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Special Report
Will the LIBOR Scandal Help Re-Elect Obama?
It could also give regulators even more power to misuse.
Will the continuing scandal over LIBOR insure Barack Obama’s re-election in November? It’s a distinct possibility.
There is considerable irony in the controversy over the benchmark London Interbank Offered Rate, which cost Barclays Bank a $450 million fine for rigging between 2005 and 2008.
Not the least of that irony is that regulators on both sides of the Atlantic have just begun to wonder how widespread the practice became after 2008 when international banking plunged into its greatest turmoil and when the Obama presidency began. Not to mention the role that the U.S. Federal Reserve and the Bank of England played in abetting the fraud both before and after Mr. Obama took office.
But the fact remains that the LIBOR scandal plays directly into the narrative that President Obama and his campaign strategists are trying to foster in this summer’s run-up to the November referendum on his stewardship of the last four years. The Obama argument, in its essence, is that while he may not have successfully turned the American economy back onto the path of prosperity, turning the government over to Republican nominee Mitt Romney would be infinitely worse.
The very qualities that former governor Romney would bring to office — long experience as a financial investor, business executive, and state governor — are being turned against him. Romney’s time at the investment firm Bain Capital is the focus of Obama’s portrayal of his rival as a corporate vulture who sends American jobs abroad and puts American firms into debt-laden bankruptcy in order to extract immoral profits for himself and his shareholders.
Romney, to the dismay of his supporters, has seemed unable to rebut these accusations which are part of a broader Obama argument that free capital markets are tainted by greed and dishonesty and that only government run by dispassionate experts can provide the policy-driven programs that will create jobs and restore prosperity.
In the meantime, as far as the general public is concerned, the LIBOR debacle simply confirms what their President has been telling them all along; Wall Street and the world of international finance is a corrupt place in desperate need of much more aggressive government oversight and, and this is important, more guidance in directing its capital flows to socially-approved economic stimulus.
Key Obama aides have been quick to seize on the scandal to advance their agenda. Federal Reserve Chairman Ben Bernanke just recently began to prepare the ground in the U.S. Congress by telling the lawmakers that LIBOR was “structurally flawed” and that a new mechanism to determine international interest rates was needed. This call was promptly echoed by neighboring Bank of Canada governor Mark Carney who called for “radical reform” of LIBOR.
It is almost certain that LIBOR restructuring will be the central question faced by a gathering of the major central bank chiefs in September. But then they will face a most difficult problem: replace LIBOR, but with what?
If it were simply a case of replacing a single interest rate from, say, what is “offered” to one that reports what is actually being accepted by all bank borrowers, then a reform might be feasible. But the LIBOR in fact is many rates, involving the lending and borrowing needs of a large number of banks which have different capital structures and purposes.
LIBOR, of course, is actually a set of indexes. There are separate LIBOR rates reported for fifteen different maturities for each of ten currencies. The shortest maturity is the best known one for overnight borrowing, but the longest one is for a year. And that is just the rate for the dollar.
In all, eighteen global banks participate in the aggregation of data on the dollar rate that goes into the calculation, but only three of them are strictly U.S. banks — Bank of America, Citibank, JP Morgan Chase — while the others range from BNP Paribas, Deutsche Bank, Credit Agricole, HSBC, UBS, and, of course, Barclays.
Meanwhile, there are similar complex calculations going on daily to reach rates for EURIBOR for European currencies and TIBOR for Tokyo and Asia. But just to stay with the LIBOR dollar rate, that daily rate alone by itself is the starting point for a even more ornate U.S. financial network that determines interest rates on mortgages, credit card fees, student loans, and loans for motor car and other consumer purchases. In addition, the huge financial derivatives market for interest rate swaps as well as the U.S. Treasury’s own dealings to support the Euro all depend on LIBOR.
But beyond the question of complexity there is the problem of complicity. How can the major central banks “fix” LIBOR when they may have, either by neglect or even by “nod-and-wink” assent, stood by while Barclays and who knows who else jiggered the LIBOR rate around to keep interest rates artificially low?
Both Federal Reserve Chairman Bernanke and Bank of England Governor Mervyn King claim to have been unaware of Barclay’s maneuvering. Yet Timothy Geithner, now U.S. Treasury Secretary, when he was still the president of the New York Federal Reserve Bank began to write to everyone — Mervyn King included — from early 2008 onwards about his concerns for “enhancing the credibility of LIBOR.”
About the Author
James Srodes, an author and broadcaster, is a former Washington bureau chief for Forbes and Financial Worldmagazines. His latest book, On Dupont Circle: Franklin and Eleanor Roosevelt and the Progressives Who Shaped Our World, is being published next week. His email address is srodesnews@msn.com.
Letter to the Editor View all comments (17) | Leave a comment
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R Martin| 7.30.12 @ 8:01AM
What we know about the Libor kerfuffle: Barclays appears to have falsely reported rates to Thomson Reuters, the entity in London which calculates and distributes the benchmark Libor rates daily. The calculation is an averaging process which eliminates the highest and lowest quartiles of reported rates and averages the ones in the middle.
What we don’t know about the Libor kerfuffle: How one bank (or even several in collusion) could actually affect the final setting in any significant way with a false report. A report which is off the market is going to be discarded and not used in the setting. But more important we have not heard any quantification of the “problem”. To what extent have rates actually been moved by false reports? Numbers, let’s have the numbers.
This is starting to look a lot like Valerie Plame II, a non event blown out of proportion by a rapacious media. And yes, it will certainly be used to demagogue the banks and attack Romney.
Albert Constantine Jr.| 7.30.12 @ 8:22AM
"that only government run by dispassionate experts can provide the policy-driven programs that will create jobs and restore prosperity..."
After more than 30 years in government service, I've met a number of folks who were dispassionate, and some who were experts, many who were neither, but very few who were both.
TLP| 7.30.12 @ 8:29AM
First of all.....We don't have a Free Market Capital Markets. Last I looked, it's Regulated out the ass. Also, last I looked, little Timmy Tax Cheat knew all about this, and never did, or said, a Damn thing.
I fail to see why anyone who can't get a Job, Pay for his Home, Feed his Children, Send his Kids to College, Buy a New Vehicle, or Take a Vacation, gives a Sh*t about any of this.
Wall Street is a DEMOCRAT Den of Thieves. Morgan Stanley is a Proving Ground for Future, and Former Democrat Treasury Secretaries.
I look at that list of Scumbag Banks, and all I see are Big Democrat Contributors. Why, they're even having their Convention at BANK of AMERICA FIELD. Coincidence?
I don't think so.
Besides. Last I looked, again, His Majesty - The Muslim - had John MFing Global Corzine on his Payroll, Bundling Money, instead of Rotting in a Jail Cell, until he comes up with the $1.6 Billion in Investor's Money that he "Lost".
Capiche?
He can try'n use it, if he wants it to come right back at him at twice the speed, like everything else he's thrown up against the wall.
Then, again...............
When ya got Nuthin?
Ya got Nuthin ta lose.
Bob K| 7.30.12 @ 9:38AM
The great majority of the electorate are not paying attention to LIBOR. Most don't know what it is and do not care.
Obama has till November to turn this economy around or he is toast.
Cobalt| 7.30.12 @ 10:04AM
LIBOR is too complex an issue for the American electorate to understand.
The news media does not have enough time left before the election, to try to hang LIBOR around Romney's neck.
Houdini| 7.30.12 @ 10:45AM
Let me get this straight, the scandal is about Barclay's conspiring to keep interest rates artificially LOW, and that voters will demand more regulation because "turbo tax Tim" thinks it's a good idea? I can't wait to see the folks out in the street demanding higher interest rates and insisting that the credit card companies back charge them for what they believe should have been paid all along. The establishment ninnies keep looking for the "glass half empty" solutions that have worked so well since Reagan left office. God help us till we are able to clear out these idiots.
loulou| 7.30.12 @ 11:54AM
Tax Cheat Geithner needs to pay his back taxes and serve his jail time--then we'll talk about his good ideas.
TLP| 7.30.12 @ 6:24PM
He KNEW ABOUT THIS, loulou, and he said NOTHING.
Remember that.
Libertyinfinite| 7.30.12 @ 12:08PM
The short answer is yes. & what is helping in Washington State to re-elect obama & democrats, the government is now giving welfare recipients pot. All of the help democrats are, huh. This ship is going to sink. No one is driving it. In a nation of self government, if the people don't lead, the government does everything that it is doing now.
This country won't last much longer with false hopes like obama & romney. We the people are killing ourselves, as a nation.
Houdini| 7.30.12 @ 1:23PM
Can you trade the pot for Single Malt?
Mike Daly | 7.30.12 @ 1:19PM
No way. People have seen up close how Obama's meddling in the economy has been a spectacular failure, plus Romney is far more than just someone who worked at Bain Capital - that attack by Obama has been a bust.
Marie| 7.30.12 @ 1:42PM
Obama voters don't have any idea what LIBOR is. But run out of 40s and ciggies, then you might be talking an Obama election crisis.
R Martin| 7.30.12 @ 2:46PM
Sure they do. They think LI is what Obama does and BOR is what he is. But they'll vote for him anyway, because of the M factor--melanin.
Jade12| 8.1.12 @ 1:18PM
Good comment R Martin.
TLP| 7.30.12 @ 6:25PM
LIBOR?
They don't know what a PAYCHECK is?
Ross Kaminsky| 7.30.12 @ 3:30PM
Dems can't and won't use this for a variety of reasons, several of which have been mentioned above:
1) Voters don't know and therefore don't care about the issue.
2) LIBOR is a rate set in another country even if used worldwide, and impossible to tie to GOP
3) Although it would not really be fair, it would be easier to tie Geithner to LIBOR issue than to tie Romney or Republicans to it.
aware| 7.30.12 @ 4:28PM
" Not to mention the role that the U.S. Federal Reserve and the Bank of England played in abetting the fraud both before and after Mr. Obama took office."
Try the leading "role". Central banks are all frauds and those 2 are the ring leaders. They founded fraud that is the fractional reserve system. It vastly enriches a tiny elite while making debt the rule in the lives of hundred of millions.
This kind of economic nightmare caused by such activities as LIBOR crapstorms, sub prime meltdowns, and soon sovereign default with dollar destruction, wouldn't even be possible if your entire economy wasn't "managed" by the Federal Reserves of the world.
I fail to grasp how having better accomplices(regulators) will make a colossal crime activity any more tolerable or less criminal. Corzine was once one of those "regulators" you're looking to for protection. The sole value of that previous position is that he gets to walk around free. And rich. Zilch and a big mess is all the rest of us get.