Bank of England – Libor Rigging Scandal

A secret recording that implicates the Bank of England in the Libor rigging scandal has been uncovered by the BBC Panorama programme

At the height of the 2008 Financial crisis all eyes were upon key indicators as to whether the banks could weather the storm. The government had agreed massive bailouts of hundreds of billions of (taxpayer funded) money on both sides of the Atlantic, and it was questionable as to whether the major banks could survive. One of those indicators was the LIBOR (London Interbank Offered Rate) which is the inter bank lending rate, which at the time was set via the major banks based upon their submissions of what they were currently paying to borrow money.

In the Panorama programme, then Governor of the Bank of England Mervyn King likened the LIBOR rate to a thermometer indicating whether the patient (economy, banks, etc) was sick.

“When the patient is sick you want to bring the temperature of the patient down”

Mervyn King to the Parliamentary Select Committee (July, 2012)

It was in the interest of the government and the Bank of England that LIBOR rates would drop, thereby suggesting that the storm was abating and that their actions including the bailouts had worked. It was in the interest of Barclays and other bank traders to collude (illegally) in setting LIBOR so they could bet in advance, on where the rate was going, thereby earning millions in the process. It was in the interest of senior bank executives to bring rates down as they had established investment funds and various derivative products to benefit from that (10’s or 100’s of millions were illicitly earnt in this manner according to the BBC).

In response the Bank of England said: “Libor and other global benchmarks were not regulated in the UK or elsewhere during the period in question”. So they believe they are immune from prosecution. But the Bank of England equally believe that junior employees of various banks could be prosecuted as their statement went on to say:

“Nonetheless, the Bank of England has been assisting the SFO’s criminal investigations into Libor manipulation by employees at commercial banks and brokers by providing, on a voluntary basis, documents and records requested by the SFO.”

The Serious Fraud Office also said in response to the BBC that it is still investigating lowballing (of LIBOR rates) and that it follows the evidence “as high as it goes and aim to charge the most senior people wherever there is a realistic prospect of conviction“. Again casting doubt on whether senior staff of banks, the Bank of England or indeed the government will ever be brought to book.

No senior banker or politician in the UK has ever been prosecuted in the LIBOR scandal.

Observations

The whole LIBOR scandal highlights the fragility of a system, where confidence in markets and banks must be propped up by lies and manipulation.

The non-prosecution of the senior staff responsible for and benefitting from manipulations follows a familiar pattern to that seen throughout the financial crisis. At worst some banks paid fines, often much less than the wealth stolen. Rarely was there ever any recompense for the victims.

Following the above is it any surprise that there is a revolving door between the senior bankers, their advisors, the regulators and indeed the senior politicians. It is an elitist club, where they cover each other’s backs.

Aisha narrated that the Prophet (saw) said:

The Quraish people became very worried about the Makhzumiya lady who had committed theft. They said, “Nobody can speak (in favor of the lady) to Allah’s Messenger (ﷺ) and nobody dares do that except Usama who is the favorite of Allah’s Messenger (ﷺ). ” When Usama spoke to Allah’s Messenger (ﷺ) about that matter, Allah’s Messenger (ﷺ) said, “Do you intercede (with me) to violate one of the legal punishment of Allah?” Then he got up and addressed the people, saying, “O people! The nations before you went astray because if a noble person committed theft, they used to leave him, but if a weak person among them committed theft, they used to inflict the legal punishment on him. By Allah, if Fatima, the daughter of Muhammad committed theft, Muhammad will cut off her hand.!”

Sahih al-Bukhari 6788

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