Financial innovator Dr. Richard Sandor is known as the “father” of financial futures and carbon trading. He discusses the unheralded and significant environmental progress being made on the local level in the U.S., plus his latest innovation, an alternative to LIBOR, the troubled global interest rate benchmark. It’s the American Financial Exchange, an electronic exchange for direct interbank and financial institution lending and borrowing. It’s up and running and he considers it his “best idea yet.”
Dr. Richard Sandor On Financial Futures & Carbon Trading Discusses His “Best Idea Yet”
Well it is LIBOR was treated as a rate that I believe many thought was market determined and independently are there. And it turns out that it was a hole and it came under a lot of taxes in 2011 and then subsequently a lot of signs and the result of that was to tighten it up. But nevertheless in the meantime both the U.S. government visa B the Fed the British government the Japanese government developed the alternative rates the lie bore and in the private sector we've developed an alternative rate called America for the American Interbank Offering great. For regional and community banks.
And competition is generally good. Why is that particularly necessary why do we need several different interest rate standards or benchmarks.
Well that question actually swallow can be flipped around. Why is there only one interest rate. We know in the history of markets the big commodities. Equities and fixed income that there's more than one benchmark. So for example we have West Texas Intermediate for US crew. We have Brexit for UK and Europe. We've got a Middle East sour. We've got a Shanghai Ray and that's in commodities we have more stock in seats so we have stocks you got the S&P 500 the Dow Jones Nasdaqetc. Raso Value Line et cetera and the same with sake's incomes. Why LIBOR is a historical X and it. Came about in the 60s. People that don't realize this and there was a loan to the Middle East that the number of banks participate when interest rates were then volatile. So they wanted to make it a variable interest rate. To do that they had to have consensus because it was more than one bank. And so the banks agreed to call each other and come up with a consensus rate. Nobody I believe at that time had any designs to create one world wide interest rate benchmark. It just a fall into that. Once that happened it became easy to adopt it as a common reference and. Nobody paid much attention to it until it didn't work there. So basically collusion and a number of fine. So we have a unique opportunity to start with a blank screen and a blank screen says OK Libo may or may not exist after 2021 and that date is critical because that's when the British government is going to not have banks be part of the process.
Did bracts it as well they're also not going to be part of the Libor process. There are definitely rebels there.
There are rebels over there but we are not to be out Rambold followed them and came up with. They came up with the British. So for us we came up with our own right. I'm sorry they came up with their own rate. We came up with our own rate and ours was sold for a day at one.