Le Monde: Undo the maths
There’s a famous scene in Casablanca where the police chief, Captain Renault, arrives to close Rick’s cafe and announces: “I’m shocked, shocked to find that gambling is going on in here!” A croupier hands him a bundle of notes: “Your winnings, sir.” Renault pockets the cash and orders: “Everybody out at once!”
In the financial scandal surrounding the fraudulent fixing of the London Interbank Offered Rate (Libor), it is hard to see who is the corrupt policeman since there are so many likely candidates. Every day, 20 or so major financial establishments (Barclays, Deutsche Bank, HSBC, Bank of America, etc) fix the Libor. It serves as a benchmark rate for transactions totalling $800,000bn (no, that’s not a misprint), especially on the derivatives market. The sums are so enormous that they encourage the non-financial press to concentrate on more human-scale sins: parents on family allowances who let their children dodge school, Greek workers who supplement their low incomes with black market earnings. These are the people who incur the wrath of governments and the European Central Bank.
The manipulation of the Libor may appear to be complicated but it is as enlightening as the arrangements at Rick’s. The big banks sought to present their state of health in the best possible light to raise funds more cheaply, and since their word was generally trusted, they understated their borrowing rate year after year. The rate they declared determined the Libor and their own future borrowing rate. Bob Diamond, CEO of Barclays, who claimed to have felt “physically sick” when he “discovered” that his bank had been guilty of fraud, resigned on 3 July. The governor of the Bank of England, Mervyn King, also claimed that he only learned of the swindle a few weeks ago (1).
“Shocked”? Don’t Barclays and the Bank of England ever read the financial press? The Wall Street Journal published an article on 16 April 2008, “Bankers cast doubt on key rate amid crisis”, beginning: “One of the most important barometers of the world’s financial health could be sending false signals.”
Our world is plagued with arbitrary or adulterated data (the Libor, the “golden rule”, levels of debt or public deficits that must not be exceeded) that cause entire nations to suffer, such as Spain. The people from the central banks and the ratings agencies who mete out these cruel punishments still command devout respect. But as one of the worst financial crises in history enters its fifth year, we may have doubts as to the social usefulness of their institutions.
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