Going Mental Over Libor – The Other Side of the Debate
Kate Mackenzie and Izabella Kaminska have a very fair and detailed critique of my thinking on the LIBOR scandal over at FT Alphaville (which, if you don’t read, is an absolute must). I must admit I was probably a bit general in my analysis (David Merkel was much more detailed and comes to similar conclusions) so it was not surprising to see some commenters come away with the impression that I thought think this whole thing is a non-event. Quite the contrary. I think this sheds further light on a massive problem regarding bank disclosure, regulations, among other things.
The broader point is that I thought some pundits were being a bit hyperbolic in claiming that this was the scandal of the ages or something like that. Anyway, I won’t regurgitate what I said, but in the interest of offering both sides of the story, I thought the FT’s critique was very fair, detailed and offers some good counter-points to my thinking. Read it here.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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6 Comments
It seems really strange to say “oh they only manipulated it a little, there’s still a 99.6% correlation, it’s not a big deal”. In an $800 trillion market, 0.4% is DEFINITELY a big deal. It’s like taking a penny away from everyone on earth.
800 trillion is only slightly exaggerated! While we’re at it, why don’t we just make it a cool 800 gazillion?
Once clear losers can be identified, there will be class action lawsuits. This could drag on for 10 years or more. If these banks all still exist by the end of it, there will most likely be a settlement for mils on the dollar.
Lot’s of industries have been punished by the government for these types of “hidden fees”. It’s morally wrong, misleading and anti-competitive. The Fed is the opposite: it’s amoral, fully opaque and … oh o.k. it’s also anti-competitive .. ;->
Libor Scheme May Have Cost Muni Issuers Millions (The Bond Buyer)
“Barclays Bank and others allegedly colluded to keep Libor artificially low in order to give the impression that their borrowing costs were not being affected as the financial crisis unfolded. ”
This is just total nonsense. The FFR was very low with a 99.6% correlation to LIBOR. The Fed issued swap lines further easing these pressures. I don’t see how there was “collusion” to keep rates low unless the central banks of the world were all in on this “collusion” and the simple fact of the matter there is that central banks always manipulate rates.