Lies and Libor

If this sounds like a remarkably flimsy form of economic data, it is. It?s just a guess, not a real measurement of anything. And it?s generated by a trade group, not a regulatory agency. And it?s self-reported, not based on any public data. But over the decades Libor came to take on a foundational role in prosaic economic transactions. In a world of large multifaceted financial-services firms, the quirks of the Libor process were a conflict-of-interest disaster waiting to happen. One unit of a BBA member bank could be cruising along, minding its own business, doing its morning Libor submissions, while another arm of the bank was trading interest rate swaps, currency futures, or other derivatives. Some of those trades? successes or failures could come to hinge on whether the Libor went up or down. But the Libor?s not external to the banks? activities, and it?s not an objective measurement of anything. A bank could try to tailor its Libor submissions to meet the needs of its trading desk rather than offering good-faith estimates.

Source: http://feeds.slate.com/click.phdo?i=f9e819b2572818fd0039a67d18b50f39

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