The “LIBOR scandal”, which really should be called the “Lying Bankers scandal”, is more than simply the newest example of bankers systematically stealing from everyone else. In its scale, simplicity, and government complicity the Lying Bankers scandal is perhaps the purest distillation of all that’s gone wrong with our financial system and the government that’s supposed to police it.
The Lying Bankers scandal also offers the clearest opportunity to send bankers to jail . Opportunities, of course, are not outcomes. No one should be sanguine that even this exquisitely clear showcase of banker illegality will necessarily produce meaningful law enforcement. Signs out of Britain are sort of hopeful.
The Lying Bankers scandal in a nutshell: All the biggest banks (allegedly) conspired to manipulate the interest rate underlying trillions of dollars of complex investments and public perceptions of bank health, to increase personal and corporate profits. And governments looked the other way.
How did the bankers manage rig the interest rate? Easy. They lied.
See, the interest rates involved are based on what bankers say their banks are paying to borrow money, without proof they’re telling the truth. Even little lies have a big impact, because the rate only had to change by .01% or so for banks’ traders to cheat their counterparties out of tens of millions each day . Since only 16 banks’ borrowing costs are considered, and only the 8 numbers in the middle are used to calculate the rate, one bank, or some banks working in concert, can shift the rate the tiny amounts necessary. [Other variants involve different numbers of banks and percentages, but the point stands for all of them.]
If anyone doubts the banks have the skill to function as a market-rigging cartel, they only need remember the market rigging scandal that cost
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