The LIBOR Scandal, or as I Call It: Failure in Regulation

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The LIBOR Scandal, or as I Call It: Failure in Regulation

I had a theory that I wanted to test. It was the idea that weather might affect the attitude of traders in London and New York. For example, if it was raining we might expect the day to be more lacklustre than if it was sunny. I wondered if there was any kind of correlated skew. To test this I wanted to get some very simple data that you find every day in the newspaper: midday temperature and whether it was cloudy, sunny or rainy. Not too much to ask. Well apparently it is. The Met Office wanted to sell me the information. And it was going to cost a couple of hundred quid! This should be public data surely? Stock prices are. Just look at them for free on Yahoo, Google, etc. But, no, apparently the day before yesterday’s temperature and weather is so sensitive that you have to pay.

Various theories abound as to why that is. I quite like the one that says it’s because the weather people don’t want you knowing how badly wrong they get it! Especially after the hurricane of ’87, I suppose, when the Beeb put a Fish on TV to tell us it wasn’t going to be windy. I think the basic weather data should be freely available to everyone.

By the way, I did test the theory using some free New York weather data from the US, and no, there is no correlation between weather and the day’s trading that I could find.

In 2007 I wanted to look more closely at LIBOR. I was interested to see if there was any useful information or indications from the behaviour of the rates that would help in anticipating the market crash I was planning for. Again, the data was not publicly available. They would allow you three weeks of data, I think it was, then you had to wait two months, or something, for another three weeks of data, or pay them vast sums of money. I remember thinking that was disgusting as that too should be public information, at least on a historical basis (i.e. yesterday and before).

It didn’t come as much of a shock that it turns out it was being fiddled. This week we’ve seen the first proper casualty. Former trader Tom Hayes has gone down for 14 years and, possibly quite rightly, feels he was a bit of a scape goat. More prosecutions are promised.

A lack of transparency where even the LIBOR rates weren’t publicly and freely available is bad enough. Then to blame the traders alone, for what was a system overseen by the FCA (then under its previous guise of the FSA), that was clearly completely open to abuse, and then was abused simply because the FCA had a culture of closing doors after horses had bolted, is clearly a biased allocation of blame. There should be prosecutions within the ranks of the regulator which clearly failed to put in place proper controls. The LIBOR rigging scandal happened because of negligence at the FCA. And every other case where the FCA failed to create proper safeguards, leading to fraudulent, systemic abuse that remained undiscovered for years, though a child could have guessed what would happen, should result in officers of the FCA being on trial for that negligence.

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