27 July 2012
LIBOR Manipulation?
LIBOR stands for London Interbank Offered Rate. It has always been a negotiated interest rate set by money traders of the largest commercial banks in the world’s most important financial center. Of course this rate, the price of money borrowed and lent among the institutional handlers of most of the world’s cash balances, is manipulated so as to maximize the balance of returns each of those banks earns over time on its most important business—handling the excess cash of its depositors.
It is laughably ironic that politicians who argue all year that the free market better serves our economic welfare than government regulation should investigate “manipulation” of the benchmark LIBOR. What do they expect bankers to do? Bankers will always set a price for their main product that keeps enough customers and still assures a steady and profitable cash flow. This is probably one of the few markets that has traditionally been exempt from anti-trust regulation. Why is that?
One of the things that banking sector cash flow allows is support for politicians who will minimize government regulation. But politicians know that staying in office means convincing voters that they can be tough on fat-cats like bankers. So they resort to making a show of investigating the process of setting LIBOR as if it resulted from a diabolical conspiracy. The bankers play along because they know that those politicians won’t enforce antitrust regulations on bankers for fear of jeopardizing funding for their next political campaigns.
LIBOR stands for London Interbank Offered Rate. It has always been a negotiated interest rate set by money traders of the largest commercial banks in the world’s most important financial center. Of course this rate, the price of money borrowed and lent among the institutional handlers of most of the world’s cash balances, is manipulated so as to maximize the balance of returns each of those banks earns over time on its most important business—handling the excess cash of its depositors.
It is laughably ironic that politicians who argue all year that the free market better serves our economic welfare than government regulation should investigate “manipulation” of the benchmark LIBOR. What do they expect bankers to do? Bankers will always set a price for their main product that keeps enough customers and still assures a steady and profitable cash flow. This is probably one of the few markets that has traditionally been exempt from anti-trust regulation. Why is that?
One of the things that banking sector cash flow allows is support for politicians who will minimize government regulation. But politicians know that staying in office means convincing voters that they can be tough on fat-cats like bankers. So they resort to making a show of investigating the process of setting LIBOR as if it resulted from a diabolical conspiracy. The bankers play along because they know that those politicians won’t enforce antitrust regulations on bankers for fear of jeopardizing funding for their next political campaigns.
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