LIBOR rigging: Difference between revisions

LIBOR rigging (view source)

Revision as of 16:06, 5 April 2024

1,351 bytes added , 5 April

no edit summary

Amwelladmin

Bureaucrats, Interface administrators, Administrators

82,975

edits

@@ Line 151: / Line 151: @@
 {{Quote|“An individual BBA LIBOR Contributor Panel Bank will contribute the ''lowest'' rate at which it could borrow funds ...}}
-But they did not. In the absence of clearly drafted prohibitions, in the context of a vaguely articulated common law crime, it seems pretty rich to insist upon a literal meaning of a set of rules which didn’t say a lot and to which, on the evidence, no-one paid a great deal of attention.
+But they did not. If they wanted to isolate the risk of a bank talking its own book they could have invited LIBOR banks to submit the minimum rates they were prepared to ''lend'' to each other. They did not do that either.
-And here is where the evidence of market practice, from which the Court’s eyes were primly averted, make a whole lot of difference.
+As the system was configured, riven with inherent conflict of interest, there  were any number of ways banks could — and for all we can tell now, probably did — skew the data: from whom do you seek bids? How late or early do you seek them? How do you phrase your request?
+In the absence of clearly drafted prohibitions, given a vaguely articulated common law crime seen as unsatisfactory even by the executive, it seems pretty rich to insist upon a literal reading of a set of rules which didn’t say a lot and to which, on the evidence, no-one paid a great deal of attention. There was a ton of room for flex. We should not be surprised to see people use it to their commercial ends. That is how markets work.
 ====Everyone was at it====
-{{drop|A| fun game}}, if you have twenty minutes, is to google the names of the {{plainlink|https://en.wikipedia.org/wiki/Libor|LIBOR panel banks}} to see which were ''not'' somehow implicated in so-called “LIBOR rigging”. If you haven’t got twenty minutes, the WSJ’s brilliant interactive {{plainlink|https://graphics.wsj.com/libor-network/|spider network}} will give you the answer in an instant.
+{{drop|A|nd after all}}, ''everyone'' was at it. A fun game, if you have twenty minutes, is to google the names of the {{plainlink|https://en.wikipedia.org/wiki/Libor|LIBOR panel banks}} to see which were ''not'' somehow implicated in so-called “LIBOR rigging”. If you haven’t got twenty minutes, the WSJ’s brilliant interactive {{plainlink|https://graphics.wsj.com/libor-network/|spider network}} will give you the answer in an instant. There were thirty-nine prosecutions for LIBOR manipulation.
 ''Everyone'' was at it.
-We must draw one of two conclusions: ''either'' there was a colossal conspiracy by which everyone was trying to rip off the general public ''or this is how everyone understood LIBOR to work''.
+We must draw one of two conclusions: ''either'' there was a colossal conspiracy by which ''everyone'' was trying to rip off the general public — and failing — ''or this is how everyone understood [[London Inter Bank Offered Rate|LIBOR]] to work''.
+It might not be edifying, but employees have fiduciary obligations to their shareholders, and if everyone acts according to those fiduciary obligations — or even their own personal self-interests — the selfishness cancels itself out. This is ''exactly'' the logic of Adam Smith’s [[Free market|invisible hand]].
+====Conflict of interest====
+It is not clear what the theory underlying the LIBOR prosecutions was. We can speculate, but none survive close inspection.
-Bear in mind: borrowing at the lowest rate
+Is the idea of a merchant prioritising its own commercial interests somehow reprehensible? This will be news to economists, and indeed the commercial courts who have frequently expected merchants to do nothing else.
+Should LIBOR submitters should avoid conflicts of interest? How ''can'' they? The LIBOR rate is structurally fundamental to the economics of banking. In making LIBOR submissions, all banks had an inherent conflict of interest. Any submission must be at some level, in, counter to or magically neutral to the bank’s intrinsic interest rate exposure. A submission weighted to the lowest available rate structurally favours a bank that is not hedging its interest rate risk: why is that okay?
+Is the LIBOR rate designed to protect investors, and if so which ones, and why are they special? As noted, classic bank customers would benefit from a higher rate, not a low one. This is of course, all very complicated because banks are very complicated. It is not obvious what is or is not in a bank’s interest.
-It might not be edifying, but employees have fiduciary obligations to their shareholders, and if everyone acts according to those fiduciary obligations — or even their own personal self-interests — the selfishness cancels itself out. This is ''exactly'' the logic of Adam Smith’s [[Free market|invisible hand]].
-Now, seeing as the different desks and functions of a universal bank borrow in different markets, from different counterparties and in different circumstances, clearly, there will be no single unitary rate that the market will offer. The submitter will be confronted with a range of rates. Plainly it would be odd to submit a rate that was completely ''outside'' that range, but each of those rates counts as “''a'' rate at which it could borrow funds”.
 ====Stare decisis====
-{{drop|T|his is a}} real lawyer nerd-out,  but in forming its decision the Court of Appeal was confronted with some of its own prior rulings and judgments. The common law [[doctrine of precedent]] means an appeal court is generally bound by its own previous decisions in analogous cases.  Usually, these cases are unrelated. But here the prior decisions were “interlocutory” hearings in ''the actual case being appealed'' — certain legal points were “escalated” to the Court of Appeal during the High Court trial.
+{{drop|T|his is a}} real lawyer nerd-out, but in forming its decision the Court of Appeal was confronted with some of its own prior rulings and judgments. The common law [[doctrine of precedent]] means an appeal court is generally bound by its own previous decisions in analogous cases.  Usually, these cases are unrelated. But here the prior decisions were “interlocutory” hearings in ''the actual case being appealed'' — certain legal points were “escalated” to the Court of Appeal during the High Court trial.
 On one hand, it should not make a difference that it is the same case. On the other, that makes a bit of a mockery of the appeal process if the appellate court is bound by the judgment being appealed against, which is what the Court found itself to be here. This should, at least, be a decent justification for a further appeal to the Supreme Court.