13 ms·

The rotten heart of finance

265 points by bcn 14y ago

lifeisstillgood 14y ago
Imagine a slightly sweaty central banker dancing on stage: Transparency, transparency transparency, transparency ... So much of the problems since 2008 arise because it was not known what others were borrowing or lending or from whom at what price. The LIBOr rate is set by asking not what rates do you borrow at, but what rate would you like to borrow at! Sorry folks, commercial confidentiality is a fig leaf too far now. Publish and be damned.
- JumpCrisscross 14y ago
  »"LIBOR is set [at]...what rate would you like to borrow at" No, it's not. It's supposed to be what rate the bank estimates it could borrow at. You can't use actual transactions because there are very few actual uncollateralised interbank loans at each of the LIBOR tenors. »"commercial confidentiality is a fig leaf too far now" One of the issues with LIBOR is it discloses what rate each of the banks report. Thus banks and regulators have an incentive to under-report rates to prevent launching a feedback cycle.
  - lifeisstillgood 14y ago
    But if we knew what they were actually borrowing at 1. LIBOR would be accurate and not open to manipulation 2. 3. if a bank is weak it should find it harder to borrow. Feedback cycles can be beneficial, plus this sounds a lot like the old "the ratings agencies told me this sub prime mortgage was actually AAA". - if you are investing billions, do your own damn research. And your own damn research is a lot easier in a transparent market. In the end I think the global finance industry is a threat as well as a benefit. We are happy to demand access to politicians finances, because it is their character that matters so much, a situation very similar to banks it seems.
Spooky23 14y ago
This is why when you hear politicians bleating about de-regulation, you need to read between the lines to figure out what they are actually saying. Conduct of markets so critical to our society need to be done in the open, in an publicly accessible exchange. Banks will not fix themselves, they need to be compelled to do so by strong regulation. For all of the hand-wringing over high-frequency trading of equities, at least you can ultimately figure out what is doing on. Bankers used to be boring people whose primary job qualifications were looking distinguished and having the ability to follow instructions precisely. We need a regulatory environment that brings that kind of banker back to the mainstream.
- jacoblyles 14y ago
  They are regulated. The regulators are complicit. Regulation is not a magic bullet. Moreover, regulation is not homogenous. More regulation is not always better/worse, and less isn't always better/worse. Leave the talking points at home.
  - hnhg 14y ago
    Read parent again. He didn't say they any of the things you're trying to refute.
  - marekmroz 14y ago
    Poor and complicit regulation is not much better than no regulation at all. Deregulation does not necessarily mean that suddenly all rules and regulations are removed. It may also mean making the rules more and more lax, to the point that breaking the rule is no longer needed. On the other hand limiting resources of the regulator can also be very effective as a mean of deregulation. The fact that there are some poor and rarely enforced rules does not constitute regulation. On paper things may look as they are regulated, but in practice it may be a whole different story.
  - antidaily 14y ago
    The FCIC pretty much concluded that deregulation an self-regulation is what caused the financial crisis. So while it may not be a magic bullet, it's better than what we have.
tomrod 14y ago
I wonder if the outrage at this particular practice will fuel politicians?
- jwb119 14y ago
  I'm sure it will. Will they fix anything, and if they do will the fixes be another produce better results, is another question.
  - politician 14y ago
    "We have to pass the bill to find out what's in it."
cletus 14y ago
I read things like this and by fixing LIBOR they're treating a symptom rather than addressing the cause. My belief--and many seem to disagree with me on this whenever I've brought it up before--is that we erred in allowing investment banks to incorporate. IMHO investment banks need to act like law firms: as partnerships with unlimited liability. Currently there is no incentive to not pervert the system and manage risk because: - no one is going to jail for criminal acts committed in these financial crises (eg loan documentation fraud and illegal foreclosings in the subprime fallout); - there is no financial incentive to act responsibly because if you go bankrupt this year last year's bonus is already banked; - central banks have been perverted into being welfare for investment bankers as a so-called "lender of last resort". Ostensibly they are ensuring the function of the financial system. In practice they are giving investment banks an unhealthy appetite for risk. Banks and funds need to be allowed to fail; and - governments are complicit in this.
- photon137 14y ago
  I agree with every single point you've made except for the third (ie about central banks). Central banks need to act as the "lender of last resort" - however, what needs to be fixed is the transmission mechanism - so that the emergency loans reach the economy when it needs it and not be used up by intermediary banks trying to shore up their capital reserves when they've blown them up playing roulette. But I think, if points 1 & 2 are addressed well enough, the transmission mechanism would work better and the banks would become what they ought to be - conduits for monetary policy and price discovery. Point 4 - the reason Wall Street bankers get 10-100x the salary of a top-notch achiever in any other sector is because the government has created regulations which allow banks to have an oligopoly in this sector and pay its minions disproportionately high salaries - what saddens me is the same government which wants its best students to go into STEM ends up encouraging them to go into a non-productive profession.
  - JumpCrisscross 14y ago
    Central bank as lenders of last reserve barricade against liquidity panics. They need to funnel capital directly into banks' reserves. They don't guard against insolvency (Treasury) nor "funnel money to the real economy" (Congress). One of the best bank rescues of all time, Sweden's, involved pumping capital into banks' equity. Bankers earn less than traders and PE guys. For the same reason that Google has to pay exorbitantly for an engineer because he can walk out into a startup a bank has to keep pay competitive with hedge funds et al. Create/buy parity is maintained. For measure on "non-productive professions" look at how hard emerging economies are working to build domestic fixed income and equity markets. P.S. Anticipating a line of argument, no, the militant high-frequency guys aren't taking home even close to the lion's share of compensation.
ntharani 14y ago
I say this as an outsider to the industry, but the 'large' £290m penalty appears to be a joke and the media are either complicit or too thick to realise. Annual profits for Barclays were £5.9 billion to Q1 this year. May not be appropriate for comparison purposes, but if over a year the financial penalty Barclay's paid was the same basis as the penalty for dodging a £2 tube fare in central london - the fine for being caught would be just south of a whopping 10 pence! Simple incentive theory here. At that rate I'd dodge the fare every. single. day. The fine (reputation damage be damned as I'm not sure there is a honest broker to take my business to) is off by at least 2 orders of magnitude.
- JumpCrisscross 14y ago
  The philosophy is it isn't fair to penalise non-complicit employees, shareholders, and other stakeholders. Thus, when possible, the directors are decapitated and those responsible are charged personally. Note that it wouldn't be productive for regulators to fine banks into needing to be rescued. I also suspect they're being cautious in light of the torrent of asymmetric lawsuits and contract unwindings about to hit these banks.
  - ntharani 14y ago
    I appreciate that, but as far as incentives go, if you knew the chance you had of being caught was minimal and that even being caught and charged as criminal you'd have walked away with good amount of change - it's not much of a deterrent. And we're I a shareholder, I'm honest enough to say I (and I suspect many others) would probably turn a blind eye to it. As to fining the banks into being rescued, totally agree that defeats the point. Think of it more as giving them a long term mortgage penalty. Say LIBOR + x basis points paid back over 20 years. :)
    - deleted 14y ago
      [deleted]
  - alayne 14y ago
    At some point, I think if you work for a corrupt company or government, you are complicit. Otherwise do you invoke the Nuremberg defense?
lifeguard 14y ago
Manipulation of the LIBOR would impact all the variable rate mortgages that are indexed to it. In California, home loans with a 0% interest rate for the first year and very low rate for next few years (negatively amortized) were very popular and pushed by Washington Mutual and other banks. But these loan's interest rates were tied to the LIBOR. A lot of foreclosures were do to these types of loans where the payment will increase 10 - 20%. How often does ones income increase 20% in a year or two? The economist article is not exaggerating IMO. How these banks are dealt with by our governments will illuminate the extent banks have corrupted our governments.
haberman 14y ago
What blows me away about this story is that, as far as I can tell, the entire financial world is built on this rate that is calculated by taking completely unverified estimates from a handful of enormous banks who have every incentive to manipulate those estimates. How on earth is such a conflict of interest allowed to parade around out in the open? And why should we have any reason to believe that there aren't other similarly absurd structural problems with the financial system? The whole thing sounds like a house of cards.
- seanp2k2 14y ago
  The world economy is a house of cards, propped up by ignorance. If the public at large knew how stupid much of this really was, there would be riots. How many people do you know who /really / understand the world economy? It's the best act of "security through obscurity" combined with "security theatre" ever.
  - swombat 14y ago
    Must be the most robust house of cards in history, since this latest iteration seems to have managed to get us here all the way from the 18th century where capitalism originated to the present day where we have supermarkets, planes, the Internet, and a number of other wonders of the modern world.
    - anigbrowl 14y ago
      Oh now, you're smarter than that. Capitalism existed well before the 18th century (where it would be more proper to say that it was first named and studied properly), and there have been plenty of temporary but drastic reversals before and since. I'm very much pro-market, but it's hardly immune to herding problems or irrational outcomes; and when markets fail, the burdens of that failure often fall upon those least equipped (intellectually or economically) to bear them.
- lifeguard 14y ago
  The LIBOR is widely used, but there are others like the Fed's prime rate, and the consumer price index. The entire entire financial world is built on insider manipulation. Too many examples to list.
awayand 14y ago
Just like any group, organization, family, company, establishment: A fish rots from the head down. The system has to be setup in such a way, that the heads of an organization are least likely to start "rotting": - checks and balances - personal liability - transparency
Avitas 14y ago
This long-term fraud is one of the better cases for which there are likely to be thousands of individuals who should be held criminally and financially responsible. It is clear that many financial institutions will be held responsible. If the thousands or even perhaps tens of thousands of individuals involved are forced to pay restitution damages in addition to punitive damages, would this further the cause of justice? I am of the mindset that it will. Do the world's prosecutors and politicians have the balls and/or resources to do it?
- politician 14y ago
  It may be all well and good to crucify ten thousand people, but unless there is a plan in place for the aftermath we'll still have a broken system ... and a lot of bodies, figuratively speaking.
  - gruseom 14y ago
    unless there is a plan in place for the aftermath Ooh! I know a good plan! How about we investigate and prosecute fraud? The idea is that this would create an incentive not to commit fraud in the future. Former bank regulator William K. Black says that the agency he worked for during the 1980s S&L crisis made over 10000 criminal referrals to the Justice Department, producing over 1000 felony convictions. That crisis was 1/70th the size of this one. How many criminal referrals have been made in this one? Zero. How is that possible? The answer Black gives is: total gutting of the investigatory system. What you don't look for, you don't find. That's a long runway for due process before anyone needs to dust off words like "crucify". (I'm not giving a citation because although the above is easy to google, I don't know which of the websites are any good. I got it from watching interviews. Is Black credible? His experience in the field seems exemplary.)
    - anigbrowl 14y ago
      If you change the law such that many behaviors which were once illegal are now legal (which some would argue was the upshot of repealing Glass-Steagall), then the negative consequences which may ensue aren't necessarily criminal.
Confusion 14y ago
Robert Reich[1] in http://robertreich.org/post/26708840314 http://robertreich.org/post/26708840314: And it would amount to a rip-off of almost cosmic proportion – trillions of dollars that you and I and other average people would otherwise have received or saved on our lending and borrowing that have been going instead to the bankers. It would make the other abuses of trust we’ve witnessed look like child’s play by comparison. Sad to say, there’s reason to believe this has been going on, or something very much like it. This is what the emerging scandal over “Libor” (short for “London interbank offered rate”) is all about. [1] Chancellor’s Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration.
cs702 14y ago
"Banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with."[1] [1] http://blogs.ft.com/martin-wolf-exchange/2012/07/02/banking-reforms-after-the-libor-scandal http://blogs.ft.com/martin-wolf-exchange/2012/07/02/banking-...
tom_b 14y ago
Benford's law strikes! I was all set to read about crazy, complex data analysis that detected this, but instead check out the abstract below: "With an eye to providing a methodology for tracking the dynamic integrity of prices for important market indicators, in this article we use Benford second digit (SD) reference distribution to track the daily London Interbank Offered Rate (Libor) over the period 2005 to 2008. This reference, known as Benford's law, is present in many naturally occurring numerical data sets as well as in several financial data sets. We find that in two recent periods, Libor rates depart significantly from the expected Benford reference distribution. This raises potential concerns relative to the unbiased nature of the signals coming from the 16 banks from which the Libor is computed and the usefulness of the Libor as a major economic indicator. " Abrantes-Metz, R. M., Villas-Boas, S. B., & Judge, G. (2011). Tracking the Libor rate. Applied Economics Letters, 18(10), 893-899. doi:10.1080/13504851.2010.515197
brunorsini 14y ago
Public companies should just be forbidden to do speculative prop trading at all. If one does and is lucky for a couple of years, then all others need to follow suit to achieve compatible profit levels... And that gets everyone stuck in a stupid rat maze that benefits society just as much as ebola or scientology.

265 points by bcn 14y ago

Imagine a slightly sweaty central banker dancing on stage: Transparency, transparency transparency, transparency ... So much of the problems since 2008 arise because it was not known what others were borrowing or lending or from whom at what price. The LIBOr rate is set by asking not what rates do you borrow at, but what rate would you like to borrow at! Sorry folks, commercial confidentiality is a fig leaf too far now. Publish and be damned.

JumpCrisscross 14y ago
»"LIBOR is set [at]...what rate would you like to borrow at" No, it's not. It's supposed to be what rate the bank estimates it could borrow at. You can't use actual transactions because there are very few actual uncollateralised interbank loans at each of the LIBOR tenors. »"commercial confidentiality is a fig leaf too far now" One of the issues with LIBOR is it discloses what rate each of the banks report. Thus banks and regulators have an incentive to under-report rates to prevent launching a feedback cycle.
- lifeisstillgood 14y ago
  But if we knew what they were actually borrowing at 1. LIBOR would be accurate and not open to manipulation 2. 3. if a bank is weak it should find it harder to borrow. Feedback cycles can be beneficial, plus this sounds a lot like the old "the ratings agencies told me this sub prime mortgage was actually AAA". - if you are investing billions, do your own damn research. And your own damn research is a lot easier in a transparent market. In the end I think the global finance industry is a threat as well as a benefit. We are happy to demand access to politicians finances, because it is their character that matters so much, a situation very similar to banks it seems.

Spooky23 14y ago

This is why when you hear politicians bleating about de-regulation, you need to read between the lines to figure out what they are actually saying. Conduct of markets so critical to our society need to be done in the open, in an publicly accessible exchange. Banks will not fix themselves, they need to be compelled to do so by strong regulation. For all of the hand-wringing over high-frequency trading of equities, at least you can ultimately figure out what is doing on. Bankers used to be boring people whose primary job qualifications were looking distinguished and having the ability to follow instructions precisely. We need a regulatory environment that brings that kind of banker back to the mainstream.

jacoblyles 14y ago
They are regulated. The regulators are complicit. Regulation is not a magic bullet. Moreover, regulation is not homogenous. More regulation is not always better/worse, and less isn't always better/worse. Leave the talking points at home.
- hnhg 14y ago
  Read parent again. He didn't say they any of the things you're trying to refute.
- marekmroz 14y ago
  Poor and complicit regulation is not much better than no regulation at all. Deregulation does not necessarily mean that suddenly all rules and regulations are removed. It may also mean making the rules more and more lax, to the point that breaking the rule is no longer needed. On the other hand limiting resources of the regulator can also be very effective as a mean of deregulation. The fact that there are some poor and rarely enforced rules does not constitute regulation. On paper things may look as they are regulated, but in practice it may be a whole different story.
- antidaily 14y ago
  The FCIC pretty much concluded that deregulation an self-regulation is what caused the financial crisis. So while it may not be a magic bullet, it's better than what we have.

tomrod 14y ago

I wonder if the outrage at this particular practice will fuel politicians?

jwb119 14y ago
I'm sure it will. Will they fix anything, and if they do will the fixes be another produce better results, is another question.
- politician 14y ago
  "We have to pass the bill to find out what's in it."

cletus 14y ago

I read things like this and by fixing LIBOR they're treating a symptom rather than addressing the cause. My belief--and many seem to disagree with me on this whenever I've brought it up before--is that we erred in allowing investment banks to incorporate. IMHO investment banks need to act like law firms: as partnerships with unlimited liability. Currently there is no incentive to not pervert the system and manage risk because: - no one is going to jail for criminal acts committed in these financial crises (eg loan documentation fraud and illegal foreclosings in the subprime fallout); - there is no financial incentive to act responsibly because if you go bankrupt this year last year's bonus is already banked; - central banks have been perverted into being welfare for investment bankers as a so-called "lender of last resort". Ostensibly they are ensuring the function of the financial system. In practice they are giving investment banks an unhealthy appetite for risk. Banks and funds need to be allowed to fail; and - governments are complicit in this.

photon137 14y ago
I agree with every single point you've made except for the third (ie about central banks). Central banks need to act as the "lender of last resort" - however, what needs to be fixed is the transmission mechanism - so that the emergency loans reach the economy when it needs it and not be used up by intermediary banks trying to shore up their capital reserves when they've blown them up playing roulette. But I think, if points 1 & 2 are addressed well enough, the transmission mechanism would work better and the banks would become what they ought to be - conduits for monetary policy and price discovery. Point 4 - the reason Wall Street bankers get 10-100x the salary of a top-notch achiever in any other sector is because the government has created regulations which allow banks to have an oligopoly in this sector and pay its minions disproportionately high salaries - what saddens me is the same government which wants its best students to go into STEM ends up encouraging them to go into a non-productive profession.
- JumpCrisscross 14y ago
  Central bank as lenders of last reserve barricade against liquidity panics. They need to funnel capital directly into banks' reserves. They don't guard against insolvency (Treasury) nor "funnel money to the real economy" (Congress). One of the best bank rescues of all time, Sweden's, involved pumping capital into banks' equity. Bankers earn less than traders and PE guys. For the same reason that Google has to pay exorbitantly for an engineer because he can walk out into a startup a bank has to keep pay competitive with hedge funds et al. Create/buy parity is maintained. For measure on "non-productive professions" look at how hard emerging economies are working to build domestic fixed income and equity markets. P.S. Anticipating a line of argument, no, the militant high-frequency guys aren't taking home even close to the lion's share of compensation.

ntharani 14y ago

I say this as an outsider to the industry, but the 'large' £290m penalty appears to be a joke and the media are either complicit or too thick to realise. Annual profits for Barclays were £5.9 billion to Q1 this year. May not be appropriate for comparison purposes, but if over a year the financial penalty Barclay's paid was the same basis as the penalty for dodging a £2 tube fare in central london - the fine for being caught would be just south of a whopping 10 pence! Simple incentive theory here. At that rate I'd dodge the fare every. single. day. The fine (reputation damage be damned as I'm not sure there is a honest broker to take my business to) is off by at least 2 orders of magnitude.

JumpCrisscross 14y ago
The philosophy is it isn't fair to penalise non-complicit employees, shareholders, and other stakeholders. Thus, when possible, the directors are decapitated and those responsible are charged personally. Note that it wouldn't be productive for regulators to fine banks into needing to be rescued. I also suspect they're being cautious in light of the torrent of asymmetric lawsuits and contract unwindings about to hit these banks.
- ntharani 14y ago
  I appreciate that, but as far as incentives go, if you knew the chance you had of being caught was minimal and that even being caught and charged as criminal you'd have walked away with good amount of change - it's not much of a deterrent. And we're I a shareholder, I'm honest enough to say I (and I suspect many others) would probably turn a blind eye to it. As to fining the banks into being rescued, totally agree that defeats the point. Think of it more as giving them a long term mortgage penalty. Say LIBOR + x basis points paid back over 20 years. :)
  - deleted 14y ago
    [deleted]
- alayne 14y ago
  At some point, I think if you work for a corrupt company or government, you are complicit. Otherwise do you invoke the Nuremberg defense?

lifeguard 14y ago

Manipulation of the LIBOR would impact all the variable rate mortgages that are indexed to it. In California, home loans with a 0% interest rate for the first year and very low rate for next few years (negatively amortized) were very popular and pushed by Washington Mutual and other banks. But these loan's interest rates were tied to the LIBOR. A lot of foreclosures were do to these types of loans where the payment will increase 10 - 20%. How often does ones income increase 20% in a year or two? The economist article is not exaggerating IMO. How these banks are dealt with by our governments will illuminate the extent banks have corrupted our governments.

haberman 14y ago

What blows me away about this story is that, as far as I can tell, the entire financial world is built on this rate that is calculated by taking completely unverified estimates from a handful of enormous banks who have every incentive to manipulate those estimates. How on earth is such a conflict of interest allowed to parade around out in the open? And why should we have any reason to believe that there aren't other similarly absurd structural problems with the financial system? The whole thing sounds like a house of cards.

seanp2k2 14y ago
The world economy is a house of cards, propped up by ignorance. If the public at large knew how stupid much of this really was, there would be riots. How many people do you know who /really / understand the world economy? It's the best act of "security through obscurity" combined with "security theatre" ever.
- swombat 14y ago
  Must be the most robust house of cards in history, since this latest iteration seems to have managed to get us here all the way from the 18th century where capitalism originated to the present day where we have supermarkets, planes, the Internet, and a number of other wonders of the modern world.
  - anigbrowl 14y ago
    Oh now, you're smarter than that. Capitalism existed well before the 18th century (where it would be more proper to say that it was first named and studied properly), and there have been plenty of temporary but drastic reversals before and since. I'm very much pro-market, but it's hardly immune to herding problems or irrational outcomes; and when markets fail, the burdens of that failure often fall upon those least equipped (intellectually or economically) to bear them.
lifeguard 14y ago
The LIBOR is widely used, but there are others like the Fed's prime rate, and the consumer price index. The entire entire financial world is built on insider manipulation. Too many examples to list.

awayand 14y ago

Just like any group, organization, family, company, establishment: A fish rots from the head down. The system has to be setup in such a way, that the heads of an organization are least likely to start "rotting": - checks and balances - personal liability - transparency

Avitas 14y ago

This long-term fraud is one of the better cases for which there are likely to be thousands of individuals who should be held criminally and financially responsible. It is clear that many financial institutions will be held responsible. If the thousands or even perhaps tens of thousands of individuals involved are forced to pay restitution damages in addition to punitive damages, would this further the cause of justice? I am of the mindset that it will. Do the world's prosecutors and politicians have the balls and/or resources to do it?

politician 14y ago
It may be all well and good to crucify ten thousand people, but unless there is a plan in place for the aftermath we'll still have a broken system ... and a lot of bodies, figuratively speaking.
- gruseom 14y ago
  unless there is a plan in place for the aftermath Ooh! I know a good plan! How about we investigate and prosecute fraud? The idea is that this would create an incentive not to commit fraud in the future. Former bank regulator William K. Black says that the agency he worked for during the 1980s S&L crisis made over 10000 criminal referrals to the Justice Department, producing over 1000 felony convictions. That crisis was 1/70th the size of this one. How many criminal referrals have been made in this one? Zero. How is that possible? The answer Black gives is: total gutting of the investigatory system. What you don't look for, you don't find. That's a long runway for due process before anyone needs to dust off words like "crucify". (I'm not giving a citation because although the above is easy to google, I don't know which of the websites are any good. I got it from watching interviews. Is Black credible? His experience in the field seems exemplary.)
  - anigbrowl 14y ago
    If you change the law such that many behaviors which were once illegal are now legal (which some would argue was the upshot of repealing Glass-Steagall), then the negative consequences which may ensue aren't necessarily criminal.

Confusion 14y ago

Robert Reich[1] in http://robertreich.org/post/26708840314 http://robertreich.org/post/26708840314: And it would amount to a rip-off of almost cosmic proportion – trillions of dollars that you and I and other average people would otherwise have received or saved on our lending and borrowing that have been going instead to the bankers. It would make the other abuses of trust we’ve witnessed look like child’s play by comparison. Sad to say, there’s reason to believe this has been going on, or something very much like it. This is what the emerging scandal over “Libor” (short for “London interbank offered rate”) is all about. [1] Chancellor’s Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration.

cs702 14y ago

"Banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with."[1] [1] http://blogs.ft.com/martin-wolf-exchange/2012/07/02/banking-reforms-after-the-libor-scandal http://blogs.ft.com/martin-wolf-exchange/2012/07/02/banking-...

tom_b 14y ago

Benford's law strikes! I was all set to read about crazy, complex data analysis that detected this, but instead check out the abstract below: "With an eye to providing a methodology for tracking the dynamic integrity of prices for important market indicators, in this article we use Benford second digit (SD) reference distribution to track the daily London Interbank Offered Rate (Libor) over the period 2005 to 2008. This reference, known as Benford's law, is present in many naturally occurring numerical data sets as well as in several financial data sets. We find that in two recent periods, Libor rates depart significantly from the expected Benford reference distribution. This raises potential concerns relative to the unbiased nature of the signals coming from the 16 banks from which the Libor is computed and the usefulness of the Libor as a major economic indicator. " Abrantes-Metz, R. M., Villas-Boas, S. B., & Judge, G. (2011). Tracking the Libor rate. Applied Economics Letters, 18(10), 893-899. doi:10.1080/13504851.2010.515197

brunorsini 14y ago

Public companies should just be forbidden to do speculative prop trading at all. If one does and is lucky for a couple of years, then all others need to follow suit to achieve compatible profit levels... And that gets everyone stuck in a stupid rat maze that benefits society just as much as ebola or scientology.