Published: Tuesday, Oct. 2 2012 12:00 a.m. MDT
Libor is everything that is wrong with the current state of economics.
Government (or quasi-government agencies) should not be in the business of
setting prices. Setting prices in complete disregard of market forces is the
very definition of central planning. Interest rates determine the price of
borrowed money. When interest rates are artificially determined, it skews the
market in general. Prices are the way buyers and sellers know what is in greater
or lesser demand and what should or should not be produced. Artificially-set
interest rates are the reason for the Great Recession as precipitated by the
collapse of the real estate market. The only way Libor can be made meaningful is
for it to disappear along with all other central planners of interest rates.
Consider the corruption of the LIBOR by its member banks who managed to rig
rates in their favor, effectively stealing billions of dollars from those less
well-connected. Its a good move to transfer the rate setting power to the
government. But what's to keep the same major banks from seeking to
corrupt the new government agency? I assume they will still want to influence
their decisions. A change of one tenth of one percent in that rate could make
millions of dollars for the bank involved.
Interesting that even though Geithner and NY Fed KNEW LIBOR was being
manipulated, they still used it as one of their major indices. Geithner is a
crook who is in over his head.
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