Bankers Gone Wild

Adam Smith (CC)

The erudite James Surowiecki brings his journalistic skills to the problem of a banking system that has subsumed the its own watchdogs, in The New Yorker:

In order to work well, markets need a basic level of trust. As Alan Greenspan said, in 1999, “In virtually all transactions we rely on the word of those with whom we do business.” So what happens to a market in which the most fundamental assumptions turn out to be lies? That is the question in a scandal that has roiled the banking industry all summer. The LIBOR (London Inter-bank Offered Rate) index is the most important set of numbers in the global financial system. Used as a benchmark for interest rates around the world, it’s assembled by asking a panel of big banks to estimate what it would cost them to borrow money today, if they had to. Hundreds of trillions of dollars in derivatives, corporate loans, and mortgages are pegged to these rates. Yet we now know that for years LIBOR rates were rigged. Barclays has agreed to pay nearly half a billion dollars to regulators for its manipulations, and a host of other big banks are under investigation for similar misdeeds.

Rigging LIBOR was shockingly easy. The estimates aren’t audited. They’re not compared with market prices. And LIBOR is put together by a trade group, without any real supervision from government regulators. In other words, manipulating LIBOR didn’t require any complicated financial hoodoo. The banks just had to tell some simple lies…

[continues in in The New Yorker]

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  • http://buzzcoastin.posterous.com BuzzCoastin

    > Rigging LIBOR was shockingly easy.

    It turns out that is also shockingly easy to:
    Rig the Information disseminated by mass media
    Rig the Federal Reserve
    Rig the Congress of the US
    Rig the Presidential Election

    In fact,
    just about every aspect of elite life
    can be easily rigged in their favor,
    with money, of course..

    which why the call that place
    The Land of the Free Lunch
    (for elites only, some restrictions apply, void where you can be caught, ymmv)

  • charlieprimero

    Amazing how the New Yorker can turn even this into a call for more socialist corporatism.

    ….”Even in the absence of market discipline, self-regulation could work if
    institutions had strong internal safeguards against corruption.”

    Oh yes.  Let’s not talk about that crazy “market discipline” phenomena where banks FAIL when they lie and cheat, where banks COMPETE to offer the lowest interest rates possible.  Let’s not talk about free banking.

    More government “regulation” (cough) is always the *only* reasonable solution according to billionaire Neuhaus/Advance Publications, Inc.

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