Thursday 6 August 2015

The Real Significance of LIBOR

A sound but incomplete point was made by Graeme, a commenter under our post on the exemplary sentencing of the LIBOR-rigger Tom Hayes earlier in the week
Some people are convinced that it worked to the detriment of some class of society…how can you possibly prove that?  A joke sentence. I accept that it would be good to jail a banker or 2…but please let us not fabricate justice in this stupid way.
True enough, it would be difficult, and more likely outright impossible, to establish direct net damages for the average person 'exposed' to LIBOR (as the media tell us we all are), arising from the riggers' games.  That's because they were rigging to benefit their own specific book.  Someone on the other side of that position would lose directly, of course - and others with the same specific exposure: but still others would by the same token be fortuitous beneficiaries.  So - unlike (say) an oil producers' cartel rigging prices (upwards!) - the puzzle of net direct damages is intractable.  It would, as Graeme rightly says, be ridiculous to assert that some category of our fellow citizens lost out systematically in terms of proximate losses.

But that's surely not the real point.  It's the undermining of LIBOR itself as a credible index, of the price-discovery process, and ultimately of the City and UK finance as a whole.  We know just who the systematic losers are in that awful business.  It's all of us: because the forces hostile to these vital interests of ours are many and varied, and just waiting for us to trip.  I wrote here ages ago when this was first breaking: 
The integrity of the City's mysterious processes needs to be as secure as the hallmarks on our silver and gold - always accepted as totally trustworthy the world over, just as French hallmarks are taken with a pinch of salt ... the imperative of defending these freedoms and ways of doing business should rank alongside the physical defence of the realm.
"Too late!" do I hear you reply?   Gotta start the fightback somewhere.  When I were a lad ... coin-clipping and other forms of debasing the currency used to be high treason, with the usual grim penalties associated.  They knew the seriousness of these things back then.



hovis said...

An interesting conundrum who would you convict for debasing the currency, all Central Bankers for starters ..Carney, King, George, but surely their masters are just as culpable.. Osbourne, Brown, Clark, Cameron, Blair, Major ..where do you stop, or more accurately where do you start the high treason, 1931 onwards?

Anonymous said...

When I were a lad you could get 5 pints for a pound; now it's 1 pint for £5...

Wasn't the real reason for the jail time the way he exposed how the establishment manipulates currency for their own ends - since currency manipulation is their whole raison d'ĂȘtre.

The exchange of goods and services that doesn't involve currency is called the "black" market as if there is something wrong with helping others where the bankers and the state don't have their share

Blue Eyes said...

Wenahweralad we knew people's phone numbers. SFW?

Why do some people think that the price of a toga ought to be fixed for time immemorial?

Electro-Kevin said...

Where is Rome now and whatever did the Romans do for us ???

Sebastian Weetabix said...

I don't think the price of Togas should be fixed for time immemorial; supply/demand/market forces/blah. But I do think inflation is theft and it is always and everywhere a monetary phenomemon. Cui bono? Not me, that's for sure. I haven't got a mortgage or any large debts (life has been kind to me, on the whole) but the real value of my cash dwindles by the day.

Blue Eyes said...

And you keep your main wealth in cash do you? You seem a reasonably bright person, so probably not.

Blue Eyes said...

Oh, and before anyone accuses me of advocating hyperinflation/treason/murder of the first born, I am not. I am simply saying that a flexible national currency is better overall than, say, gold or the Euro.

Nick Drew said...

@BE - for avoidance of doubt (+:

(which seems to be rather necessary given a *Recent Exchange* in these columns ...)

of course, flexible currency = good
debased UK financial instititions = bad

Anonymous said...

I think the only thing that bothers me with the 14 years sentencing is the lack of consistency with sentencing - is it right that this person gets 14 years when say someone who has committed numerous violent crimes get 6 months for seriously assaulting another person.

If we're going to use the threat of long prison sentences as a deterrent then at least do so consistently across all crimes, otherwise the message is libor rigging is worse than rape.

To prove the point, the below is from cps sentencing manual:

Type/nature of activity: Single offence of rape by single offender

Starting points: 10 years custody if the victim is under 13
Sentencing ranges: 8 - 13 years custody
Starting points: 8 years custody if the victim is 13 or over but under 16
Sentencing ranges: 6 - 11 years custody
Starting points: 5 years custody if the victim is 16 or over
Sentencing ranges: 4 - 8 years custody

Graeme said...

One thing that does worry me was the reports that they were going after this guy to recover the "proceeds of his crime"...which as you say are quite hard to assess. But, in essence it is the scapegoating that offends me.

His superiors must have known. Someone in a senior position should feel the pain and the subordinates as well.

Of course, reputation is worth protecting but the justice system must target the people with real power, who set and maintain policy, rather than the doers and enactors of policy.

In the future, any dealer will simply insist that the bosses indemnify him in case Plod pays a call...and the whole system is bust again.