March 28, 2024

News Cymru

Two sides to every headline

Bob Diamond’s Testimony Live Video Feed – LIBOR Rigging Scandal

I’m watching the testimony live here http://www.livestation.com/en/bbc-world

The point that is coming through in my mind is that the way LIBOR is currently calculated is a truly democratic process and a process that works to the benefit of a country’s citizens.

With the current LIBOR system as it is now, banks have a motive to declare lower borrowing rates than is actually the case.

Banks do this to give an impression of strength. If one banks gives a figure that is more than other banks, this is interpreted by the markets as this bank having a less secure financial position than the banks which have declared a lower rate.

Bob Diamond’s resignation is all part of the pantomime to create a news story where there is none. In reality the current LIBOR system probably lower interest rates on mortgages and loans at the expense of the banks. The media frenzy is building public opposition to a system which actually benefits the public. image source: http://www.bloomberg.com/news/2012-07-03/diamond-pays-penalty-for-being-first-mover-in-libor-probe.html

And this is the beauty of the current LIBOR system.

Banks are having to give a lower LIBOR rate than is actually the case and this benefits all borrowers, especially people who have adjustable rate mortgages and people who have loans which are set according to the LIBOR, student loans for example.

The current system works for the citizens of a country and it works against the banks themselves. The citizens of a country are the ones who benefit the most by the current system to the detriment of the banks. In short, it is a great leveler. It give citizens and borrowers a voice in market because it is such an open process.

If the current system has a problem, it is that not enough people are given a voice in the process, only 15. If the government wants to make the system more rigorous it should be opened up by allowing more banks into the process. Instead of only 15 banks being asked what their borrowing rate is, it should be opened up to include a 100 banks.

This would make the whole process much more rigorous as it is much harder to control 100 companies than it is 15.

Unfortunately the UK government and the media are putting a spin on this story which is completely contrary to the reality.

The spin the media and the UK government is putting on this process is that it is a bad thing and needs to be fixed.

Sure, it is a bad thing for banks to have to publicly  announce their borrowing rates daily. For the public, the process as it stands, is extremely good for the people because they benefit from lower interest rates.

The media and the UK government are making it sound like the LIBOR rigging works against the public which is plainly does not. LIBOR rigging has benefited people massively.

Given the spin that being put on this story, I expect the government to stop the current process. I expect the government to come up with a process that is more secretive and is more tightly controlled by a smaller group of people.

This is the exact opposite of what needs to be done.

 

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