Market (terms > 12 months). There are a bunch of economic explanations as to why interest rate swaps exist and some of them have to be true, but they're irrelevant to the LIBOR story. A vanilla fixed-floating swap needs a floating rate, and that's LIBOR. A couple of trillion dollars (notional) worth of derivatives later, instead of simply being a pragmatic way to quote rates in the money market, it then drove P&L of derivatives desks.
I think everyone knew the potential for manipulation was always possible, but for a long time I think, until the tail started wagging the dog, it worked. But there's no going back now.
> Otherwise I find it hard to limit my cynicism when enormous amounts of money are involved.
You should always be cynical when large amounts of money are involved. It helps you avoid large losses.
Side note - one of the best questions to ask in any deal is “how are you making money on this”. If the other party doesn’t tell you, then they probably know something that they don’t want you to know. If you doesn’t get a straight answer, walk away [0].
[0] - I work in finance and never do business with someone who is not transparent about this. Been doing it a long time and it serves me well. I learned it from an old hand, and cringes the first few times he asked it. Then, I got the nerve to ask why he asked such a cringeworthy question. Glad I did!
Banks took both sides of LIBOR contracts. So it wasn't really about manipulation so much as just having a standard to follow. Do you read about clubs of Silicon Valley browser makers meeting up to come up with a new HTML standard and assume that this is some nefarious plot? I imagine your London banker counterpart does.
Having worked in fintech, I assume everyone ignored all signs toward this coming, assumed it would be postponed forever, and then collectively burst into a choir of "LIBOR gone? Inconceivable!"
Most banks are relatively okay now, as by now they have already spent thousands of man-hours to migrate their trades. The transition has been a major talking point for the last two years.
The smart money already moved away from LIBOR discounting for pricing and risk models straight after 2008, and has been on Fed Fund OIS discounting for a long time; so SOFR OIS is actually going to be the second move.
“Libor was the interest rate that banks themselves had to pay, so it offered a convenient base line for the rates they charged customers who wanted to borrow cash to buy a home or issue a security to finance a business expansion.”
“Because Libor relied on self-reported estimates, it was possible for a bank to submit a rate that was artificially high or low, thus making certain financial holdings more profitable.”
“Libor could no longer be used to calculate new deals as of Dec. 31 — more than six years after a former UBS trader was jailed for his efforts to manipulate it and others were fired, charged or acquitted.”
Unfortunately the replacement of SOFR is a collateralized rate where as LIBOR is non-collateralized. Adoption of SOFR has been slow because its not 1:1. Plus, LIBOR is not dead yet, still a lot of contracts that need to go through maturity before the rate truly dies.
Interesting history on LIBOR, was created related to an Iran loan in the 1960s. Doesnt seem that long ago but that is pushing 50 years now. Imagine apple told you that mouse will no longer be supported on OSX, please everyone switch to touch screen -- the adoption would be slow at best.
The other difference is that LIBOR is a forward-looking rate, whereas SOFR (unless you have Term SOFR) is a backward looking rate (i.e. that is for LIBOR you know at the start of the month what rate you will pay for the following month, whereas with SOFR you don't know the rate until the end of the interest period [or 5 days before in the case of lookback])
And the SOFR is only an overnight rate. There is no official Term SOFR. The CME has forward SOFR contracts for 1, 3, 6 and 12 months -- which are not really the same thing, but if you squint hard you can treat them kind of like forward looking term rates.
I was working at an investment bank (as a developer) when this scandal hit. My entire department was laid off as a result. Not because we were involved or complicit in the scandal, but because the scandal indirectly caused a big financial hit to the bank and we were part of the cost cutting measures.
It was a traumatic and tragic moment for me at the time. But in hindsight it was the event that lead to my eyes being opened to the world of Silicon Valley tech companies. Until then, I had naively thought that working as a developer in the IT departments of Wall Street investment banks and hedge funds* was the pinnacle of a SWE career.
* Not referring to places like Citadel or Jane Street or Two Sigma, etc.
>we were part of the cost cutting measures.
>the event that lead to my eyes being opened to the world of Silicon Valley tech companies
I found that being aware of whether you will be part of the cost center or profit center in a company is very useful when deciding where you should work.
This one really hit me personally. When I was young, my father advised me that in my career I should stay "close to the money". It made a lot of sense, and I tried, but I ended up moving increasingly into financial services technology.
Now, 25+ years later, I am the head of technology (C-Level) for a large financial services firm (Fortune 200). I report to the CEO, I lead thousands, I am handsomely compensated, but I am professionally lonely.
Over the years, I have become very, very good at explaining technology concepts to non-tech peers (I think it was an intrinsic skill that got me here), but honestly, I am exhausted. I don't think I have it in me to explain technical debt, or the importance of investing in our platform, or how to run a build/buy process or why having an engineering culture is so important. I long to work at a company where my work is intrinsically respected. My peers are polite, but treat the work my team does like magic. It felt deferential at first, but now it feels condescending. I think I've done a great job of creating a real technology culture, but in the last year I realized I am never going to turn us into a technology company, no matter how hard I try.
The lesson is - if you want to work at a technology company (revenue is directly generated through licensing or SaaS fees), then don't compromise. You won't be able to change the nature of your employer no matter how high up the ladder you climb.
My litmus test is this: If you couldn't imagine a company installing a former engineer as their CEO, don't consider it a tech company no matter what the leadership claims.
If the executives from the CEO on down fail to understand technology as the source of a serious competitive advantage, then you will be seen merely as a glorified janitor, or maybe plumber. They do absolutely essential work, but nobody respects them.
And one guarantee, if your company (or one you are considering) looks at technology as a cost center, then I can guarantee that they do NOT and WILL NOT see technology as the source of any competitive advantage. You'll be nothing more than a plumber on a team of plumbers who will be ignored, until a pipe breaks, then you'll be blamed for it happening even if they congratulate you for fixing it to your face. Good luck with that.
> my father advised me that in my career I should stay "close to the money"
I got the same advice from my father, but it meant something different. I was told if I went into computer science or any engineering, I'd always be a servant to management and my job would be outsourced to India. I would be easily replaceable. Best to be "close to the money" instead... that was management. Also, to make "real money", I'd have to move up from engineering to management and wouldn't be programming anyway.
So I went to business school. Might as well optimize and skip the engineering step and go straight into managment. And to be even closer to the money: finance degree.
15+ years later, while finance has been fine, I just really like programming. I have a real aptitude for it. Had to teach myself to code, started side hustle online business (finance is still day job). I might get the same salary as a FAANG software engineer (without the skyrocketing stock), but I always wonder what if I did comp sci instead.
Then, on HN I see comments like yours. Many here hate management, or in your case, moved up to the top of IT management and still seem unsatisfied.
Now, I figure grass is greener on there side... Management says they are treated like a cost center and engineering is "closer to the money" as in profit center. Engineers, even in the profit center, gripe at those MBAs who are "closer to the money" as in directing the business plan, budget and timelines.
In my next life, I'll just do what I enjoy and am good at.
Agree with this 100%. I now make it a point to avoid any companies where tech is an unrespected cost center, which unfortunately does rule out the overwhelming majority of companies out there.
That said, even companies where SWEs and tech are the profit center are certainly capable of laying you off, so profit vs cost center isn't really any insurance to avoid that sort of fate. Even at the banks I've worked at the traders (profit center) would face the axe before us lowly peasants in the tech departments.
Rather, it's more an issue of respect...and relative compensation.
I have one primary question that I'm trying to figure out during job interviews. "Will my boss understand what I produce and the difficulty involved in producing it?" if the answer is no, the job is going to suck.
It's not just one level though. You can ask the same about whether your boss's boss will understand, and so on and so forth up the food chain.
The problem with many tech-as-a-cost-center companies is that you will quickly run into a person on that hierarchy who doesn't (often at or near the intersection between tech departments and the profit center business departments).
And if your company wants to "flatten the structure" running into that person is more likely and you will run in to them.
I also have a problem with ex-developers who work their way up the structure with time. Generally they drift away from the tech and what tech takes and end up serving their higher masters. So you end up with someone who thinks they know what it takes but hasn't actually done it for many years. Literally had this again the other day when I gave an estimate for a piece of work one of the devs had done a decent bit of investigation on. Bluntly told that was too much time from someone who had really no much more info than the subject line of the bug report. Of course who had the weight to get their estimate across.....(not me)
I like the rule whoever estimates lowest gets to do it. If you aren't in the running to do it, your estimate doesn't count. It's easy to armchair quarterback if someone else is on the line.
> I found that being aware of whether you will be part of the cost center or profit center in a company is very useful when deciding where you should work.
The problem with most tech companies these days is they dont make profits.
Not sure why you would believe this. It is much harder for regulators to interview employees about their activities when they are no longer centrally located for convenient discussions.
Its the same tactic they use in bury investigators with paperwork but for people.
My department was very far removed from the issues in the scandal. I doubt investigators would have had much interest in us or found anything of use from interviewing any of us.
I believe that it was separated and 100% not involved. Do you think your company is above laying off an entire department to keep investigators off the trail of the real problem department?
Fair chance that they exaggerated the financial impact and just used it as an excuse to push through a lay-off they were planning anyway. 'Never let a good crisis go to waste'.
I had a similar nudge into going starting my own thing - I’d been at Refco (a now defunct brokerage) in ‘05 when everything went pop, because they’d been hiding half a billion of bad debt - I saw which way the wind was blowing and scurried away like a rat from a sinking ship.
> I had naively thought that working as a developer in the IT departments of Wall Street investment banks and hedge funds* was the pinnacle of a SWE career.
What was the reasoning behind this thinking? While finance often does have some pretty advanced tech behind it, you can find more cutting edge and complex work at purely technical companies. Or are you speaking of compensation?
I'm not GP but in the 90s I was taught that bigger = better, and to some degree that was true, if you were into old (ergo, very expensive) tech.
In the days before the internet, technology was niche (as was the knowledge to develop and operate it) and super expensive, so only mega corps had decent tech to work with.
This reputation persisted for sometime into the new millennium until we started to see more of these scruffy younguns starting to make noise in the business, and techno, spheres.
GP here. I started my career in the mid-late 2000s. For me some of the reasons that I remember are:
1. Just plain old not knowing better.
2. Being in NYC, my social circle had a lot of Wall Street finance types. In fact, this is still true - I know more finance people amongst my friends than fellow SWEs.
3. Hacker tech culture wasn't as widespread or widely known back then, especially in NYC. Or maybe it was just me. Going back to #1, I thought things couldn't get any better than dressing up in business casual monkey suits every morning and being ordered to dance like a monkey by a hotshot trader in hopes of picking up after his glorious scraps.
4. I thought the money wasn't half bad, making like $80-90k back then. I thought no one could pay better than the Masters of the Universe on Wall Street.
I don't know what a company like Google was paying their engineers back then, but I think it's a somewhat recent phenomenon where tech SWE compensation grossly and utterly outpaced tech-in-finance SWE compensation. Again, I'm not referring to ultra-elite finance firms like Jane Street or Citadel where I understand SWEs do get paid on par (or better) than FAANG.
I distinctly recall even ignoring a Google recruiter's solicitations back then (2007? 2008?) because I naively thought working at my investment bank was utterly superior to anything Google could offer.
Now I know better, and knowing is half the battle.
I regret scoffing at the very idea that Google had a slide in their office. Also thought it would never work to have free coffee, food, table tennis, etc in the workplace as the staff would just slack off. Today I take these perks very seriously and will see the lack of them as a potential concern for any new employer.
From the title it seems like Mr. or Dr. Libor died. For a paragraph, it is cute to have Libor personified. Doing it until the end of the story feels a bit artificial to me.
It did seem odd for NYT, and a bit of an annoying distraction in an important story. On the other hand, I'm surprised they let someone experiment like that.
It's a tongue in cheek article in the NY Times. NY has a lot of finance folks. To a lot of finance folks, libor has been a meaningful number for a long time and a million contracts are based on it.
As for "treating it as a human", the financial industry has long used the term "mr market". Ie it's sort of an inside joke.
To the target audience it is not an awful title, nor an awful article.
As for the semantics of numbers v rates - the rate is specified in numbers. And LIBOR v Libor - the number was used so extensively for so long many people didn't even know what the acronym meant. It's like correcting someone for calling a tissue a kleenex.
LIBOR is not a rate, it’s a series of rates across different currencies. Rates are numbers though so I’m not sure what distinction you are trying to draw.
You have to hedge the interest rate risk somewhere or get stuck with huge collateral requirements/XVA.
Cryptocurrencies don't solve the problem since they're largely traded on opaque exchanges and other l2 solutions even less trustworthy than the libor cartel.
I think the parent poster meant that the actual going prices on multiple exchanges could be used for data inference.
While there are rumors of wash tradings on some exchanges, the price at which such trades would be going will be constrained by the larger network, and the risk of triangular trade will limit the possible divergences to a larger spread (instead of going one direction only)
Add enough data, and you may get something that would be almost impossible to trick, simply due to the sheer number of exchanges, and bots that would gladly take the money of those who would try to rig the game.
Ummm the whole point is that it is a measure of relatively unregulated dollar for dollar transactions not subject to any clearinghouse, exchange, or blockchain regulation or visibility. LIBOR is supposed to be the benchmark of dollars anywhere, so to speak. So you're talking about apples and oranges
Well, you do with what you have (and the prices of apples may be correlated enough with the price of oranges to act as a proxy if you can't get the price of oranges), and the pros of "resilient to rigging" might be worth more than the cons.
I agree with that. More information and less rigging is a more efficient market, which is a win-win for nearly everyone.
Maybe the big players could agree to record a decent portion of the transactions transparently across a clearinghouse or blockchain that would be audited manually or cryptographically. Then you have real-time approximation of rates.
