Sunday, July 15, 2012

Credibility of central banks and financial regulators ended with failure to stop Libor manipulation

Every aspect of the Libor interest rate manipulation scandal is destroying the credibility of the central banks and financial regulators.


Because the central banks and financial regulators knew that Libor was being manipulated and they did nothing to publicly broadcast that fact or to stop it.

What makes this lack of effort damning is that manipulation is a) most likely a crime, b) the type of activity financial regulators are suppose to stop and c) a direct attack on the notion of free markets where prices are set by the invisibile hand.

The hand setting Libor interest rates was most assuredly invisible.  It just belong to several banks who were manipulating the Libor interest rates behind a veil of opacity.

As Naomi Wolf said in her Guardian column,
The media's 'bad apple' thesis no longer works. We're seeing systemic corruption in banking – and systemic collusion.

Last fall, I argued that the violent reaction to Occupy and other protests around the world had to do with the 1%ers' fear of the rank and file exposing massive fraud if they ever managed get their hands on the books. At that time, I had no evidence of this motivation beyond the fact that financial system reform and increased transparency were at the top of many protesters' list of demands. 
But this week presents a sick-making trove of new data that abundantly fills in this hypothesis and confirms this picture. 
The notion that the entire global financial system is riddled with systemic fraud – and that key players in the gatekeeper roles, both in finance and in government, including regulatory bodies, know it and choose to quietly sustain this reality – is one that would have only recently seemed like the frenzied hypothesis of tinhat-wearers, but this week's headlines make such a conclusion, sadly, inevitable.
The solution in the 1930s to this problem was transparency.

Are policymakers and financial regulators finally willing to move forward and require transparency throughout the global financial system?

This transparency would include at a minimum:

  • Requiring banks to disclose on an ongoing basis their current asset, liability and off-balance sheet exposure details; and
  • Requiring structured finance securities to report on an observable event basis all activity, like a payment or default, that occurs with the underlying collateral before the beginning of the next business day. 

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