The scandal over the attempts to manipulate Libor looks like one of those stories that just runs and runs. For now we’re getting into the fun and joy of discussing who knew what and when. It’s all looking quite Nixonian.
To start from the beginning: there have been two different sets of allegations against Barclays. In the first, that traders within the bank would try and get those who reported rates to the BBA, and thus influenced Libor, to report false rates so that their trading books would benefit. This is clearly wrong, unethical, immoral and we’ll find out soon enough whether it is in fact criminal. What it isn’t though is a huge thing for the wider economy. Firstly, such manipulations would have been up or down depending upon where the specific book was on any one day: it did not lead to continual over or under statement of Libor. Secondly, the amounts by which it was moved, if it ever was, were pretty small, One of two basis points at most is the generally accepted number. Thirdly, it is becoming clearer that Barclays are just the first to get caught, not the only ones indulging in this behaviour. Given that derivatives markets are zero sum, anything gained by Barclays from a rate manipulation was a loss to some other bank. And if other banks are similarly attempting to manipulate Libor there is the delicious possibility that they were all being crooked without actually managing to achieve anything: their various attempts cancelling each other out.