The LIBOR scandal is all over the financial press, and as the headline here indicates, it might be a big deal. Typically, when you see a quotation like that, it is from a blogger residing in his parents’ basement. In this case, however, the source of the quote happens to be MIT distinguished professor Andrew Lo.
And he’s not alone.
Former New York governor Eliot Spitzer seems to concur, saying that “LIBOR is huge. This is about as big as it gets in the financial world.”
So, what is this all about?
Essentially, it appears that a group of traders colluded to set the LIBOR rate, an interest rate that is at the center of international financial markets, over the course of several years. Indeed, roughly $800 trillion in financial instruments are tied to LIBOR. A second issued now gaining traction is that it is possible that U.S. regulators knew about this years ago.
Both cases seem to undermine the integrity of financial markets generally, and that is simply not a good thing in terms of linking up savings and investment.
You will probably be reading about this one for some time. I liked this piece in The Economist, which takes a forward look at these “Banksters.” I also really liked this piece from Ed Dolan on why LIBOR rates were subject to manipulation — motive, means, and opportunity.
Columbo couldn’t have said it better himself.