&”Did you encourage them to make up the made up thing to their own advantage?” That’s how one Twitter correspondent paraphrased a question to the Deputy Governor of the Bank. The LIBOR scandal has exposed the institutions and culture of the City to popular scrutiny as never before. The population is reacting with justified incredulity to the absurdity it is finding.
LIBOR submissions from Barclays and everyone else were based not on the rate at which they would lend, not on what they actually had to pay to borrow, but on what they said they thought they might have to pay. On the face of it, that is the flakiest of the three possible metrics. What system of financial regulation could cope with the inherent moral hazard? And even those virtuous souls who would never consider shading LIBOR to their advantage couldn’t replicate the market: if they could, they’d have retired rich already.
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