Let’s turn back to 2007 and the heady days ahead of the Great Financial Crisis which would ultimately fell the world. It was reasonably obvious that a bust would come, although the extent of it was dramatically under-estmiated by even the most fervent bears
However, if you were a Bank you could see the leverage wall collapsing, worse events took place as time wore on in 2008 and 2009; Banks started going to the wall for lack of liquidity. Fear of lending to one another gripped the market and we had a credit crunch.
The lack of liquidity could kill a bank, as it ultimately did with Wall Street leviathan, Lehman Brothers. It becamse crucial that Banks knew who could still borrow and who was still ‘safe.’ One such bank at risk was Barclays.
And now, it comse to light, that they were consipirng to distort the key LIBOR rate, to show them in a better light, to show the market they were still a trusted bank perhap?. Barclays makes much of its ability to refuse a forced Government equity stake in 2008 – with friends in Qatar stepping upto the plate. Barclays share price had fallen from from 350p to 60p in a just a few short months. How much of an impact did this LIBOR manipulation have here (and following this logic through, save the British taxpayer even more money, albeit by potential deception?)
Senior Barclays directors were conniving in trying to fix the market for Libor. It maybe that this will only ever be viewed as a kind of day trade strategy where they sought overnight margin from a rate that benefitted them and their loans versus other market participants – but I wonder if this does go higher up the Bank to support the macro position described above?
By whistle-blowing, Barclays are probably covered against future investigations and the other Banks will soon get their own place in the limelight of shame. It’s a sad story though and shows that even the heart of the markets cannot be trusted, a sad day for financial capitalism and the reputation of London – but a better day hopefully as it lead to positive changes at the Banks (or their regulators keeping a better watch).