Libor Scandal The Latest Front In War On Reality
The Libor scandal looks and smells like an old-fashioned financial fraud, but it also presents the latest example of a more modern phenomenon: the war against reality being waged with ferocity by special interests that profit from limited public awareness of what's actually taking place. This campaign has proven remarkably effective -- not in altering reality, but in muddying perceptions, corrupting our basic understanding of matters both critical and mundane, from the risks of financial crisis or of climate change to our expanding waistlines.
For those who have grown too inured to financial shenanigans to bother keeping up, Libor is an interest rate that captures the costs that banks in London charge one another for short-term loans. Much of global finance is pegged to this rate, from ordinary mortgages to trillions of dollars' worth of credit derivatives, the exotic instruments that played a leading role in the financial crisis of 2008.
Libor plays such an outsized role in shaping the terms of global commerce that it is more than a benchmark. It is essentially a barometer for the health of the global financial system. People who manage money -- not just at investment banks, but at pension funds as well -- use Libor as a gauge of confidence. When Libor is seen to be low, this is taken as a sign that money is changing hands freely, without undue concern that borrowers will stumble or fail to pay back their loans. When Libor is rising, this is an indication that concerns are mounting, generating reluctance to lend money. In short, it is a signal to proceed with caution.
Executives of publicly traded banking behemoths are not fond of caution. They get rewarded for making their share prices climb, and that tends to happen when they expand what they do -- lending more money, making more trades, taking more risks. They get paid for saying yes to deals, and not for prudently saying no. Libor sometimes flashes the message that they ought to say no.
http://www.huffingtonpost.com/peter-s-goodman/libor-scandal-pants_b_1671965.html