It's bogus dudes

Is the Libor manipulation a sign of something rotten in the UK system or is it just a symptom of a greater corporatism rotting our economies?

Barclays is feeling the storm
Simon Miller
On 29 June 2012 13:26

When exactly did traders start speaking like Bill and Ted? The dudes on the Barclays desks had a most excellent adventure with the manipulation of the Libor rate before whistle blowers noticed and Bob Diamond began his bogus journey.

As readers are now no doubt aware, the Libor and Euribor rates are set to determine what the inter-banking lending rate is. It takes a range of figures from the banks, discounting the top and bottom rates to give the average rate.

The investigation into this has been going on for a couple of years now and despite the ‘shock horror’ headlines, most finance journalist have been waiting to see who was going to go up to the beak first.

For Barclays, it appears that it was a combination of naked greed – its traders placing bad derivative positions against the Libor and so needed a better rate to profit – and desperation.

During the financial crisis there was a serious concern that the markets, suspicious about its strength in depth, would go for Barclays, as a result managers needed to show that Barclays was in a strong position with low borrowing rates – like sovereign yields, a low interest rate represents low risk for the lender, and so showing confidence in a bank.

It may have been wrong, it may even be fraud - although bizarrely the legal niceties of that are still being worked out on that one, no matter what people may think - but in its own way, at least greed and fear are understandable traits.

What I am having difficulty understanding are some of the responses to this.

Firstly this is not just a UK issue. Barclays is not the only bank involved, nor is it solely the top four UK banks. Although the Libor rate is set by the British Bankers Association, the figures are collated from a selection of global banks.

In relation to the global investigation into the manipulation of the inter-banking rates there is quite a collection of banks already out there that are alleged to have conducted similar rate actions.

The Swiss regulator named 12 banks in its investigation: UBS, Credit Suisse, Bank of Tokyo- Mitsubishi UFJ, Citigroup, Deutsche Bank, HSBC, JPMorgan Chase, Mizuho Financial Group, Rabobank International, RBS, Societe Generale and Sumitomo Mitsui Banking, while, WestLB, Citigroup, Bank of America and Norinchukin Bank were among banks named in a law suit brought last year in New York by a hedge fund.

If Libor had been regulated, would there have been proper supervision of it? Here, in the US, anywhere? Experience of what Labour, Conservative, Democrat or Republican attitudes – let alone national regulators – were before and during the financial crisis says it would have been highly unlikely.

 As I have said before, regulation should be an enabler as well as a supervisor and if there is regulation, make sure it is good regulation. There are so many regulations coming through at the moment that one stock exchange told me this week that it would be nice to start to think about just trading again rather than compliance.

Oh, and speaking about trading. Despite the obvious glee at the City’s discomfort over this, it has developed a unique sense of self-preservation, so for those suggesting this is it for the City, don’t bet against it just yet.

Yes, there are serious questions over internal controls and external behaviour but the sheer global nature of the potential participants may assist the City in maintaining its number one position, which, despite its problems, is still of strategic economic importance to the UK no matter what our European neighbours may try to impose on us.

Finally, do you know what the most depressing this about this is? What we saw with the banks is what we see with governments all over the western world. Whether it is bond yields, purchases or printing money, there is a gross manipulation of the marketplace. Instead of allowing capitalism to work, getting rid of the chaff, and letting the market hold companies and economies accountable for performance, these people indulged in corporatism that ultimately damages us through pensions, prices, and a restriction of choice.

There appears to be a group of untouchables, an ‘arrogance of untouchables’ if you will, that permeate the system be it finance, politics, business or law. It is these untouchables that decided to pour vast amounts of our money into the black hole of the Eurozone; to sign us up to deals that see our bills increase, and allow a system where a true capitalist and competitive culture is smacked down through ill-thought-out regulation, size and control of the marketplace.

Not all bankers are evil; not all in the finance world are party to this corporatism but what happened with Libor is an inevitable symptom of this arrogance that is leading us down an ever-increasing doom spiral, despite what the untouchables communicate in their umpteenth European communique.

It is about time that certain businesses, bankers, and politicians alike realise that they are not as untouchable as they perceive themselves to be. If they don’t, then the result may be, well, bogus dudes.

Simon Miller is the Editor of Financial Risks Today. He tweets at @simontm71

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