By Simon Johnson
In the aftermath of the Barclays rate-fixing scandal, the most surprising reaction has been from people in the financial sector who fully understand the awfulness of what has happened. Rather than seeing this as an issue of law and order, some well-informed people have been drawn toward arguments that excuse or justify the behavior of the Barclays employees.
This is a big mistake, in terms of both the economics at stake and the likely political impact.
The behavior at Barclays has all the hallmarks of fraud, pure and simple – intentional deception for personal gain, causing significant damage to others. Continue reading
The Federal Reserve And The Libor Scandal
By Simon Johnson
On June 1, 2008, Timothy F. Geithner – then president of the Federal Reserve Bank of New York – sent an e-mail to Mervyn A. King and Paul Tucker, then respectively governor and executive director of markets at the Bank of England. In his note, Mr. Geithner transmitted recommendations (dated May 27, 2008) from the New York Fed’s “Markets and Research and Statistics Groups” regarding “Recommendations for Enhancing the Credibility of Libor,” the London Interbank Offered Rate.
The recommendations accurately summarized the problems with procedures surrounding the construction of Libor – the most important reference interest rate in the world – and proposed some sensible alternative approaches.
This New York Fed memo stands out as a model of clear thinking about the deep governance problems that allowed Libor to become rigged.
At the same time, the timing and content of the memo raises troubling questions regarding the Fed’s own involvement in the Libor scandal – both then and now. Continue reading →
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Tagged Federal Reserve, Libor