LIBOR at the Curbside

When a new scandal arises in the banking and financial world those outside of that sphere get the impression that those inside believe that they live in an entirely different reality of actions and consequences.  That impression does not come so much from the fact that zeal for profits might lead them to misdeeds, but the arguments that are offered to excuse those misdeeds.

For those not familiar with the LIBOR scandal, each LIBOR panel is a group of seven to eighteen major banks who each day publish the rate at which they would lend a particular currency for a particular time.  The high and low values are tossed, with the remainder averaged to yield that day’s LIBOR rate for that currency and duration.  The LIBOR rates are often used as the basis of adjustable rate loans, and there is a large market in trading LIBOR-based securities.

Because the high and low values were not used, it is impossible for one bank to push the LIBOR rate.  But two or more banks working together could.  Of course, if you know what horse is going to win the race tomorrow, making a winning bet today is easy.

With the lure of easy profits, most people can sympathize with the temptation to skirt the rules.  The real disconnect comes with the things that are said to minimize or excuse the behavior, trying to brush off financial fraud with excuses that wouldn’t get you out of a speeding ticket.  The actual people involved with the scandal are saying nothing about their actions, but I have seen each of the following said on supposedly respected financial programs or websites, and their speeding ticket corollaries.

  • This kind of manipulation has been going on for some time and is just a part of the system.
    “Come on, officer, that’s just the speed everybody drives this road at”
  • Everybody does it.
    “Look at how fast all those other cars are going!”
  • This is a victimless crime
    “Hey officer I didn’t cause an accident, did I?”
  • This is the fault of lax oversight
    “It has been months since the last time I have seen a police car on this road.  You let this happen.”
  • The degree of manipulation was small
    “This car can go 215 miles per hour!  Going 95 is nothing!”
  • The rates were manipulated both up sometimes and down others.
    This morning I was driving just as fast on the way in, so on a net speeding basis, it cancels out!”
  • Most days no market manipulation occurred.
    “Officer, you won’t believe the number of times I have driven this road under the speed limit”
  • These banks play a crucial role in the financial health of the world economy
    “Gee officer, I bet you’ve never pulled over a real movie star before!  Want an autograph?”

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