The (Updated) LIBOR Record

The problem regulators have had with LIBOR has next to nothing to do with that whole scandal. Even the bankers who ended up going to jail did so based (largely) on misleading emails (just four, in one guy’s case). What constitutes a “representative” rate anyway? Your opinion might differ from mine or the other bank reps on the LIBOR panel, and specific perception is the whole point to begin with. 

That’s not really the issue, though. This all comes down to how LIBOR showed the world – anyone paying attention to more than the mainstream version – just how poorly the Federal Reserve performs in the one task both its most basic and mostly taken for granted by the public. Liquidity, and in LIBOR’s case a specific form of (interbank) money.

And in liquidity there’s badly needed, systemic information which is why LIBOR had become the basis for pricing the whole world’s financial system products.

When LIBOR went up and stayed up not just in 2008 but during other poignant moments along the way during the past fourteen years, this was its real crime. How dare the market show up the Great Bernanke, clearly indicating that bank reserves don’t amount to liquidity!

While the Fed and the other US regulators seek to abolish the inconvenient truth beyond LIBOR the banking system which still uses it isn’t just resisting – it is now openly talking.

John Dizard of the Financial Times (one of the “good ones” in the financial media, IMHO) writes this weekend about how last week he got a few Wall Street bankers to go on record with their distaste for the whole LIBOR/SOFR debacle. Offering more of what I’ve said all along, even the big banks are wondering what has gotten into these regulators, why they’d expose their incompetence so openly.

Full disclosure: I spoke at length with John about this topic last week before the article came out and have shared my thoughts on SOFR/LIBOR with him several times previous.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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Gary Anderson 2 weeks ago Contributor's comment

You wonder if the Fed's desire to misprice financial products is so they can increase risk? We saw how that worked out in the Great Recession.