The Great LIBOR Bank Heist of 2008?

The LIBOR manipulation revelations ask some interesting questions.

Washington’s Blog notes:

Barclays and other large banks – including Citigroup, HSBC, J.P. Morgan Chase, Lloyds,Bank of AmericaUBS, Royal Bank of Scotland– manipulated the world’s primary interest rate (Libor) which virtually every adjustable-rate investment globally is pegged to.

That means they manipulated a good chunk of the world economy.

They have been manipulating Libor on virtually a daily basis since 2005.

While the implications of this to the $1200 trillion derivatives market would seem to be profound, one question I have not seen asked much yet are the implications of the manipulation to the reality of the 2008 financial crisis.

Here’s a really wild hypothesis: if the LIBOR rate was under manipulation in 2008, is it not possible that the inter-bank lending rate spike (and resultant credit freeze) was at least partly a product of manipulation by the banking cartel?

Could the manipulators have purposely exacerbated the freeze, to get a bigger and quicker bailout? After all, the banking system sucked $29 trillion out of the taxpayer following 2008. That’s a pretty big payoff. LIBOR profoundly affects credit availability — and the bailouts were directly designed to combat a freeze in credit availability. If market participants were manipulating or rigging LIBOR, they were manipulating a variable directly tied to the bailouts.

That means that every single tick must be under scrutiny; we know that rates have been manipulated for profit. I am no conspiracy theorist; it may just be a coincidence that a massive spike in a variable we now know to have been manipulated contributed to a credit freeze that led to historically-unprecedented bailouts. Yet it is no great leap of the imagination to say that the crisis may have been deliberately worsened for profit.

Investigators should investigate.

(H/T to Saifedean Ammous)

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