It’s no surprise that more Liborneriness is coming to a bank near you; with Barclays and UBS already pretty much having admitted wide-ranging Libor manipulation and Deutsche Bank seeming to be next up for a roasting. Maybe some people will go to jail, and certainly some more banks will pay fines, but also certainly those fines will be very very very small compared to the potential lawsuits. Because there are eight hundred quazillion dollars of Libor-referencing contracts, and if you screwed them up then in some loose theoretical way you owe money to everyone who got screwed without having any offsetting claims against anyone who benefited.
Now the US legal system being what it is the lawsuits long preceded the evidence of manipulation and there’s a big mishegas of a Libor lawsuit that’s been going on for years in New York. This suit looks a little quaint now, being based on the theory that all the banks got together in a room, smoked cigars, rubbed their hands together, and agreed to lower Libor for some unspecified nefarious purpose. Now we know that they all worked against each other to lower and/or raise Libor for a variety of clearly specified nefarious purposes,* until the crisis hit and they all started working independently to lower Libor for clearly specified and maybe public-spirited purposes. And the banks will tell you that themselves, in their motion in the case filed last week:
Plaintiffs themselves cite as the primary motive for the alleged false reports a desire by Defendants to hide their supposed financial weakness from each other and the public, which would naturally call for circumspection by such banks, not discussion and agreement among them.
See? We would never work together to manipulate Libor – we’re too sneaky for that. We’d prefer to lie to each other, too. Read more »