LIBOR Lies

I don't know how many millions of dollars of commercial loans I closed for various lenders had interest rates keyed to the London Interbank Offered Rate (LIBOR) but it was a lot. Now we come to find out that the folks charged with setting the rate were inventing it on the fly (see here). This probably didn't hurt my clients' borrowers because the official LIBOR understated the participating banks' actual costs of borrowing. But more ominously (and perhaps criminally), the misstated LIBOR permitted the trading arms of the same banks to profit on deals like interest rate swaps and interest rate derivatives. Both European and American authorities have begun criminal investigations and private investors have sued. Just one more example of imperfections of the "invisible hand."

"The market" can be and sometimes is gamed and don't let simple-minded free marketeers tell you otherwise. Which does not mean that state controlled markets are somehow pristine and uncorrupted. Which does mean that all of us suffer from a deep-seated corruption and that no system--free market or statist--can fix that problem.