Published: 2012-07-08

Reaction to the LIBOR Drama

The Economist has a good article about the LIBOR scandal. The most shocking thing to me, personally, wasn't that investment bankers had put short-term profits ahead of professional ethics, social welfare, the law and the long-term health of their respective companies, but other companies had actually trusted the LIBOR for business dealings.

I realize that not everyone is as cynical as I am, but once again, it's all about the incentives. If Banker A has an incentive to manipulate Index Q, and is put in charge (at least partially) of computing Index Q, then responsible people must immediately assume that Banker A will manipulate Index Q and cease to rely on the accuracy or impartiality of Index Q. To do anything different is just irresponsible.