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Central banks knew about Libor “rigging” -- of course they did

Matt Connolly of Deutsche Bank saw his Libor conviction overturned  (Bloomberg)
Matt Connolly of Deutsche Bank saw his Libor conviction overturned (Bloomberg)

In the public mind the traders jailed for rigging Libor are crooks and cheats. Those jailings were seen as a rare example of finance titans getting what they deserved for their role in the 2008 financial crash.

In the City, the feeling was rather different. The view was that these guys were probably just doing what they were told, and ending up in prison for that is harsh.

A new book* by the BBC’s Andy Verity, Rigged, rather makes it clear that this is the scandal that never was.

Libor was an obscure financial instrument before the crash. It is merely the price at which banks lend money to each other overnight to square off their liabilities. A matter of routine rather than skulduggery.

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Post the crash, the authorities wanted Libor to be lower, to show that the banks had faith in each other.

The traders complied. So even if this manipulation affected the cost of your mortgage (it’s a hundred miles removed in truth), all it did was to send that cost down, not up. They did you a favour.

The book has strong evidence that central banks not only knew about this rigging, they encouraged it.

That’s both an important revelation and a statement of the obvious. Of course they knew.

In all, 37 traders and brokers were prosecuted by the US Justice Department and the UK’s Serious Fraud Office. Nineteen were convicted and nine jailed.

Some of those convictions have already been over-turned, including that of Matt Connolly, pictured. It seems likely, and just, that most of the rest of them will be in time.

The desire to find the villains of the banking crash is understandable. These are not those guys. They never were.

*Rigged: The Incredible True Story of the Whistleblowers Jailed After Exposing the Rotten Heart of the Financial System.