Monday, October 15, 2012

Libor and the Road to Perdition

It has been some months since the Libor interest rate fixing scandal blasted over the main stream press.

And a short swift blast it was. Now forgotten, it seems, amidst the daily diatribe of more pressing issues like 'big bird' and smirking Vice-Presidents.

So why isn't this issue, probably the biggest financial scandal to have ever occurred, been given more time on the airways?

Let us briefly review the issue. Wikipedia states, "Libor is an average interest rate calculated through submissions of interest rates by major banks in London. The scandal arose when it was discovered that banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were. Libor underpins approximately $350 trillion in derivatives. It is controlled by the British Bankers' Association (BBA).

Libor is the foundations of trillions (yes trillions) of dollars of loans and contracts. Bought a car on credit lately, Libor interest rate; house? - Libor. Put some money away in a deposit account at interest? Libor again.

The interest rate literally affects all debt on planet earth.

A few years ago, I was pick-pocketed in Rome. I lost $300. It was real maddening and I felt violated. So why aren't you all feeling violated by the Traders from the BSA who stole from you? Aren't you angry? If not, why not?

One reason. It's all a bit to remote and complex. Plus we live very busy loves earning enough income (some of it ironically paying for Libor) and we are simply too burnt out just surviving. But what if we all did get a little upset? Perhaps we trust the government and their regulations too much?

Libor is a massive breach of trust brought upon us by greed. You know, unfortunately, you simply can't regulate everything.

Maybe the reason why we need more and more laws and regulations is because we have the increasing mindset that some laws aren't morally correct anymore. After all, they are only created by people for people, and are arbitrary and subjective as a consequence. If one doesn't believe in objective morality, then where is the sense of making laws. The basis for our western society, contract and law, is now on the slippery slope to destruction. If we can't trust each other anymore, then confidence in the system will disappear in the blink of an eye.

It hasn't happened yet, but the wobbles are there. Libor was a major earthquake, the damage similar.

What 'black swan' type event tips us over the abyss is yet to be seen. Perhaps the current situation in Turkey and Syria will be the catalyst? Who knows, but one can only protect themselves as best as they know how.

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