The Best Policy?

So now we know why they call it Lie-bore.

With the email disclosures of money-market traders making the news, we now know that these professionals would shave or add a few hundredths of a percent to the interbank lending rate known as LIBOR to manipulate the index. For years, this rate was assumed to be a simple average of all the different bank-to-bank lending that took place in London. Many of us thought it was determined by a computer program, much the way the daily effective fed funds rate is determined over here.

But that turns out not to be the case. Traders at different banks colluded with one another before submitting their daily reports to the central bank. With trillions of derivatives riding on periodic LIBOR fixing rates, We shouldn’t be surprised that self-interested professionals promoted their institution’s interest to the detriment of market integrity. But it is disappointing.

Markets depend on the honesty of their participants. There are always scandals when people work as agents for other people—when they are supposed to put their clients’ interests ahead of their own, but don’t. That’s what we have professional codes of ethics and government regulations for: to look out for the owners—rather than the agents—of the money.

But the view of many financial professionals now is that you have to lie, cheat, and steal in order to get ahead. A recent survey of 500 senior executives in the US and UK found that 24% believed it was necessary to behave unethically or illegally to be successful.

Years ago Reader’s Digest “lost” over 1100 wallets around to the world to test which countries and cities would be most likely to return them. Concord, New Hampshire and Inchon, Korea did pretty well, while Mexico City and Lausanne, Switzerland, not so much. It looks like Wall Street or the City of London wouldn’t have done very well, either.

Douglas R. Tengdin, CFA
Chief Investment Officer
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