LIBOR report is nothing but banker bashing


September 28, 2012


Hugh Wade-Jones is director of Enness Private Clients


New LIBOR proposals: “It’s a sad state of affairs when the promotion of the apparent incompetent over the dishonest is met with such public approval.”


So a report into the LIBOR rigging scandal has recommended a complete overhaul of the current system, taking the control away from the British Bankers Association and also suggesting criminal prosecution for those that try and have tried to manipulate it.


Excuse me if I take this with just a small pinch of salt given its author, Martin Wheatley, is the managing director of the Financial Services Authority. 


The regulators have hardly covered themselves in glory yet it seems the public view bankers as “thieves” so they sit below the regulators who are simply “incompetent” and thus should gain control of LIBOR setting.


It’s a sad state of affairs when the promotion of the apparent incompetent over the dishonest is met with such public approval.


Now apply the same logic to government manipulation of prices (inflation as policy) and interest rates, (taxing savers to subsidise speculators), and the same prosecution should take place i.e. fraud/theft.


Of course I’m playing devil’s advocate here but I really wonder how many of the public baying for blood really understand what LIBOR affects and how it affects it but simply fancy another round of banker bashing.


The truth of the matter is LIBOR was always run on an informal basis, that was its weakness, but you can’t make it retrospectively formal and then imprison people for not having a crystal ball.


On the same thread if LIBOR cannot be controlled by the BBA then exactly why should the Bank of England have the power to set interest rates unilaterally and arbitrarily?


It’s simply another body where individuals give their subjective view often which is heavily lobbied by the government and other bodies.


The sad truth is there is no difference but it’s not on the front page of the papers so that can wait for another day.


The markets are an inexact science, that’s their beauty but also their Achilles heel. There is no doubt those people that deliberately manipulated LIBOR for their own gain should face the consequences of their actions but I worry that people simply are getting caught up in a tide of emotion without looking closely at what LIBOR exactly was, an informally set barometer.


In most of the cases I’ve read about the banks were looking to keep the rate as low as possible, not for personal gain, but because a true reflection of what the banks were prepared to lend to each other at would have ground the wheels of the banking world and economy to a whole to a halt.


As I’ve mentioned earlier the government has continually used these tactics to artificially stimulate the economic, keeping it on life support through some periods of the downturn, yet this is completely acceptable.


Have the same done by a group of banks and its high treason and cries of ‘take them to the tower’.


As a result I’m afraid I can’t see this as anything more than banker bashing rhetoric from the FSA to win a few cheap points and try to restore their own battered reputation.

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