Why is LIBOR such a big deal? (#OWS)
The manipulation of LIBOR interest rates by the big, mostly-European banks (but not entirely, see a full list here) was an open secret inside finance in 2008. As in so open that I didn’t think of it as a secret at all.
The fact that that manipulation is now consistently creating huge headlines is interesting to me – it brings up a few issues.
- People seem surprised this out-and-out manipulation was happening. That says to me that they clearly still don’t understand what the culture of finance is really like. The fact that Bob Diamond of Barclays claims to have felt “physically ill” when he saw the emails of the traders manipulating LIBOR is either an out-and-out lie or they guy is simple-minded, as in stupid. And word on the street is he’s not stupid.
- People still buy the line that most of the problems from the credit crisis arose from legal but wrong-headed efforts to make money, plus corrupt ratings on mortgage-backed securities. This is incredible to me. Let’s get it clear: the culture of finance is to take advantage of every opportunity to juice your bottom line, even if it’s wrong, even if it’s fraudulent, even if it affects the terms of loans on millions of houses and towns in other countries, and even if only your trading desk is benefiting.
- The LIBOR manipulation in 2008 was about more than that, namely trying not to look as bad as other banks, to avoid being the next Lehman. It was done in the name of not looking weak and requiring a government bailout. Bob Diamond still doesn’t think they did anything wrong by lying there. It was almost like they were doing something noble.
- Speaking of towns in other countries, read this article about how LIBOR manipulation has screwed U.S. cities to the ground. I’ve got a lot more to say about municipal debt and how that sleazy system works but it’s waiting for another post.
- Finally, why did it take so long for the media to pick up on LIBOR manipulation? It tempts me to make a list of the illegal stuff that we all knew about back then and send it around just to make sure.