Bloomberg did a little piece of the LIBOR rate rigging scandal today.
If you are the sort of person that looks behind the headlines, read on.
Apparently, according to Bloomberg, LIBOR is currently calculated by the Bank Of England phoning 15 of the largest banks and asking them what interest rate they think they can borrow at from other banks.
The Bank Of England then averages out these 15 replies to work out the rate.
The guest on Bloomberg classed this practice as “archaic”.
If you are looking at a bigger motive behind this apparent scandal then Bloomberg’s brief piece could provide the answer.
Given that this practice has been going on for over a hundred years I find it hard to believe this “rigging” is a new thing.
An interesting point that Bloomberg brought up was that the people who were actually asked about the LIBOR gave a figure that was actually lower than reality. In other words they were giving a figure that actually made borrowing cheaper and therefore lowered their profits.
Getting passed that small point, to my untrained eye this whole story seems to be a massive propaganda effort.
Given that centralised control of the markets seems to be the thing in fashion at the moment I am led to believe that this whole story is simply to set the stage for a new framework of calculating LIBOR. A framework that involves the LIBOR rate getting set by the Bank of England itself rather than the people on the ground.
Time will tell, but that is my prediction.
Expect the furor to continue with the result being centralised control of the LIBOR rate instead of the current system where 15 different people for different organisations give their estimates.
The result being another step to tighter control of the markets with power being concentrated in fewer hands.
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