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Comment by blowski | Hacker News Reader

If it was a good idea for everyone, why not do it explicitly and transparently?

Allowing (or even encouraging) a small group of people to secretly make a lot of money doesn't seem like a fair way to run the economy.

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Libor rigging covers two quite different things, which happened at different times for different reasons.

> If it was a good idea for everyone, why not do it explicitly and transparently?

The point was that the entire banking system was seizing up, and for the banks in the biggest trouble, being honest about how much it was costing to borrow money (or worse, the fact that there was no money to be borrowed) would have sent them over the edge and (maybe!) taken the system with them. If your trying to fake it 'til you make it, you can't do that explicitly and transparently.

(The US equivalent was to just force all banks to take government money whether they wanted or needed it or not, because just bailing out the ones who needed it would have made it clear who was in trouble, and again, sent them over the edge. That was, again, done in order to avoid transparency, and neither policy was without moral questions, but both worked in the end. And the UK one was at least cheap.)

> Allowing (or even encouraging) a small group of people to secretly make a lot of money doesn't seem like a fair way to run the economy.

Libor manipulation may be wrong, but it didn't really make anyone a lot of money. And this particular part of the overall scandal certainly didn't. Manipulating rates so that you can borrow money cheaply might be profitable; lying and claiming you can borrow money cheaply when yu actually can't is not to avoid sparking a bank run is not. :)

Fake it till you make it? You mean cover up gross incompetence/fraud that could have seen them in jail. The UK lost control of the law in finance. A lot of the USA stuff was washed through London because of this.

How they got into the bank run situation was illegal. You have one warped perspective.

> The point was that the entire banking system was seizing up, and for the banks in the biggest trouble, being honest about how much it was costing to borrow money (or worse, the fact that there was no money to be borrowed) would have sent them over the edge and (maybe!) taken the system with them.

Anything that can be destroyed by the truth deserves to be destroyed.

Carl Sagan had a great quote about things like this:

"One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It’s simply too painful to acknowledge, even to ourselves, that we’ve been taken."

I don't believe the idea was to make money at that time. It was to avoid a run on the banks and a repeat of 1929. I am not convinced the economy would have been better off. In those days you had pretty much one major bank failing every week.

So why not make the change explicitly? I'm not against a change in the rate of LIBOR, nor am I against people making profits, as long as it's done fairly.

Again, not profits, collapse of the financial system.

The problem was: how do you combat fear? The LIBOR submissions were pretty transparent and investors were using it as a way to guess which banks would be the next to fail. I guess the BoE either thought they needed a short term solution / didn't have the time or appetite to change the way LIBOR was submitted. Or they thought that if they were hidding individual bank submissions (which they ultimately did), it would only aggravate fear.

No this is warped. They put profits before stability, then needed low rates forever, then had to lie again.

The LIBOR rates were constructed by the BBA phoning around the banks, and reporting an average of the numbers they came up with. How would the BoE "explicitly" change that? By telling the BBA to lie? I don't imagine you'd find that "fair".

Yeah but they could have requested the BBA not to publish individual contributions. I guess they thought it wouldn't have been enough.

The BoE rigging might not have been to make money, but the rigging done by individual traders at the participating banks definitely was.

Yeah but this was an unrelated event, which happened before the financial crisis, and (as far as we know) didn't involve the senior management of either the banks or the BoE.

Given the level of compliance & audit work required in the UK FS industry (look for example at the sizes of regulatory and operational risk teams) and the nature of career paths in the industry (senior figures tend to come up from the ranks quite often), I'd have to say I'd be really surprised if no-one in the senior management of affected banks was aware that Libor manipulation occurred.

That's not to say that there'll ever be enough evidence to prosecute that awareness, but the idea that they have no idea what goes on at lower levels, and that none of the 2nd/3rd line risk functions or Internal Audit did any work that would have uncovered that activity....

No the development of the swap market is quite recent. At the time when senior managemers were traders or sales people, there was no particular incentive for anyone to push libor submissions one way or another (and libor submission was more of a boring routine, the markets only started focusing on them from 2007).

So your suggestion is that no-one in any of the risk functions or internal audit functions (or the external auditors of the bank) ever thought to look at Libor in the years from it becoming important until the scandal emerged?

And that senior management, who were surely aware that it was now important, never thought about the risk of a rating based on trust being manipulated by people who would profit from that manipulation by receiving increased bonuses?

If all that's true, doesn't say a lot for all these very highly paid bank executives does it?

I do not believe Libor was audited or under the supervision of any of the risk and internal audit functions before 2007. And you are right, the controls were insufficient, and have been considerably strengthened since. But this wasn't deemed to be a sensitive activity. And outside of a few swap traders who were sitting on massive libor future positions, the little rounding up or down that the money market desks were doing before the crisis wouldn't really matter to anyone else.

From https://en.wikipedia.org/wiki/Libor_scandal , looks like it was pretty relevant from 2000 onwards at least. The excerpt below seems to strongly indicate manipulation designed to improve banks profits over a long period of time

"Statistical analysis indicated that the Libor rose consistently on the first day of each month between 2000 and 2009 on the day that most adjustable-rate mortgages had as a change date on which new repayment rates would "reset". An email referenced in the lawsuit from the Barclay's settlement, showed a trader asking for a higher Libor rate because "We're getting killed on our three-month resets." During the analysed period, the Libor rate rose on average more than two basis points above the average on the first day of the month, and between 2007 and 2009, the Libor rate rose on average more than seven and one-half basis points above the average on the first day of the month."

Also from https://www.bloomberg.com/news/articles/2013-01-28/libor-lie...

"At Barclays, derivatives traders made 257 requests for U.S.-dollar Libor, yen Libor and euro interbank offered rate, or Euribor, submissions from January 2005 to June 2009, "

So whilst it may be true that it became more relevant after 2007, it seems be that there were some elements of this that were longer standing.

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