The Libor interest rate manipulation trial has been fascinating for the sheer number of ways bankers manipulated the price of money for their personal benefit.
The list includes:
- Bankers pushing the rate in a direction to ensure their bets in derivative securities paid off or lost as little as possible;
- Bankers increasing the rate so they could make more money off of their borrowers (thanks, Bank of America);
- Bankers understating their submissions to make themselves look healthier than they are during a financial crisis;
- Bankers submitting positive rates at the request of regulators (in Japan, the WSJ reports officials from the central bank and finance ministry met with bankers because they didn’t want to have a negative Libor rate).
The last item on the list, financial officials actively encouraging rigging the reported interest rate confirms why THE casualty from bankers rigging the price of money is TRUST in the financial regulators.
Not only did the regulators not stop the bankers from rigging the interest rate, but they actively encouraged bankers to rig the rate to produce the result the regulators wanted.