I’m going to call it the Lie-Bore scandal, because the central wrongdoing seems to be a series of lies, and any discussion about Libor is too boring to average viewers for the mass corporate media to bother attempting to cover a multi-billion dollar fraud scheme. The mass corporate media instead does its duty to inform the public by bringing us wall-to-wall coverage of Katie Holmes & Tom Cruise’s divorce with minor interruptions to bring us the breaking news that summer is hot.
Here’s the best simple summary that I have seen so far:
Libor, short for the London interbank offered rate, is the interest rate that affects trillions of dollars’ worth of corporate and consumer loans each year. It is supposed to be a neutral figure that reflects how much it costs a bank to borrow money. But as Barclays has admitted, and other big banks may soon be forced to acknowledge, Libor has been manipulated — either to create a false impression of a bank’s health or to help bank traders game the financial markets.
That’s a lot of cheating and a ridiculous amount of money at stake. It’s a shame that this scandal has yeat to be covered more heavily in the mass corporate media. If enough of us scream, “Why aren’t you covering this?” maybe it will increase. Pehaps someone needs to coin the phrase LIBOR-gate to help gin up the idiot-journalist swarm.
Of course, as we hear more about the Libor process, we become less surprised about manipulation. Thomson Reuters helps the British Banking Association (private group of bankers, not a government agency) determine Libor interest rates by taking a survey of about 16 of the biggest banks, asking them, “Well, what rates would you guys be paying to borrow money from other banks?” This seems like fertile soil for fraud. There doesn’t seem to be much oversight in the process for setting a rate affecting trillions of dollars of the world’s economy.
The bankers are quite motivated to manipulate Libor. Aside from the billions of dollars in consumer loans, Libor also impacts the derivatives market. The derivatives traders, who essentially place bets on interest rates going up or down, were influencing the people at the bank (i.e., their coworkers) who answer the survey about what interest rate they are paying. For example, Barclays could make about $40 million on these derivatives in one day, just from routine movements of the rate. So fudge the numbers a little and you can get millions from derivatives trading.
Because of the “Bore” in the Lie-Bore scandal, we’re unlikely to get a critical mass behind any effort to regulate this process in America or abroad.