Monday, July 16, 2012

Belaboring Libor

Rick Santelli had a nice rant about how the Federal Reserve Bank of New York was aware of the problems in the Libor market over four years age, yet did nothing about it. 

According to the Wall Street Journal, a wide range of policymakers and regulators (senior officials at Treasury, the Fed Board of Governors, and the regional Feds) were informed in 2008 about the rate-rigging. They are either all complicit in this scandal, or there really isn't much of a scandal after all:
The regulators and their media cheerleaders can't have it both ways. If the problem with Libor bidding was merely an "incentive to misreport" and thus nothing for regulators to get too worked up about, then let's fix the way banks report the rates, or find some other way to determine such a rate, and move on.
But if this is really the epic deceit and crime we are now reading about, then either new evidence needs to come to light, or the regulators who smiled and nodded and "Okayed" and "Mm hmmed" through the panic years are complicit with the banks now in the dock. They had ample opportunity to shut down this behavior, but nothing released by the New York Fed or the Bank of England suggests much more than a raised eyebrow at the time.
If heads are going to continue to roll over Libor, they should also include those of Mr. Geithner and the rest of the regulators who let this slide.