Had to think about Libor today. It is the scandal that exposed the financial sector at its rotten core. A standard that is used as common good (as a basis for almost any financial transaction) was abused as something to gain from by the few.
This far it is common knowledge. But there is not a lot of wisdom in common knowledge. First of all, what is Libor. Although it has been in the news for the past year, hardly anybody knows. It is something to be upset about, that’s about it.
Well. Libor is the rate that banks charge each other to borrow money from the other one. A lot of the financial transactions in the world happen this way. Hundreds of billions day after day. Twelve banks are dedicated to tell a committee what they have been charged to borrow money (1 day, 1 week, 3 months, 1 year. Employees of these banks deliver these rates to a ‘board’. They delete the highest rates, delete the lowest rates and come up with an average.
This average was being used for trillions and trillions worth of transactions every day. An important number.
The people who were supposed to deliver these rates honestly, didn’t exactly behave as hoped. There were all kinds of people within the bank (traders) that wanted to benefit from a higher or lower rate. They probably bribed the person in charge of delivering the rate to get the rate higher or lower, just what suited them at the moment.
Despicable behaviour. Justifiable uproar. Big penalties. All understandable.
But nobody has been able to explain to me the following two things.
* there were twelve banks involved. only the average counted. One had to make some real ludicrous interest rates in order to make a difference (when you were too extreme, you didn’t count anymore)
* everybody, it seems, was doing this. But it seems hardly logical to imagine that Rabobank, Barclays, RBS, UBS, or more specifically their respective traders, all had the same direction of positions that they wanted to benefit from. Some of the banks seem to have cooperated, but it would hardly be imaginable that they would all be on the same side. Maybe there was a common attitude like: today high, tomorrow low, but I haven’t read about it.
* These traders are criminals, the people that published the wrong interest rate are crooks, the banks that closed their eyes for this behaviour are rightfully penalised. But where does this leave the supervisor? The supervisor who accepted a system that was this easy to manipulate. Surely this supervisor should get some serious penalties too.
Wrong. There is no way to penalize the supervisor. Except for a bailout of troubled banks by taxpayers. That is of course exactly what happened during the financial crisis. Which was a crisis of insufficient supervision. In the first place by banks themselves, but surely also by the supervisors at central banks.
Suggestions for penalties there?
But why penalise the state?
Or why be so damned smart and judgmental about these things? This all sounds way to polarizing. Everybody makes mistakes. The intentions for behaviour, that’s what counts. That’s why the traders – consciously manipulating – , and the banks – looking at the world with profit drive n glasses -, are guilty. The supervisors where just ignorant, but didn’t profit, it seems. Which is a pity, the ignorance part, but is surely something that we can all relate too
Leave a Reply