Tuesday, July 17, 2012


Ho hum, the Great Conspiracy to Under-report, according to Paul Gigot in the Wall Street Journal, wasn't exactly a masterpiece of criminality, given that it was openly discussed with bank regulators since at least 2007.

Mr. Gigot reports on the transcript of a conversation between NY Fed official Fabiola Ravazzolo and a Barclays Banker in 2008, released last Friday;

Barclays executive: "[Y]ou know we, we went through a period where we were putting in where we really thought we would be able to borrow cash in the interbank market and it was above where everyone else was publishing rates. And the next thing we knew, there was, um, an article in the Financial Times, charting our Libor contributions and comparing it with other banks and inferring that this meant that we had a problem raising cash in the interbank market."
Ms. Ravazzolo: "Yeah."
"And, um, our share price went down."
"So it's never supposed to be the prerogative of a money market dealer to affect their company share value."
"And so we just fit in with the rest of the crowd, if you like."
"So, we know that we're not posting, um, an honest Libor."
"And yet—and yet—we are doing it, because, um, if we didn't do it . . . it draws, um, unwanted attention on ourselves."
"Okay, I got you then."
The conversation proceeds for perhaps another 10 minutes before Ms. Ravazzolo signs off with "Have a great weekend. Bye."
Such was the state of things back then.  Now, MIT economists are wringing their hands over the 'rigging' of interest rates.

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