Who put the lie in Libor? [View all]

[FarCenter]

Perhaps the funniest bits in the media today - and way too numerous to name and shame here - pertain to the widely spread notion that mortgage owners in the US and elsewhere ended up paying more for their mortgages because of the Libor scandal. Nothing could be farther from the truth - the opposite is the case, as the Libor "incident" was about pushing down interest rates artificially rather than pushing them up.

Did pushing down rates benefit the banks - well yes, because it pushed down the value of certain hedges they had built that were tied to bonds that carried low interest rates. That isn't the same though as suggesting that consumers ended up paying more for their loans because of what banks did in the Libor "incident".

If anything, it was savers who were hurt most by the banks colluding to artificially push down Libor. That's because if banks had been truthful about what they were paying each other, they may have been tempted to pay depositors more for their money as well. Central banks too wouldn't have rushed to cut rates in that scenario (because the efficacy of monetary policy would be absent) and instead focused on direct capital support for banks - something they are belatedly on to today in Europe.

Then again, there is a small cabal of folk - numbering less than a handful - who have over the past five years stolen literally hundreds of billions of dollars from savers globally. What would the media do with this handful of criminals when presented with the incontrovertible evidence of the crimes of such people: get out the pitchforks or quietly slink away into the corner, muttering to themselves? Think that through - ask yourself what an extra 5% means for the global stock of savings, and who pushed it down?

Step forward, Federal Reserve chairman Ben Bernanke, Bank of England governor Mervyn King and European Central Bank president (and previously Bank of Italy governor) Mario Draghi. There, you have your culprits. Now tell me what you are going to do with them.

http://www.atimes.com/atimes/Global_Economy/NG07Dj02.html