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{{quote|''For two hundred years the Rate hovered between 2 and 10 per cent, and in the gloom of Threadneedles’ cave, it waited. Darkness crept back into the forests of the world. Rumour grew of a shadow in the East. Whispers of a nameless fear. And the Rate of Power perceived its time had come.''}} | {{quote|''For two hundred years the Rate hovered between 2 and 10 per cent, and in the gloom of Threadneedles’ cave, it waited. Darkness crept back into the forests of the world. Rumour grew of a shadow in the East. Whispers of a nameless fear. And the Rate of Power perceived its time had come.''}} | ||
Since the early seventies, interest rates had bounced around | Since the early seventies, interest rates had bounced around between about 8 and 15 per cent. But after a brief spike when the UK unceremoniously exited the Exchange Rate Mechanism in 1992 they fell towards thirty-year lows. As the Cool Britannia vibe suffused the nation and Gordon Brown banished boom and bust [''subs: can we check this?''] rates stayed abnormally low, around six per cent. | ||
In the meantime some [[First Men|bright sparks at Salomon Brothers]] had invented the {{strike|One ring to bring them all and in the darkness bind them|swap}} and the era of {{strike|Sauron|tradable interest rate derivatives}} was upon us. | |||
JC has written elsewhere about the [[LIBOR rigging part 2|revolutionary confluence of technologies that led to the interest rate derivatives market]] What didn’t change — what hasn’t changed since the invention of credit, and which will not change until the apocalypse, is a business’s basic need borrow funds for working capital at a predictable cost. | |||
This is a cost of business as inevitable as employees, plant and machinery. Businesses are figured out ways of managing employee costs: discretionary bonuses. These are ''ostensibly'' tied to business performance — the better we do the more you get paid — but really are tied to ''market'' performance: the higher your bid, the more you get paid. | |||
It would be fun to develop employment derivatives. They would be like interest rate swaps. A bunch of large employers would submit, daily, how much they would be prepared to pay to hire established categories of worker, to derive some kind of London Inter-Employer Bid-Offer Rate (can we call this LIEBOR?). Then the British Human Capital Managers Association would compile and publish a list of rates. Employer could swap out their fixed costs for a floating rate, thereby hedging employment costs. Employees could do the same, hedging against their intrinsic [[loyalty discount]], and restricting employee moves to genuine changes in role, or idiosyncratic hatred of boss, rather than just the need to rebenchmark periodically. | |||
Lest you should think I am joking consider the cost of employment in a large financial services institution might be in the multiple billions. | |||
But we can surmise that businesses seeking to borrow money in 2002 might have been thinking rates were abnormally ''low'', and it might be a good time to lock in an interest rate. | But we can surmise that businesses seeking to borrow money in 2002 might have been thinking rates were abnormally ''low'', and it might be a good time to lock in an interest rate. |